A fixed net asset value (NAV) of $1.00 does not mean your principal cannot lose money. The $1.00 price is just a quoted value, not a principal guarantee.
A $1.00 NAV Is an Accounting Rule, Not a Risk-Free Promise
On-chain money market funds keep a $1.00 NAV through valuation strategies and accounting treatment, not because the underlying assets cannot lose value.
Constant NAV (CNAV/LVNAV) funds use specific valuation procedures to keep the unit price stable. But this is just accounting smoothing: when underlying asset prices move, the fund uses amortized cost accounting and spreads the change over the whole holding period instead of showing it in the daily NAV.
When S&P Global Ratings gave BlackRock BRSRV its highest AAAm rating, it added a clear note: the rating is not a guarantee, the fund can still lose money, and it is not a bank deposit or protected by FDIC insurance.
When the $1.00 NAV Can Break
"Break the buck" is the core risk for money market funds. It happens when the fund's assets are worth less than its liabilities, so the NAV falls below $1.00.
This usually occurs when underlying assets such as short-term bonds have a credit default, or when a liquidity crisis forces the fund to sell assets below face value to meet redemptions. Once the NAV falls below $1.00, the $1.00 price is no longer valid.
In real cases, tokenized money market funds face the same risk. Even if tokens move on a public blockchain, the underlying asset portfolio, pricing, and settlement still happen in traditional markets. This structure may increase volatility during heavy redemption periods.
Different Income Distribution Models Have Different Risk Features
Franklin Templeton FOBXX distributes income by airdropping new tokens to holders every day, rather than through a rising NAV. Redemptions are made at $1.00. BlackRock BRSRV also keeps a $1.00 NAV and holds U.S. Treasury bonds and overnight repurchase agreements.
But their $1.00 NAV still depends on the underlying assets being able to be settled at face value during stressed periods. If the underlying assets have problems, the NAV can also fall below $1.00.
Risk Reminder
The growth of on-chain money market funds comes with new structural risks. The Bank for International Settlements (BIS) has clearly said these funds depend on approved wallets, off-chain market infrastructure, and a small number of large holders, which may speed up stress transmission when redemptions surge.
Also, the interconnection between stablecoins and tokenized funds may amplify market pressure. If stablecoins flow out on a large scale, funds may be forced to sell assets, creating a two-way liquidity squeeze. This means tokenized fund risk is not isolated — there is a two-way feedback loop between tokenized funds and the stablecoin ecosystem.
What to Check Next
If you are evaluating an on-chain money market fund, do not treat a $1.00 NAV as meaning it is "the same as a stablecoin." Check its underlying asset composition (U.S. Treasuries, repurchase agreements, or other short-term instruments), its redemption mechanism (whether redemptions can work normally under stress), and whether it has liquidity management tools (such as redemption gates or suspension mechanisms). Regulatory frameworks — such as guidance already introduced in Hong Kong and the EU — are improving, but the actual level of protection still varies by product.
