The report examines large the market for tokenized funds. Fund tokenization refers to the use of blockchain-based digital tokens to represent fund ownership.

Fund tokenization, the third revolution in asset management, offers the potential to create billions of dollars in value for financial institutions and end investors, a white paper from Invesco, Boston Consulting Group and Aptos Labs says. 

AuM of such tokenized funds could hit $600 billion by 2030, it says.

Fund tokenization refers to the use of blockchain-based digital tokens to represent fund ownership, functioning similarly to the way in which transfer agents record fund shares today. Early tokenization use cases have seen companies use special purpose vehicles (SPVs) to manage assets such as real estate. Similarly, fund tokenization can be achieved using existing unit trusts and/or fund company vehicles, the report says. The 28-page study is called Tokenized Funds: The Third Revolution in Asset Management Decoded.

“We see a pattern of growing investor demand in the tokenized funds space,” David Chan, managing director and partner at BCG, said. “Over the coming period, we expect that trend to continue, especially when regulated on-chain money such as regulated stablecoin, tokenized deposit, and central bank digital currency (CBDC) projects materialise.”

The white paper highlights that tokenized funds are witnessing a potential investment demand of approximately $290 billion, with the prospect of trillions more as traditional financial institutions such as asset managers and wealth managers embrace on-chain money adoption. 

“Fund tokenization is not just another innovation effort by a few asset managers. Instead, it is an industry-wide movement across numerous global asset managers,” the paper says.

The report is an example of blockchain-driven entities, such as tokens, continuing to attract interest as an increasingly “mainstream” part of the financial system, including wealth management. See an overview here.

“On-chain money introduces two important features - programmability and atomic settlement with tokenized assets – which serves as a catalyst for growth in tokenized funds” Alexandre Tang, head of institutions, APAC at Aptos Labs (a blockchain technology business) said. “Once up and running, tokenized funds can offer advantages such as 24/7 secondary transfers and fractionalisation, a lower threshold for investing, and instant collateralisation if regulatory guardrails are put in place.”

The report specifies examples of how large fund managers are getting into the tokenization act. For example, it says that Franklin Templeton launched its first US-registered fund (Franklin OnChain US Government Money Fund, FOBXX) using a blockchain in 2021, while in 2024, BlackRock launched the BlackRock USD Institutional Digital Liquidity Fund (BUIDL), quickly achieving a market cap of over $500 million in months.

“Wealth and asset managers are navigating a changing technological landscape in how funds are distributed,” Ken Lin, head of Hong Kong and Southeast Asia intermediary business at Invesco, said. “The establishment of regulatory guidelines and global standards can help create a solid foundation for a frictionless, globally interconnected industry.”

Aptos Labs has facilitated the launch of tokenized financial products including Brevan Howard’s Master Fund, Hamilton Lane’s Senior Credit Opportunities Fund, BlackRock’s ICS Money Market Fund, and Franklin Templeton’s Onchain Money Market Fund. 

A report in June last year, based on a 50 wealth managers holding a total of $1.026 trillion of assets, found that 94 per cent of them think that digital assets – a term covering entities ranging from bitcoin to “smart contracts” – can diversify portfolios.

Digital repo in Singapore
As separately reported yesterday, Singapore-headquartered OCBC – parent of Bank of Singapore – said it has become the first Singapore bank with intraday institutional lending capabilities for maximising returns from its excess intraday liquidity by using a reverse report on JP Morgan Digital Financing application.

The application is built on the Onyx Digital Assets platform, where OCBC lends cash to JP Morgan and accepts tokenized securities as collateral. Such transactions can be completed within the day as the exchange of cash and tokenized securities through the blockchain is almost instantaneous. In contrast, the exchange of cash and collateral typically takes at least one business day in the traditional repo market due to manual processes, OCBC said in a statement. 

While digital financing has previously facilitated intraday repurchase transactions (repos) where a JP Morgan counterparty borrows cash, OCBC said it is the first external counterparty with the ability to execute reverse repos. OCBC’s first reverse repo on digital financing was completed on 11 October 2024 with a maturity of less than 120 minutes.