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BNY Sees FOMO Driving Demand for Tokenized Funds

BNY says asset managers are showing clear FOMO around tokenized funds. See how blockchain could make ETFs tradable 24/7, even with rules still up in the air.

By Luc Vesters
• 2 min read
BNY Sees FOMO Driving Demand for Tokenized Funds

Key Takeaways

  • BNY sees strong interest from asset managers in tokenized funds, driven by FOMO and the desire to attract new capital flows.
  • According to BNY, tokenized funds could make 24/7 trading and transfers possible, while regulation and infrastructure are still unclear.
  • Fund issuers are warning about reputational risk, since tokenized ETFs are already trading on unregulated platforms without their direct involvement.

Interest in tokenized funds is growing fast among asset managers that do not want to fall behind in the emerging market for blockchain-based investment products. According to Ben Slavin, global head of ETFs at BNY, several projects are underway to tokenize traditional ETFs and create new investment opportunities.

Rising Interest Despite Unclear Regulation

Even though a lot of questions about how tokenized funds will work with existing infrastructure are still unanswered, and the rules are not fully sorted out yet, many players feel a strong urge to get in early. Slavin calls it clear FOMO among clients who see a chance to attract new capital flows. That excitement also comes from the potential for tokenized funds to make trading and transferring fund shares possible 24/7, something traditional markets do not offer.

Risks and Challenges for Fund Issuers

One growing concern is that tokenized versions of well-known ETFs are already being traded on unregulated platforms, often without any direct involvement from the fund issuers. That can create reputational risk, since these tokens carry the fund's name without official oversight. This looks a lot like the early days of crypto trading, when the technology moved faster than the rules.

Blockchain as a New Distribution Channel for ETFs

The expectation is that blockchain networks could become a new distribution channel for traditional investment products. Initiatives like the Depository Trust & Clearing Corporation (DTCC) pilot to tokenize Russell 1000 stocks and large ETFs, along with the New York Stock Exchange's development of a 24/7 trading platform, highlight institutional interest. Ethereum currently plays a dominant role in the tokenized ETF market, with a market share of about 74%. These developments point to growing integration of blockchain into traditional finance, even as discussions about regulation and market infrastructure continue.

This shift could also matter for European investors, since it shows that the line between traditional and digital financial products is getting thinner. European asset managers and regulators will likely keep a close eye on how this market develops, which could affect local rules and adoption of tokenized products.

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