Money Market Funds vs Stablecoins: Different Claims

Two products that promise the same number

A money market fund reports a price of $1.0000 per share. A stablecoin trades at $1.00. Both hold short-dated government debt and bank deposits. Both are described as cash equivalents by the people selling them.

The resemblance ends at the claim. A fund share is a security issued by a registered investment company, and the fund’s portfolio is constrained by a rule that specifies what it may hold, how long the paper may run, how much must be liquid, and what the fund must publish every day. A stablecoin is a token issued by a company, backed by a reserve the company assembled, redeemable on terms the company wrote.

The comparison is worth making carefully because it is usually made badly — either by treating the two as identical because the reserves look alike, or by treating the stablecoin as unbacked because it is not a fund.

The rulebook the fund lives under

Rule 2a-7 under the Investment Company Act is the whole architecture, and its constraints are numerical.

Maturity. A fund must not “acquire any instrument with a remaining maturity of greater than 397 calendar days”. It must not “maintain a dollar-weighted average portfolio maturity (‘WAM’) that exceeds 60 calendar days”, nor a dollar-weighted average life (“WAL”) “that exceeds 120 calendar days”.

The WAM/WAL pair is the interesting one. WAM uses the interest-rate reset date for floating-rate paper; WAL ignores it and uses the final maturity. A portfolio of one-year floating-rate notes can have a WAM of a few days and a WAL of a year. The rule caps both, which prevents a fund from looking short-dated while holding long-dated credit risk.

Liquidity. The fund “may not acquire any security other than a daily liquid asset if, immediately after the acquisition, the fund would have invested less than twenty-five percent of its total assets in daily liquid assets.” The equivalent floor for weekly liquid assets is fifty per cent. Illiquid securities are capped at five per cent.

Escalation. The fund must notify its board within one business day if it invests “less than twelve and a half percent of its total assets in daily liquid assets” or “less than twenty-five percent of its total assets in weekly liquid assets” — half of each floor.

Fees. The 2023 amendments removed redemption gates. What remains is a discretionary liquidity fee, which a non-government fund’s board may impose at “not to exceed two percent of the value of the shares redeemed”, and a mandatory fee: a fund that is neither government nor retail “must apply a liquidity fee to all shares that are redeemed” when “total daily net redemptions that exceed five percent of the fund’s net assets”.

The SEC’s own summary of that rulemaking states the intent: the amendments “remove provisions in the current rule that permit a money market fund to suspend redemptions temporarily through a gate”, and the changes are “designed to reduce the risk of investor runs on money market funds during periods of market stress” while making “redeeming shareholders bear the costs of redeeming from the fund when liquidity in underlying short-term funding markets is costly”. The mechanism moved from stopping redemptions to pricing them.

Disclosure. The rule requires the fund’s website to carry, updated each business day, the percentage of total assets in daily and weekly liquid assets and its net asset value per share “calculated based on current market factors before applying the amortized cost or penny-rounding method”. The stable share price is a presentation layer over a market-based number, not a substitute for one.

What the issuers say about their reserves

Circle publishes a reserve composition page dated 22 October 2026, with balances in circulation, total reserves, and a breakdown into bank deposits, deposits at systemically important institutions, overnight reverse Treasury repo, and sub-three-month Treasuries.

Its own description of the structure is precise: USDC “is a digital dollar backed 100% by highly liquid cash and cash-equivalent assets and is always redeemable 1:1 for US dollars”, and “the majority of the USDC reserve is held in the Circle Reserve Fund (USDXX), an SEC-registered 2a-7 government money market fund”, managed by BlackRock and custodied at BNY Mellon. The reserve is “held separately from Circle’s operating funds at leading financial institutions for the benefit of our stablecoin holders”. Attestation is monthly, by a Big Four firm, “prepared according to attestation standards set out by the American Institute of Certified Public Accountants”, with holdings disclosed weekly.

Tether’s transparency page states the equivalent promise in its own words: “All Tether tokens are pegged at 1-to-1 with a matching fiat currency and are backed 100% by Tether’s Reserves”, with circulation “typically published daily” and the statement that “the Tether Issuer’s assets exceed its liabilities”.

Both statements are disclosures by the issuer about the issuer. That is the structural difference from a fund: a fund’s numbers are filed with a regulator in a prescribed form, and its liquidity floors are a rule violation if breached, not a policy choice.

The claim, not the collateral

Here is the part that a reserve comparison hides. Suppose both products hold exactly the same Treasury bills. The holder still has two different legal positions.

The redemption row is the one that matters most in a stress event. A fund must redeem at NAV, subject to the fee provisions above. A stablecoin issuer redeems on its own terms: Circle states that “Circle Mint enables exchanges, institutional traders, banks, and large financial institutions to directly redeem USDC 1:1 for USD from Circle. Mint is not available to individuals or small businesses.”

For an individual, the exit from a stablecoin is therefore not the issuer — it is the secondary market. That is a materially different position from a fund shareholder’s, and it is why a stablecoin can trade at 0.98 without any reserve being impaired: the price reflects the market’s view of the exit, not the collateral.

Why the stablecoin reserve can sit inside a fund

Circle’s structure is the neat illustration of how the two claims stack. The reserve’s majority holding is itself a 2a-7 government fund. So the fund rule does apply — to the Circle Reserve Fund, a separate registered investment company — and not to USDC.

This is not a loophole; it is a sensible use of the regulated wrapper. It gives the reserve a portfolio with a 60-day WAM and a 25 per cent daily liquidity floor, managed by an investment adviser with fiduciary duties. What it does not do is give the token holder a share of that fund. The token holder has a claim on Circle, and Circle has an account in the fund.

That layering explains a common confusion: a stablecoin whose reserve is mostly a government money market fund is not thereby “as safe as a money market fund”. The portfolio is; the claim is not.

Where the regulatory line now sits

Circle’s own materials argue that USDC is not a security, and they cite a specific basis: an SEC staff “Statement on Stablecoins” issued in April 2025, which Circle says confirmed that the offer and sale of “Covered Stablecoins” — those designed to maintain a stable value against the dollar on a one-for-one basis, redeemable one-for-one, and backed by low-risk, readily liquid assets meeting or exceeding the redemption value — “does not constitute the offer and sale of securities”.

That position is the issuer’s characterisation of a staff statement, and it is the reason the comparison in this article is between two regimes rather than two versions of one. A fund share is a security with an investment company rulebook. A payment stablecoin, on that reading, is something else, and the rules that will govern it are being written elsewhere.

The practical differences a holder can test

1. Look for the daily number. A fund’s website must show daily and weekly liquid asset percentages each business day. A stablecoin issuer’s page shows circulation and reserves on its own cadence.
2. Check who can redeem with the issuer. If redemption is limited to institutions, the retail holder’s real exit is the market, and the peg is a quoted price rather than a right.
3. Read the attestation’s scope. An attestation reports on the reserve at a date; it is not an audit of the issuer’s controls, and it does not cover what happens after the date.
4. Distinguish the fee from the gate. Funds no longer gate redemptions; a non-government fund can apply a liquidity fee, including a mandatory one above a 5 per cent daily net redemption level.
5. Do not compare yields without comparing claims. The reserve yield belongs to the issuer of a token and to the shareholder of a fund, and the difference in who receives it is a difference in what was bought.

Risk note. The maturity, liquidity, fee and disclosure requirements in this article were read from 17 CFR 270.2a-7; the USDC reserve structure, attestation cadence and redemption route from Circle’s transparency and product pages; and the Tether backing statement from Tether’s transparency page, all on 2026-10-27. Issuer disclosures change and are the issuer’s own statements. Nothing here is investment advice.