The intersection of cryptocurrencies and ETFs traces back to 2017 when the SEC rejected the first bitcoin spot ETF application, sparking an ongoing debate. While crypto ETPs have since proliferated, the industry now pivots to ETF tokenisation—a blockchain-based evolution where traditional ETFs are represented as tradable crypto tokens.
The Rise of Tokenised ETFs
Tokenised ETFs gained traction in 2023, with major issuers like WisdomTree, Franklin Templeton, and BlackRock exploring the space. For instance, BlackRock’s CSPX ETF was tokenised by Backed Finance, enabling trading on Ethereum via platforms like Uniswap.
Proponents hail tokenisation as revolutionary, citing benefits like:
- 24/7 trading and same-day settlement.
- Fractional ownership with no operating costs.
- Enhanced transparency via blockchain-recorded transactions.
- Voting rights for token holders, addressing passive fund limitations.
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Tokenisation Beyond ETFs: Real Assets on Blockchain
ETF tokenisation is merely the first step. Experts predict broader applications for real-world assets (RWAs), such as:
- US Treasuries (democratizing access for retail investors).
- Private equity, venture capital, and real estate.
- Commodities traded via decentralized platforms.
Stefan Rust of Truflation notes: "We’re already seeing decentralized commodity trading—eliminating middlemen and enabling direct participation in futures pricing."
Challenges and Skepticism
Despite its potential, tokenisation faces hurdles:
- Regulatory Uncertainty: The SEC’s stance on crypto remains unclear, complicating cross-border adoption.
- Market Depth: Skeptics like Hector McNeil (HANetf) question liquidity without traditional market makers.
- Crypto Risks: Wallet security, counterparty exposure, and irreversible transactions deter mainstream investors.
Andrew Prosser (InvestEngine) warns: "Crypto protocols could undermine investor confidence if not seamlessly integrated."
Pioneers in the Space
Several firms are leading the charge:
- WisdomTree: Tokenised 10+ funds, including a TIPS Digital Fund.
- Franklin Templeton: Launched the BENJI token on Polygon for low-fee transactions.
- State Street: Exploring tokenised ETFs and private assets, calling it "game-changing."
- Crypto-Native Firms: Moonrock’s "index tokens" offer staked ETH and NFT exposure—though rebalancing costs remain high.
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FAQs
1. What are tokenised ETFs?
Tokenised ETFs are blockchain-based tokens representing shares in traditional ETFs, enabling decentralized trading and fractional ownership.
2. How do tokenised ETFs reduce costs?
They eliminate operating fees (TERs) and settle transactions with minimal "gas" fees, often lower than traditional ETF expenses.
3. Are tokenised ETFs regulated?
Regulation varies by jurisdiction. Some platforms (e.g., Swarm in Germany) operate under financial authorities, but global standards are still evolving.
4. What risks exist with tokenised ETFs?
Risks include crypto volatility, wallet security, and regulatory gaps. Transactions are irreversible if errors occur.
5. Can tokenisation work for illiquid assets?
Yes—tokenising assets like real estate or art could unlock liquidity, but ETFs for liquid assets may see fewer benefits.
6. What’s next for ETF tokenisation?
Expect more pilot programs, regulatory clarity efforts, and integration with DeFi platforms as the technology matures.
The Road Ahead
While tokenisation promises to disrupt finance, mainstream adoption hinges on resolving:
- Regulatory cohesion across markets.
- Infrastructure reliability for institutional-grade custody.
- Investor education to mitigate crypto-associated risks.
As Yves Renno (Wirex) notes: "Blockchain’s potential for cheap, custody-free transactions is too significant to ignore." Whether tokenised ETFs become a staple or niche innovation, their development will shape the future of asset management.