A new working paper from the Federal Reserve Bank of Boston and the Federal Reserve Board of Governors introduces a framework for assessing the potential risks associated with emerging money-like products, such as stablecoins. The study aims to help policymakers, researchers, and regulators better understand how these products might impact the broader financial system.
The authors begin by examining vulnerabilities in money market funds—mutual funds that usually seek to maintain a stable per-share price of $1—which were subject to investor runs during both the 2008 financial crisis and the COVID-19 pandemic. Drawing on this analysis, they develop a framework for evaluating whether similar weaknesses exist in newer financial instruments.
The paper, titled “A Framework for Understanding the Vulnerabilities of New Money-Like Products,” is authored by Kenechukwu Anadu, vice president in the Boston Fed’s Supervision, Regulation & Credit department, along with Federal Reserve Board researchers Patrick McCabe, JP Perez-Sangimino, and Nathan Swem.
According to Anadu, it is important to look at how various features combine within each product: “A product would need to have some degree of almost all these features to potentially lead to problems,” he said. He explained that even if a product has high liquidity transformation, a run may not occur if its investor base is not reactive.
Using their framework, the researchers analyze three new money-like products. They find that tokenized money market funds are more likely than traditional ones to transmit stress across other money-like products—a phenomenon referred to as a greater “contagion effect.” However, these tokenized funds also have less “moneyness,” meaning investors may view them as less safe or cash-like compared to regular money market funds.
The authors note that their assessments will change as these products evolve alongside laws and business models. For example, they highlight uncertainty around stablecoins’ liquidity transformation following the passage of new U.S. legislation called the GENIUS Act in July 2025. Forthcoming regulations could alter how some stablecoins function.
Anadu stated that this framework will support ongoing analysis as new investment products emerge: “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.
The full working paper is available on bostonfed.org.
The Federal Reserve Bank of Boston operates as part of the U.S. Federal Reserve System and supports community revitalization through economic research and outreach efforts (https://www.bostonfed.org/). It serves six New England states by fostering economic stability and growth through monetary policy formulation, banking oversight, payment services, community initiatives, and tracking local economic trends (https://www.bostonfed.org/). Susan Collins has led the bank as President and CEO since July 2022 (https://www.bostonfed.org/).
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