Tokenisation could speed ETF settlement and widen access

Issuers and infrastructure firms are testing tokenised ETF wrappers, private blockchain share registries and on‑chain settlement tools to shorten settlement times, expand trading hours and increase cross‑border access. Activity to date focuses on tokenised exposures to U.S. Treasuries, money‑market funds and short‑duration fixed income.

Market participants have issued tokenised versions of existing ETF holdings on public blockchains including Ethereum, Solana and Polygon while retaining the underlying ETF shares in regulated custody. Firms involved in these projects include providers that have wrapped Treasury ETFs from major asset managers and platforms that have offered tokenised European ETFs and short‑term Treasury exposures.

Separately, pilots are under way to use distributed‑ledger technology for transfer‑agent and shareholder registry functions. Those tests are taking place in jurisdictions such as the United States, Switzerland, Singapore and Hong Kong and aim to record ownership and support creation/redemption workflows on permissioned ledgers.

A third set of experiments uses tokenised ETF units for institutional plumbing: moving collateral, settling intraday trades and managing cross‑border liquidity. These applications are aimed at institutional counterparties and alternative trading systems rather than broad retail distribution.

Regulators have issued guidance that treats tokenised securities as subject to existing securities laws. No registered ETF currently keeps its official shareholder ledger on a public blockchain and the U.S. Securities and Exchange Commission has not approved tokenised ETF share classes, blockchain‑native ETF issuance, or smart‑contract creation and redemption within registered ETF structures.

Tokenised units that trade today are mostly found on crypto trading venues, alternative trading systems and offshore platforms, not on major U.S. exchanges. Market participants say that further regulatory approvals would be required for tokenised share classes or fully on‑chain ETF issuance to appear on primary U.S. listings.

Industry participants expect near‑term progress on permissioned blockchain registries, tokenised recordkeeping and limited tokenised share classes created inside existing fund structures. Achieving fully native on‑chain creation and redemption would require changes to custody rules, transfer‑agent roles and exchange listing standards.

Proponents highlight operational changes that tokenisation could enable if adopted at scale. These include near‑instant settlement instead of T+1 or T+2 cycles, continuous primary‑market creation and redemption, real‑time net asset values, automated arbitrage mechanisms and the ability to distribute ETF holdings directly to digital wallets across borders.

Some experimental uses would link tokenised ETF units to decentralised finance applications, allowing them to serve as collateral or be combined into multi‑chain distribution platforms. Those outcomes depend on regulatory approvals and on the development of market infrastructure.

Bob Smith, founder and president of Sage Advisory, described tokenisation as beginning to modernize the infrastructure around ETFs and said the most credible near‑term outcome is improved issuance, settlement and recordkeeping rather than immediate exchange‑listed on‑chain ETFs.

ETF issuers and allocators continue to monitor pilot programs and regulatory developments. For now, tokenisation work is concentrated in infrastructure and settlement pilots rather than in replacing the ETF wrapper used by regulated funds.