Tokenisation may speed ETF settlement and global access

Bob Smith, founder and president of Sage Advisory, writes that tokenisation is beginning to modernize ETF infrastructure. Adoption is early and mainly institutional, with activity focused on tokenised wrappers, registry pilots and settlement applications rather than native on‑chain ETFs.

Sage, active in the ETF market since the mid-1990s, reports the clearest progress in tokenised exposure to U.S. Treasuries, money-market funds and short-duration fixed income. These tokenised products have been issued on public blockchains such as Ethereum, Solana and Polygon and are described as fully backed by underlying ETF shares held with regulated custodians. Market participants working on these structures include Ondo Finance, Backed Finance and Matrixdock.

Development is occurring on multiple fronts. One approach uses tokenised wrappers that represent ownership of traditional ETF shares while moving trade activity onto blockchain rails, allowing trading beyond normal exchange hours. A second approach runs distributed-ledger pilots for recordkeeping and shareholder registries, typically on permissioned blockchains, to speed settlement and reduce reconciliation. A third area of experimentation issues tokenised ETF units intended for institutional settlement, collateral movement and intraday liquidity rather than broad retail distribution.

Regulatory and operational limits persist. Recent guidance from the U.S. Securities and Exchange Commission clarifies that tokenised securities remain subject to existing securities laws. The SEC has not approved tokenised ETF share classes, blockchain-native ETF issuance, or on-chain creation and redemption within registered ETF structures. No registered ETF today keeps its official shareholder ledger on a public blockchain. Tokenised units that do trade are generally confined to crypto trading venues, alternative trading systems or offshore platforms rather than major U.S. exchanges.

Smith writes: “The more credible path forward is not immediate exchange-listed adoption, but the gradual emergence of regulated pathways for tokenised ownership, settlement, and market infrastructure.” Sage expects near-term developments to be infrastructure-led, including permissioned blockchain share registries, tokenised recordkeeping and limited tokenised share classes embedded into existing fund structures.

Sage lists operational features that tokenisation could enable if scaled. These include near-instant settlement instead of T+1/T+2 cycles, continuous 24/7 trading across time zones, on-chain net asset value calculations and real-time ownership tracking through a single canonical ledger. Firms working on tokenised products also aim to automate creation and redemption workflows and use tokenised ETF units as collateral in digital lending and liquidity applications.

Sage notes that moving to fully native on‑chain ETFs would require changes to custody rules, transfer-agent functions, exchange listing standards and settlement architecture. The firm expects adoption to remain gradual over the next several years and concentrated on back-office and settlement improvements, with fully on-chain ETFs a longer-term possibility pending regulatory and operational change.