As blockchain infrastructure matures, benefits such as faster settlement, greater collateral mobility and lower operational friction could eventually see tokenised fund structures challenge traditional vehicles.
Of the two technology trends reshaping asset management today, artificial intelligence (AI) and blockchain, AI has attracted far more attention. That is understandable. AI is already transforming how firms analyse data, automate workflows and improve productivity. Yet blockchain may ultimately prove the more significant development for financial markets because it changes the infrastructure on which finance operates.
Tokenisation is one of the clearest examples of that transformation. In simple terms, tokenisation involves representing ownership of a financial asset on a blockchain. However, the key question is not whether a stock, bond, fund or sovereign bond exposure can be tokenised. It is whether the tokenised version delivers a better outcome for investors.
As investors begin to recognise tangible benefits – including faster settlement, improved collateral management and lower administrative friction – adoption could accelerate more rapidly than many expect.
Lessons from the ETF market
The evolution of exchange-traded funds (ETFs) provides a useful comparison. ETF adoption occurred in stages. Initially, the appeal was largely structural: investors could access diversified market exposure efficiently and at lower cost. Over time, attention shifted to practical advantages such as intraday liquidity, transparency, and operational simplicity.
Tokenisation may follow a similar trajectory. Today, most investors understand the concept, but many have yet to experience its operational benefits directly. Adoption is likely to accelerate when tokenised products offer capabilities that improve the investment experience, such as faster settlement, same-day liquidity, and enhanced collateral mobility. As with many financial innovations, progress often appears gradual until a critical mass is reached.
What needs to happen next?
Three conditions are particularly important if tokenisation is to reach a meaningful tipping point.
First, the industry must overcome the cold-start problem. Issuers are reluctant to tokenise assets without investor demand, while investors are hesitant to commit capital without sufficient product availability. Both sides must develop together.
Second, liquidity must deepen. While tokenised assets can theoretically trade around the clock, much of the investor base continues to operate off-chain. Building bridges between traditional and blockchain-based markets remains one of the industry’s key challenges.
Third, utility must improve. Institutional investors will adopt tokenised products when they provide capabilities such as the ability to utilise new protocols, programmable settlement, faster redemptions, efficient collateral deployment, and streamlined product design.
Ease of use is equally important. Most investors do not need to understand how ETF creation and redemption works. Tokenisation is likely to follow the same path, with blockchain becoming largely invisible to end users.
Utility will drive adoption
The most important test for any tokenised product is simple: Does it offer something materially better than the traditional alternative? The same principle applies to distribution. One of the most exciting aspects of tokenisation is its potential to broaden access to investment products and connect managers with new types of investors through more efficient channels. However, simply placing an existing fund on a blockchain is unlikely to drive meaningful adoption among non-crypto-native investors.
Despite occasional hype, meaningful progress is already taking place across several areas of financial markets. The first major wave of blockchain adoption was stablecoins, which have become increasingly important for on-chain payments, settlement and treasury management.
The second wave is tokenised yield. Tokenised cash-management products and Treasury exposures are attracting investors seeking access to real-world yield while remaining within blockchain-based ecosystems.
Tokenised credit is also moving beyond theory. Private credit, securitised products and collateralised loan obligations are gradually appearing on-chain. While still early in development, these structures have the potential to improve transparency, administration and cash-flow management.
The broader direction appears increasingly clear: stablecoins came first, tokenised yield followed, and the next stage may involve fully tokenised asset-management structures becoming a standard option alongside traditional investment vehicles.
Many tokenised assets remain fragmented because large parts of the investor base continue to operate within traditional financial infrastructure. Without a sufficiently deep ecosystem of buyers, sellers and market makers, individual products risk becoming isolated.
This matters because liquidity underpins institutional confidence. Investors need certainty that assets can be transferred, redeemed and deployed reliably if they are to function effectively as collateral, working capital or settlement instruments.
Mechanisms such as instant redemption facilities can help address this challenge by making tokenised assets more practical and usable within broader financial markets.
What institutional investors should focus on
For allocators, the key question is whether tokenisation solves a genuine operating problem.
Five factors deserve particular attention:
- Utility – Does it improve settlement, liquidity or collateral mobility?
- Access – Can investors use it without unnecessary complexity?
- Liquidity – Are there credible redemption and transfer mechanisms?
- Compliance and identity – Are regulatory requirements properly embedded?
- Integration – Does it connect effectively with existing custody, administration and reporting systems?
The most likely outcome is a gradual convergence between traditional and on-chain infrastructure rather than a separate blockchain-based financial system.
Many institutions focus on the risks of adopting tokenisation too early. Those risks are real and include operational, regulatory, technological and reputational considerations.
However, there is also a risk in waiting too long.
A pragmatic approach is to identify areas where tokenisation can improve client outcomes, operate them alongside existing business lines and build capabilities incrementally.
Blockchain as the future operating layer of finance
Financial markets are unlikely to move entirely on-chain anytime soon. Traditional funds, ETFs, separately managed accounts and tokenised vehicles will coexist for many years as regulation, infrastructure and investor behaviour evolve.
Nevertheless, the direction of travel is towards a financial system that is more programmable, transparent and operationally efficient.
That is why blockchain may ultimately become a foundational operating layer for finance, and tokenisation is one of the most visible early manifestations of that broader transition.
The industry remains early in its development. Liquidity is still fragmented, regulation continues to evolve and distribution channels are adapting. Yet the long-term direction appears increasingly difficult to ignore. Blockchain may transform the infrastructure on which finance itself operates. Firms that build credible capabilities before that shift becomes obvious may be best positioned to serve clients in the next phase of financial markets.
