Fund Tokenisation and Distributed Ledger Technology in Asset Management

Fund tokenisation is the process of converting ownership in an investment fund into digital tokens recorded on a blockchain. This innovation transforms conventional fund management by embedding transparency, security, and programmability directly into fund operations. Seen by industry experts as the next major leap in asset management, fund tokenisation streamlines complex processes, enhances collaboration among market participants, and offers funds increased speed and resilience. 

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As this technology develops, it promises to reshape how funds comply with regulations and interact within the global financial ecosystem. This emerging field is being called ‘the third revolution in asset management.’ 

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Why Tokenise Funds?

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At its core, fund tokenisation aims to address long-standing inefficiencies in how investment funds are structured and accessed. Traditional fund models often involve manual processes, delayed settlements, and layers of intermediaries, all of which add cost and complexity. By contrast, tokenised funds leverage blockchain infrastructure to streamline operations and improve how value moves through financial systems. Transactions can be processed more quickly, record-keeping becomes more transparent, and back-office tasks are automated through smart contracts.

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Beyond operational improvements, the real impact lies in the potential for broader market participation. Fund tokenisation enables fractional ownership, making it easier for investors to buy into high-quality funds without needing large amounts of capital. This opens up new routes for financial inclusion, especially in regions or demographics historically underserved by the asset management industry. It also paves the way for more dynamic secondary markets, where fund shares can be traded with greater ease and efficiency. For institutions and individuals alike, the result is a more agile, accessible, and responsive investment landscape.

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The programmable nature of blockchain and Distributed Ledger Technology (DLT) tokens also enables sophisticated features like automated dividend distributions, real-time portfolio rebalancing, and instantaneous reporting to regulators and investors. As traditional financial institutions increasingly explore digital transformation, fund tokenisation represents a convergence of established investment strategies with cutting-edge technology, potentially reshaping how capital markets operate in the decades ahead.

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The Benefits of Fund Tokenisation for Asset Managers and Investors

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For asset managers, fund tokenisation streamlines administration by automating tasks such as investor onboarding, regulatory compliance, and real-time reporting. This leads to significant cost reductions, improved accuracy in net asset value (NAV) calculations, and faster operational workflows. It also opens the door to innovative distribution models, enabling managers to reach a broader and more diverse investor base efficiently. 

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For investors, tokenised funds lower entry barriers through fractional ownership, making it possible to invest smaller amounts in funds that traditionally required large minimums. Additionally, investors gain 24/7 access to secondary markets, allowing for greater flexibility and liquidity. Enhanced transparency is another key advantage, as blockchain technology provides real-time visibility into fund performance and holdings, fostering greater trust and informed decision-making.

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The Current Landscape: Fund Tokenisation Global Adoption Patterns

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Recent data from the Calastone report titled ’Tokenised Funds Go Mainstream: Asia and US Lead the Adoption Race’ shows that global interest is no longer speculative, as measurable trends increasingly support it. The report revealed that 67% of U.S. asset managers plan to launch tokenised products within a year, followed by 61% in Asia and 44% in the UK and Europe. 

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Comparison of Tokenisation Implementation Plans by Region

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This data indicates that the U.S. and Asia are best placed to realise the benefits of fund tokenisation, though these become measurable only at advanced stages. This slows adoption, as many asset managers are hesitant to enter new markets without proven advantages. But, when BlackRock tokenised its funds and ran a major PR campaign, it triggered substantial interest from institutional investors.

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Regions showing faster adoption benefit from strong regulatory support, high demand, advanced infrastructure and a progressive culture of innovation. Around 57% of asset managers globally are considering tokenisation projects, with APAC and the U.S. leading by about 11% in moving to implementation.

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Real-World Examples of Fund Tokenisation in Action

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In 2023, BlackRock partnered with Securitize to launch the BlackRock USD Institutional Digital Liquidity Fund (BUIDL), marking the asset manager’s first on-chain fund. Built on the Ethereum blockchain, BUIDL offers tokenised exposure to U.S. Treasury bills and operates with real-time settlement and transparent reporting. 

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Similarly, Franklin Templeton introduced the OnChain U.S. Government Money Fund, which uses public blockchain infrastructure to record transactions and investor share ownership. This fund operates on the Stellar and Polygon blockchains and has attracted institutional and crypto-native investors seeking stable, on-chain yield. In Asia, HSBC, Ant Group, and the Hong Kong Monetary Authority have explored fund tokenisation through the Project Evergreen pilot, which tokenised green bonds and related ESG investment products to test secondary trading and automated compliance in a sandbox environment. 

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These early examples illustrate how tokenisation can bring operational efficiency, greater transparency, and new distribution models to the fund industry, while also showing strong institutional appetite for regulated, blockchain-native financial products.

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The Potential Growth of Tokenised Funds

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As interest in fund tokenisation accelerates, new data points offer a clearer picture of the market’s long-term potential. The Calastone report estimates that if tokenised funds follow a trajectory similar to ETFs—reaching just 1% of traditional markets within seven years—they could represent a $1.01 trillion opportunity by 2030. Even a conservative scenario, capturing only half that growth, would still bring the market to over $500 billion.

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Based on the Calastone report, from 2021 to 2024, stablecoins showed a non-linear trend: 37.8% growth in 2022, a 16.9% drop in 2023, and a 26% rebound in 2024, yielding an average growth rate of 15.63%. DeFi protocols and tokenised RWAs recorded two-year growth rates of 56% and 85%, respectively.

