BNY Mellon stated that an increasing number of asset managers are accelerating their fund tokenization initiatives, with focus expanding beyond money market funds to include ETFs. Although regulatory frameworks, trading infrastructure, and secondary market arrangements remain partially undefined, several institutions have chosen to move forward with product development.
ETF tokenization has entered the implementation phase.
Ben Slavin, head of ETF business at BNY Mellon, said that multiple initiatives around tokenizing ETFs are already underway. Major institutions, including BlackRock and Franklin Templeton, are also exploring how to bring traditional financial products onto blockchain networks for trading.
Fund tokenization typically involves representing fund shares as digital tokens that can be held and transferred on-chain. Wall Street institutions generally believe that such products could become a new distribution channel for traditional investment products, offering extended trading hours, faster settlement efficiency, and broader cross-border accessibility.
Institutions fear missing the early window of opportunity.
Slavin said that the accelerated pace of client progress is largely due to the desire to secure market positioning early and attract new assets. Even though existing regulations and infrastructure are not yet fully mature, many institutions still aim to bring their products to market as soon as possible.
He noted that current market interest has clearly surpassed cash management products. Asset management firms believe that tokenized funds are no longer just technological experiments but are gradually transitioning into commercially viable, formal products.
Unauthorized on-chain versions bring reputational pressure.
Another growing concern is that some well-known ETFs have been replicated into on-chain tradable versions by third parties and are circulating outside traditional financial markets, without direct involvement from the fund issuers.
Slavin said that hundreds of ETFs are already trading in similar formats on unregulated markets worldwide. Since publicly traded funds could theoretically be mapped into tokenized versions, issuers may face situations where their brand names are used in circulating products they cannot effectively monitor.
This situation increases reputational risk for asset management firms. Even if the on-chain products are not formally associated with the issuer, external investors may still link them to the original fund’s brand. As tokenization evolves from industry experimentation to commercial products, asset managers are becoming more proactive in developing their own on-chain strategies.