When large redemptions happen all at once, on-chain funds sell assets in a strict liquidity order: first sell high-liquidity assets (government bonds, repos), then use backup credit, and only as a last resort sell low-liquidity assets at a discount.
Order of Asset Sales After Redemption Requests
Money market funds manage assets with a clear liquidity order. When redemptions pile up, fund managers do not sell assets proportionally. Instead, they move from the most liquid assets to the least liquid.
Layer 1: Cash and overnight repos Funds usually keep some cash or overnight reverse repos as a "working reserve." These assets can be turned into cash the same day with almost no price loss. This is the first line of defense for daily redemptions.
Layer 2: Short-term government bonds and central bank bills If cash reserves are not enough, fund managers sell short-dated government bonds or central bank bills. In money market funds, these are high-liquidity assets. In normal markets, they can be sold quickly with only small price changes.
Layer 3: Interbank certificates of deposit and commercial paper Next are assets with slightly higher yields but lower liquidity, such as interbank certificates of deposit and commercial paper. These take a bit longer to sell and may be sold at a small discount.
Layer 4: Use bank credit lines or liquidity support Some funds set up credit arrangements with banks. When heavy redemptions occur, they first borrow money from the bank to pay investors, then repay the bank after selling assets later. The tokenized fund SWEEP, launched by Galaxy Digital and State Street, is designed with institutional-level liquidity management so investors can earn yield while still entering and exiting the fund at any time.
Extreme case: Selling low-liquidity assets at a discount If redemptions keep growing and all earlier liquidity reserves are used up, the fund is forced to sell longer-maturity assets. In normal markets, money market funds usually offer fast redemptions. But under market stress and large outflows, funds may need more time to turn assets into cash. This is why a fund may pause redemptions or take liquidity management measures when large redemptions happen at once.
Special Structure of On-Chain Funds: Instant Liquidity Is Being Added
A key difference between tokenized funds and traditional money market funds is that the "advance payment" for redemptions can be provided by on-chain liquidity providers. The underlying asset sale process stays the same, but the waiting time for investors is shortened.
Grove's Basin liquidity network provides up to $1 billion in daily stablecoin liquidity support for tokenized funds such as BlackRock's BUIDL and Janus Henderson's JTRSY. After a redemption is approved, it advances stablecoins first, and the underlying fund settles later through its normal process.
Symbiotic's Liquid Lane system uses a similar approach: redemption requests are routed through a quoting system to market makers. The winning market maker delivers USDC immediately and receives the tokenized asset, while the issuer completes settlement in the background.
These mechanisms do not change the order in which underlying assets are sold. They simply let investors receive liquidity without waiting for all underlying assets to be sold. The liquidity gap is covered first by market makers or liquidity pools.
Who Actually Sells the Underlying Assets?
For ordinary investors, what they receive at redemption is stablecoins. But the underlying assets are still sold by the fund manager. After the fund administrator receives a redemption request, it handles the share cancellation and asset sales in the background, then delivers the proceeds to the investor through stablecoin or fiat channels. In November 2025, UBS and Chainlink completed the first on-chain redemption of a tokenized fund on Ethereum. It involved the UBS USD Money Market Investment Fund Token (uMINT), and the redemption and settlement were completed fully on-chain.
Next Steps
If you hold a tokenized fund and worry about heavy redemptions, check the fund's underlying asset mix. The higher the share of cash and government bonds, the stronger its ability to handle redemption pressure. If the fund is connected to liquidity networks such as Basin or Liquid Lane, you are more likely to receive stablecoins instantly at redemption. Also watch fund announcements for any triggers related to "redemption pauses" or "liquidity management measures."