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These segments are evidently driving demand for tokenised funds due to yield-generation potential and new efficiencies. If this growth mirrors the development of the traditional ETF sector (which reached 1% of the traditional market within seven years), tokenised funds could hit $1.01 trillion by 2030. Even capturing 50% of that would surpass $500 billion. To put this in perspective, $500 billion would represent about 4.3% of BlackRock's total $11.6 trillion in assets under management and would rank among the top 10 largest asset management firms globally.

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Given the $109 trillion global stock market, even a 1% transition would push the market beyond $2 trillion by 2030. This opens strategic opportunities for UK and European firms.

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Predicted Scenarios for Potential Growth in Fund Tokenisation (2025–2030)

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Distributed Ledger Technology and Tokenisation

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DLT enhances transparency, real-time access, and decision-making, and blockchain’s immutability builds trust. Traditional funds face challenges like high entry thresholds, fees, and illiquidity.

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Tokenised funds, by contrast, enable fractional ownership through digital tokens, reducing minimums and increasing liquidity. These tokens can trade 24/7 in secondary markets, reducing redemption pressures. Transfers become near-instant, and tokens can be used directly as collateral. This reduces settlement costs and times. According to McKinsey, asset manager costs rose 2.6% in 2023 to $155 billion. A 1% efficiency gain in processes like AML/KYC could save $1.55 billion annually.

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[North American Asset Manager Revenue and Cost (Source: McKinsey & Company)]

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Using tokenised MMFs as collateral eliminates cash settlement delays. Traditional transactions settle in T+3 days; tokenised funds can settle in T+0 using smart contracts. Tokenised funds also generate yield, unlike stablecoins. Investors waiting to invest can earn returns. With over 100 stablecoins, demand for yield is high, yet many issuers lack direct access to institutional-grade managers like Fidelity or State Street.

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Tokenised funds keep all data on-chain, offering brokers real-time transparency. Though initially more complex and costly for asset managers, these costs drop as adoption increases. Digital Central Securities Depositories (CSDs) like Montes in Luxembourg are addressing registration delays at Euroclear, DTC, and Crest. Digital CSDs will enable full on-chain ecosystems, cutting reconciliation costs.

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Case Studies of Fund Tokenisation

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BlackRock, State Street and Fidelity are piloting tokenised products. Most firms are cautious, experimenting in parallel with traditional systems.

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BlackRock’s BUILD, a tokenised MMF, reached $520 million in the first five months. Franklin Templeton tokenised a fund on Stellar and Polygon. Siemens issued a €60 million bond on Polygon. According to FactSet, only about 11% of new active non-tokenised ETFs reach $100 million assets under management (AUM) in their first year.

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While these pilots demonstrate unprecedented early growth for tokenised products, they still represent a small fraction of the traditional asset management industry, which oversees more than $120 trillion globally. This contrast highlights both the potential and the current scale of tokenisation efforts.

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In April 2024, Abrdn, via Archax, launched Money Market Funds (MMFs) on Hedera, while the European Investment Bank (EIB) issued a £50 million bond on Hyperledger Fabric. Around the same time, Archax also expanded tokenised access to BlackRock’s MMFs, although BlackRock later clarified it was not directly involved in the tokenisation process, which was based on existing fund infrastructure.

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Archax is a UK-regulated digital asset exchange and custodian specialising in tokenised securities, while Abrdn is one of the UK’s largest asset managers, with over £500 billion in AUM. In April 2024, Archax expanded tokenised access to BlackRock’s MMFs, following earlier work with abrdn. 

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Will Money Markets Transition On-Chain?

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Money markets are already beginning to move on-chain. Major financial institutions are piloting tokenised money market funds (MMFs), attracted by faster settlement, improved transparency, and operational efficiency. While this shift is still in its early stages, adoption is expected to unfold in waves, starting with highly liquid, low-risk products such as MMFs, mutual funds, and bonds. 

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The chart below outlines how tokenisation could scale across asset classes, with total market value potentially nearing $2 trillion by 2030 under a base-case scenario.

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[Analysis of the Potential for Tokenisation and Its Adoption Drivers (Source: McKinsey & Company)]

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The process occurs in waves:

• Wave 1: Mutual funds, ETFs, loans, securitisation, and bonds (≈ $1.1 trillion)
• Wave 2: Alternatives, unlisted equities, and metals (≈ $0.5 trillion)
• Wave 3: Equities, intangibles, and derivatives (≈ $0.3 trillion)

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Tokenised Funds and the Future

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Tokenisation is not just a technical innovation; it is a strategic opportunity for the asset management industry. Despite risks and a lack of education, early adopters may stand to gain advantages in operational efficiency, product innovation, and investor accessibility. As tokenised offerings reduce costs, improve transparency, and enable fractional ownership, they are poised to attract a broader base of institutional and retail investors.

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Market traction can accelerate as more asset managers, custodians, and infrastructure providers launch tokenised products and support services. But success is not guaranteed by technology alone. As demonstrated by BlackRock’s tokenised money market fund (BUIDL), achieving rapid adoption also requires effective communication, strong regulatory positioning, and clear messaging about investor benefits. Public perception, trust, and regulatory clarity will be just as important as smart contract design.

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Importantly, fund tokenisation is only the beginning. The same underlying technologies are being explored across the broader financial system. In insurance, for example, tokenisation is enabling more automated claims processing and novel forms of digital asset coverage. These use cases demonstrate that distributed ledger technology has the potential to rewire core financial services beyond traditional investment vehicles.

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Tokenisation is evolving from a niche experiment into a foundational layer of modern finance, and those moving in early are helping to shape the standards, networks, and investor expectations of the next generation of financial infrastructure.

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