The world of investment is undergoing a quiet revolution—one powered by blockchain technology and driven by the growing demand for accessibility, transparency, and efficiency. At the heart of this transformation lies fund tokenization, a process that’s redefining how investors access alternative assets and how fund managers raise capital.
Fund tokenization involves converting shares or units in traditional investment vehicles—like private equity, real estate, or hedge funds—into digital tokens on a blockchain. These tokens represent fractional ownership, enabling broader participation, improved liquidity, and streamlined operations. While the concept may sound futuristic, it's already being implemented by major financial institutions and innovative startups alike.
This article explores the mechanics, benefits, and real-world applications of fund tokenization while addressing common questions and challenges. Whether you're an investor seeking diversification or a fund manager exploring new growth avenues, understanding tokenization is essential in today’s evolving financial landscape.
What Is Fund Tokenization?
Fund tokenization is the process of digitizing ownership stakes in an investment fund using blockchain technology. Each token represents a share or unit in the fund, much like a stock certificate—but with added advantages such as programmability, instant settlement, and 24/7 tradability.
This method is typically executed through a Security Token Offering (STO), a regulated form of fundraising where digital tokens are issued to investors in compliance with securities laws. Unlike unregulated ICOs, STOs provide legal clarity and investor protection.
Which Types of Funds Can Be Tokenized?
Virtually any fund structure can benefit from tokenization. Below are some prominent examples:
- Variable Capital Companies (VCCs): A flexible fund structure popular in Singapore, VCCs allow multiple sub-funds under one legal entity. Tokenizing VCC interests enhances operational efficiency and opens access to global investors via distributed ledger technology (DLT).
- Real Estate Funds: By tokenizing real estate holdings, investors gain fractional access to high-value properties with lower entry barriers and potential for secondary market trading.
- Private Equity & Venture Capital Funds: Traditionally reserved for accredited investors due to high minimums, tokenization allows smaller investors to participate in high-growth opportunities.
- Carbon Credit Funds: ESG-focused funds can tokenize carbon credits to improve transparency and liquidity in voluntary carbon markets.
- Hedge Funds: Complex strategies become more accessible when tokenized, offering improved transparency and faster onboarding.
- Infrastructure & Commodities Funds: Large-scale projects or physical assets like gold or oil can be fractionalized, enabling broader investor participation.
- Debt Funds: Bonds and government securities can be tokenized to enhance liquidity and reduce settlement times.
👉 Discover how modern investment platforms are unlocking new opportunities through asset tokenization.
Real-World Examples of Tokenized Funds
Tokenization isn’t theoretical—it’s already transforming finance. Here are three notable cases:
BlackRock’s BUIDL
Launched in March 2024, BUIDL became the world’s largest tokenized treasury fund, quickly capturing nearly 30% of the $1.3 billion tokenized U.S. Treasury market. As of May 2025, its assets under management reached **$2.9 billion**.
Powered by Securitize and built on the Ethereum blockchain, BUIDL offers investors yield-bearing exposure to short-term U.S. Treasuries with daily redemption options. Its success signaled institutional confidence in on-chain asset management and paved the way for wider adoption across money market funds.
TradeFlow Capital’s Commodity Trade Finance Fund
Based in Singapore, TradeFlow Capital manages around $100 million in assets with a proven track record of stable returns and zero defaults. The firm tokenized its commodity finance fund to offer investors exposure to pre-booked, insured commodity transactions.
Available through regulated platforms like InvestaX and Obligate, this offering exemplifies how traditional finance can integrate blockchain to boost accessibility and liquidity.
Diamond Standard’s Commodity Fund
This pioneering fund brings diamonds into the mainstream investment arena by backing tokens with physical diamond commodities. Regulated and listed on SEC-registered ATS platforms, it later expanded to Asia via InvestaX.
With assets benchmarked against the DIAMINDX index (published by Bloomberg), the fund enables sophisticated investors to access a previously illiquid and opaque asset class.
How Do Tokenized Funds Differ From Traditional Funds?
