Tokenized Funds: The Third Revolution in Asset Management
In this report, we provide financial industry professionals with an overview of the emerging tokenized fund market, focusing on real-world application potential, the drivers for investors and financial institutions, potential inflection points to watch, and how fund managers can seize this opportunity. Amid the generative AI boom, attention on Distributed Ledger Technology (DLT) appears to have faded over the past several months. Yet within financial services, the
In this report, we provide financial industry professionals with an overview of the emerging tokenized fund market, focusing on real-world application potential, the drivers for investors and financial institutions, potential inflection points to watch, and how fund managers can seize this opportunity.
Amid the generative AI boom, attention on Distributed Ledger Technology (DLT) appears to have faded over the past several months. Yet within financial services, DLT-based solutions are attracting growing interest. One such innovation — tokenized funds — is finding new applications in asset management, enhancing value creation, improving transparency, and streamlining transaction workflows. When DLT is paired with smart contracts that automatically execute business logic, it's easy to see why market participants are eager to get involved.
As DLT applications continue to scale, banks are driving efficiency improvements across markets ranging from cross-border payments to bond markets. We view tokenized funds, which we call the third revolution in asset management, as having the potential to generate billions of dollars in value for financial institutions and end investors. By end of 2024, assets under management (AUM) in tokenized funds will exceed $2 billion, with one manager raising a substantial sum in just a few months while charging fees above the industry average. This reflects rising demand from investors — particularly virtual asset holders such as crypto funds. We expect that demand to keep climbing, especially as regulated on-chain stablecoins, tokenized deposits, and central bank digital currency (CBDC) projects gain traction.
In this report, we provide industry professionals with an overview of the emerging tokenized fund market, highlighting the technology's potential in real-world applications, the drivers for both end investors and financial institutions, potential inflection points to watch, and how fund managers can capitalize on this opportunity.
What Are Tokenized Funds?
A tokenized fund uses digital tokens on a blockchain to represent ownership in a fund — analogous to how a traditional transfer agent records mutual fund shares. Early tokenization use cases showed that some firms were managing assets such as real estate through Special Purpose Vehicles (SPVs). Similarly, fund tokenization can be implemented through existing unit trust or fund company structures, meaning asset managers face relatively few obstacles in making the transition.
In practice, tokenized funds offer investors several advantages: 24/7 secondary transfers, fractional ownership, lower investment minimums, and instant collateralization once the regulatory framework is in place. If all global mutual funds were tokenized, we estimate mutual fund investors could see an additional $100 billion in annual returns, while sophisticated investors could capture up to $400 billion in gains by exploiting intraday price movements.
For financial institutions such as asset managers and wealth managers, tokenized funds present an opportunity to grow new investor segments, defend existing ones, and enhance business services. In fact, as regulated on-chain currencies (stablecoins, tokenized deposits, and CBDCs) become more widespread, demand for tokenized funds will accelerate. We estimate that virtual asset holders represent approximately $290 billion in tokenized fund demand, with additional multi-trillion-dollar demand set to emerge as traditional financial institutions adopt on-chain currencies. Furthermore, tokenized secondary exchanges and embedded investing will unlock innovative fund distribution opportunities. Managers can also leverage smart contracts to optimize distribution models, customize fund portfolios, and create hyper-personalized investment strategies.
Drawing lessons from the rise of exchange-traded funds (ETFs) — the "second revolution" in asset management — tokenized fund AUM could capture 1% of global mutual fund and ETF AUM within just seven years. This implies that by 2030, tokenized funds could exceed $600 billion in AUM. If managers allow existing mutual funds and ETFs to convert into tokenized funds, AUM could reach the trillions.
We believe tokenized funds could hit an inflection point within the next 12 to 18 months, as on-chain currency innovation — pioneered by early adopters like virtual asset holders using stablecoins — creates a flywheel effect. With the launch of tokenized deposits and CBDC projects, rapid expansion could follow. Among asset managers, first movers stand to capture significant market share and build brand recognition and economies of scale by launching straightforward products. Latecomers, by contrast, may need to differentiate in niche areas.
To fully unlock the potential of tokenized funds, the industry must build a solid foundation — clear regulatory guidance, global operating standards, and technology interoperability. Once that foundation is in place, financial institutions will benefit from six core capabilities: a strategic vision for tokenized funds, use-case roadmaps, on-chain compliance, blockchain technology and operational setup, cross-chain interoperability management, and a center of excellence to coordinate efforts. Successfully executing on these fundamentals will open the door to lasting adoption and competitive momentum.
Tokenized Funds: Blockchain's Breakthrough Application in Financial Services
With proven success stories, blockchain technology is becoming increasingly compelling for financial institutions already on the path to digitization. By storing immutable data from multiple participants, blockchain builds trust and dramatically improves efficiency — connecting firms to new business opportunities and paving the way for collaborative innovation. Through tokenization, it is now easier than ever to create on-chain representations of real-world asset ownership, and executing "Delivery vs. Payment" (DVP) transactions has become far more straightforward.
Growing Interest in Tokenization Amid Shifting Market Conditions
Interest in tokenization has grown steadily in recent years, with concrete projects led by financial institutions and supported by regulators now being deployed at production scale. As tokenized asset transaction volumes rise and asset classes diversify, we see the foundation of tokenized finance becoming increasingly solid. With the growing adoption of on-chain stablecoins, the sector may be approaching a critical inflection point.