Innovative money-like products, like stablecoins, are constantly emerging and evolving. They may offer significant benefits, but they may also have vulnerabilities. As these products continue to grow, how should policymakers, researchers, and regulators consider their potential vulnerabilities – and what they might mean for the stability of the broader financial system?

A new working paper from the Federal Reserve Bank of Boston and Federal Reserve Board of Governors introduces a framework to help answer this question.

The paper’s co-authors first review how certain qualities of money market funds – mutual funds that typically aim to maintain a stable per-share price of $1 – made them vulnerable to investor runs during the 2008 financial crisis and the COVID-19 pandemic.

Then, building on this information, they create a framework that others can use to analyze whether these same vulnerabilities exist in newer, money-like products.

Framework focuses on five “vulnerabilities” that can lead to investor runs

The working paper is called, “A Framework for Understanding the Vulnerabilities of New Money-Like Products.” It is authored by Kenechukwu Anadu, a vice president in the Boston Fed’s Supervision, Regulation & Credit department, and Federal Reserve Board researchers Patrick McCabe, JP Perez-Sangimino, and Nathan Swem.

The framework focuses on five features that contribute to vulnerabilities in money-like products:

• Liquidity transformation: the degree to which a product gives investors fast access to cash, even when it’s backed by assets that can't be sold quickly. This allows investors to pull their money rapidly – or "run" – during stressful times in the market.
• Threshold effects: a sharp or abrupt drop in the payoffs investors expect during stressful periods
• Moneyness: the degree to which investors perceive an investment product to be as safe and liquid as cash
• Contagion effect: the degree to which an investment product could be negatively impacted by shocks or stress in a similar or connected market
• Reactive investor bases: how prone investors are to “running” during stressful periods

Anadu said that it’s important to consider the combination of these features in each product. For example, a product may have a high degree of liquidity transformation. But, if its investor base is not reactive, then a run is unlikely, he said.

“A product would need to have some degree of almost all these features to potentially lead to problems,” Anadu said.

As investments evolve, so will their costs and benefits

The researchers use their framework to analyze three new money-like products as examples:

• Tokenized money market funds: a digital representation of money market fund shares on a blockchain
• Money market exchange-traded funds: a type of investment fund that can be traded throughout the day on stock exchanges
• Stablecoins: digital assets designed to maintain a stable price – usually pegged to the U.S. dollar

For instance, the authors find that tokenized money market funds have a greater “contagion effect” than regular money market funds. That means that stress among tokenized funds is more likely to have negative impacts on other money-like products. At the same time, they also have less “moneyness,” meaning investors may see them as less safe and cash-like than regular money market funds.

The authors note that these assessments will change as the products, laws, and business models evolve. They said that the liquidity transformation of stablecoins, for example, is currently uncertain. That’s because new U.S. legislation called the GENIUS Act was passed in July 2025, and forthcoming regulations may change how some stablecoins operate.

Anadu said the working paper’s framework will help analyze these and other new money-like investment products as they grow.

“It’s really about how we can continue to evaluate the benefits and vulnerabilities of these products as they become more connected to the financial system,” he said.

Read the full working paper on bostonfed.org.