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The staid world of asset management is on the cusp of a seismic shift, with a new report predicting a monumental 58-fold surge in tokenized funds over the next five years.
This burgeoning market is forecast to balloon from a modest $4 billion in 2024 to a staggering $235 billion by 2029, according to a Calastone white paper, as asset managers increasingly embrace blockchain technology to modernize the distribution and management of investment funds.
According to the report, based on surveys of asset managers and DeFi/Web3 platforms, reveals a growing consensus that tokenization – the process of converting ownership rights of an asset into a digital token on a blockchain – offers significant advantages over traditional models. A striking 65% of asset managers who have already ventured into tokenized funds attest to their benefits, citing increased automation, enhanced liquidity, and the ability to tap into new investor demographics.
"DeFi has created a new class of platforms and investors who want to access the same trusted products that underpin traditional markets – but in a way that fits their digital-native infrastructure," said Adam Belding, chief technology officer at Calastone. "Tokenisation provides the bridge, enabling asset managers to meet both needs with products that are immediately usable within the DeFi ecosystem."
Money Market and Private Asset Funds Lead the Charge
At the forefront of this transformation are money market funds and private asset funds, which asset managers have identified as the most promising candidates for tokenization. The appeal of tokenized money market funds is particularly strong among DeFi and Web3 platforms, with a remarkable 80% of these platforms believing that such funds could be beneficial for managing their treasuries. This sentiment is not merely theoretical; half of these platforms anticipate a significant increase of at least 25% in their holdings of tokenized assets by 2030. For these digitally native firms, tokenized money market funds offer a regulated, yield-bearing alternative to stablecoins for managing their capital.
The move towards tokenization is not just a fringe experiment. Major financial institutions are actively exploring and implementing this technology. JP Morgan's Tokenized Collateral Network, for instance, is a prime example of how tokenized assets, including money market fund shares, can be used to streamline collateral management and reduce settlement friction.
This trend is further evidenced by the growing number of asset managers planning to enter the space. While only 13% of managers currently plan to distribute tokenized funds in the next year, that number is expected to more than double to 28% by 2030.
A New Era of Digital Distribution
The rise of tokenized funds is intrinsically linked to the broader trend of digital transformation in the financial services industry. Asset managers are increasingly looking for more efficient and cost-effective ways to distribute their products, and digital platforms and exchanges are emerging as the preferred channels
. This shift is particularly pronounced in the Asia-Pacific region, which the Calastone report identifies as the biggest growth market for tokenized funds. An overwhelming 85% of asset managers in APAC are embracing tokenization, compared to 77% globally.
However, regulatory uncertainty remains a key concern for many in the industry. While regulators in jurisdictions like Singapore, the UK, and Hong Kong are actively working to create frameworks for tokenized assets, a globally harmonized approach is yet to emerge. Furthermore, the industry needs to address challenges related to interoperability between new blockchain-based systems and existing legacy infrastructure.
Despite these challenges, the momentum behind tokenized funds appears unstoppable. The potential benefits, from democratizing access to previously illiquid assets to enhancing transactional efficiency and transparency, are too compelling to ignore.