While both traditional and tokenized funds aim to pool investor capital for collective returns, key differences shape their performance and appeal:
| Feature | Traditional Funds | Tokenized Funds |
|---|---|---|
| Fees | Higher due to intermediaries | Lower via automated smart contracts |
| Entry Barrier | Often $50k+ minimums | Fractional ownership from as low as $100 |
| Accessibility | Geographically restricted | Global access via digital wallets |
| Liquidity | Lock-up periods common (e.g., 5–10 years) | Secondary trading on licensed exchanges |
| Transparency | Periodic reporting | Real-time on-chain transaction records |
| Settlement Time | T+2 or longer | Near-instantaneous blockchain settlement |
Despite these advantages, tokenized funds require users to understand digital wallets and blockchain basics—a learning curve not present in traditional investing.
The Fund Tokenization Process: Step by Step
Tokenizing a fund involves several structured phases:
1. Asset Selection & Evaluation
Identify a suitable fund or underlying asset. Conduct valuation and due diligence using standard financial practices.
2. Legal Structuring
Establish a compliant framework. Two primary models exist:
- Tokenized SPV (Indirect): A special purpose vehicle holds the asset; tokens represent equity in the SPV—ideal for regulatory alignment.
- Direct Asset Tokenization: Tokens directly represent ownership of the asset—less common due to legal complexities.
3. Custody of RWA & Tokens
Physical assets (e.g., real estate, commodities) are held by licensed custodians. Digital tokens can be:
- Self-custodied (user-controlled wallets), or
- Held via licensed digital custodians using MPC, multi-sig wallets, and HSMs for enhanced security.
4. Token Issuance
Tokens are minted on a blockchain (e.g., Ethereum, Polygon) representing ownership shares.
5. Primary Offering
Tokens are sold directly to investors through regulated platforms—enabling compliant capital raising.
6. Secondary Trading
Investors trade tokens on:
- Licensed exchanges (e.g., IX Exchange)
- Peer-to-peer broker-dealer platforms
- Decentralized exchanges (DEXs)
7. Ongoing Management
Includes compliance monitoring, dividend distributions via smart contracts, voting rights execution, and annual audits.
👉 See how leading platforms streamline the entire tokenization lifecycle—from issuance to trading.
Benefits of Fund Tokenization
For Investors:
- Lower entry barriers enable participation in elite asset classes.
- Enhanced liquidity allows exit options even for traditionally illiquid assets.
- Greater transparency via immutable blockchain records builds trust.
For Fund Managers:
- Access to global capital pools expands investor reach.
- Operational automation reduces administrative burden.
- Cost savings from disintermediation improve net returns.
For Service Providers:
- Faster settlement reduces counterparty risk.
- Reduced reconciliation needs due to single-source truth ledgers.
- New revenue models emerge in custody, compliance tech, and trading infrastructure.
Challenges in Asset Tokenization
Despite its promise, tokenization faces hurdles:
- Regulatory uncertainty: Laws vary across jurisdictions; compliance requires expert navigation.
- Infrastructure gaps: Few platforms offer end-to-end solutions—from issuance to post-trade services.
- Technical literacy: Investors must manage digital wallets and private keys securely.
- Market fragmentation: Multiple blockchains and standards complicate interoperability.
Jurisdictions like Singapore, Hong Kong, and Switzerland lead in creating supportive regulatory environments—making them preferred hubs for compliant tokenization projects.
Frequently Asked Questions (FAQ)
Q: Are tokenized funds legal?
A: Yes—when issued through compliant Security Token Offerings (STOs) under recognized securities regulations such as those in Singapore (MAS), the U.S. (SEC), or Switzerland (FINMA).
Q: How do I invest in a tokenized fund?
A: You’ll need to complete KYC/AML checks on a licensed platform, set up a digital wallet, and purchase tokens during primary or secondary offerings.
Q: Can I redeem my tokens for cash?
A: Yes—many tokenized funds offer redemption mechanisms either directly or through secondary market trading.
Q: Are my tokens secure?
A: Security depends on custody methods. Using licensed custodians significantly reduces risks compared to self-custody.
Q: Is tokenization only for large institutions?
A: No—while early adopters were big names like BlackRock, emerging platforms now empower smaller fund managers to tokenize affordably.
Q: What happens if the blockchain goes down?
A: Major blockchains like Ethereum have high uptime. Additionally, legal ownership is often backed off-chain through smart contract audits and escrow arrangements.
The future of investing is being rewritten—one token at a time. As technology matures and regulations evolve, fund tokenization will move from niche innovation to mainstream practice.
Whether you're looking to diversify your portfolio or scale your fund operations globally, embracing this shift early offers a strategic advantage.