Wall Street's "Compliance Hunt": The Great Migration of Stablecoin Reserves

Original Author: Sanqing, Foresight News

In the past week, several Wall Street institutions have almost simultaneously moved to expand their tokenized money market fund offerings. On May 12, JPMorgan announced it would launch its second tokenized money market fund, JLTXX, on Ethereum. On the same day, Payward, the parent company of Kraken, signed a strategic partnership with Franklin Templeton to integrate its BENJI series of tokenized funds into the Kraken platform for use as institutional collateral and cash management tools.

Shortly before this, BlackRock submitted two more applications for tokenized funds to the SEC, continuing to deepen its collaboration with Securitize. This concentrated flurry of activity reflects how regulatory expectations are rapidly driving supply-side positioning among institutions.

Wall Street's Pincer Movement: From Custodial Back-End to Front-End Collateral

In response to the same regulatory directive, Wall Street giants are revealing their ambitions to absorb crypto liquidity from different angles.

BlackRock, the "king of scale," partnered again with its long-time ally Securitize to file two new applications simultaneously: First, BRSRV, a "pure play" instrument specifically designed to comply with the GENIUS Act, with its investment scope strictly limited to short-term bonds within 93 days. Second, BSTBL, which will tokenize shares of its existing ~$70 billion government money market fund for on-chain issuance.

Given that BlackRock already manages approximately $65 billion in reserves for Circle, it is attempting to fully tokenize its massive traditional stablecoin custody business, effectively relegating native issuers to the role of "distributors" focused only on front-end issuance.

Hot on BlackRock's heels, JPMorgan launched JLTXX (On-Chain Liquidity Token Fund). This product, running on its own Kinexys (formerly Onyx) platform and debuting on Ethereum, explicitly states in its prospectus that it is designed to meet the reserve needs of stablecoin issuers.

JPMorgan is targeting a future banking pathway. With the GENIUS Act paving a clear path for banks to issue stablecoins, JLTXX is essentially a preemptive move, aiming to become the standard settlement and reserve backend for Global Systemically Important Banks (GSIBs) when they eventually enter the stablecoin issuance space.

In contrast, Franklin Templeton's alliance with crypto exchange Kraken breaks away from the pure-reserve approach of the former two, aiming to bridge retail and collateral usage. The core of their partnership is integrating BENJI (a tokenized money market fund) into Kraken to serve as collateral and a cash management tool for institutional trading.

Given that the future CLARITY Act may prohibit stablecoins from paying direct interest, tokenized assets like BENJI, which can generate yield and serve as underlying collateral, cleverly circumvent the stablecoin yield ban within Kraken's ecosystem of exchange users, xStocks clientele, and others. Traditional asset management's reach is extending directly into the collateral layer of native crypto trading.

Additionally, around the same period, Morgan Stanley also launched the MSNXX fund to meet compliant reserve requirements, but it does not utilize any on-chain settlement technology. Within the same compliance framework, the choice of whether to go on-chain has become a critical differentiator for competitive positioning among the giants. Merely achieving compliance is insufficient; the 24/7 liquidity and asset composability offered by on-chain settlement represent the true moat for the next generation of dollar reserves.

The GENIUS Act Defines a Market

On July 18, 2025, U.S. President Donald Trump signed the GENIUS Act. Section 4 of the Act provides a concise but clearly defined list of "Qualifying Reserve Assets": Federal Reserve account balances, insured deposits, U.S. Treasury bonds with a remaining or original maturity of 93 days or less, overnight repurchase agreements collateralized by such Treasuries, and government money market funds that invest exclusively in the aforementioned assets.

Every dollar of a stablecoin issued must be backed 1:1 by these assets, and issuers are prohibited from paying any interest or yield to holders. The rules are simple but establish a clear product boundary around "Qualifying Reserves."

Treasury Secretary Bessent stated to a Senate Appropriations Subcommittee last June that a stablecoin market reaching $2 trillion "is a very reasonable number." Citigroup predicts a base case scenario of $1.9 trillion by 2030, with a bull case of $4 trillion. Standard Chartered Bank estimates that tokenized money market funds alone could reach $750 billion by that time. Even under conservative estimates, the compliance threshold set by "Qualifying Reserves" has already framed a multi-trillion dollar demand pool.

The implementation rules for the GENIUS Act must be finalized by July 18, 2026, with the Act fully taking effect no later than January 18, 2027. Rulemaking by regulatory agencies like the OCC and FDIC is intensifying rapidly. The supply side cannot afford to wait until then to act.

The CLARITY Act is the Other Piece of the Puzzle

The U.S. Senate Banking Committee is scheduled to hold a markup session for the CLARITY Act on May 14. This Act complements the GENIUS Act. While GENIUS governs stablecoin issuance, CLARITY defines the market structure for digital assets and delineates the jurisdictional boundaries between the SEC and CFTC.

There is a critical interface between the two. The GENIUS Act prohibits stablecoins from paying interest to holders. The draft text of the CLARITY Act distinguishes between business incentives and passive income, potentially leaving room for yield on non-stablecoin tokenized assets.

It is precisely this regulatory firewall that is positioning tokenized money market funds like BENJI as on-chain yield-bearing cash management tools outside the stablecoin framework. They are not stablecoins, so they are not subject to the yield ban, yet they can still offer real-time settlement, serve as collateral, and be transferred around the clock. The commercial logic behind Kraken integrating BENJI is built upon this crevice in the regulatory architecture.

The timely progress of the CLARITY Act will also determine the completeness of this business structure.