Putting Tokenization to Work: Innovation Is Already Delivering for MMFs—and ETFs Are Next

"The number of tokenized money market funds (MMFs) is already in the double-digits, and we expect many more to come,” says Katey Neate, CEO of BNY Mellon International and Global Head of Investor Solutions. “The stage is set for the next step, with growing demand to tokenize exchange traded funds (ETFs).”

The U.S. Securities and Exchange Commission currently has oversight of more than $1 billion in funds under management in tokenized form. “Crucially, tokenization is now set to reach beyond the U.S. – particularly into Luxembourg and the United Kingdom – pending domestic regulatory approval,” adds Neate. 

Maturing policy frameworks across key jurisdictions are expected to underpin meaningful growth.  

Tokenization of other cash equivalents including U.S. Treasury bills, money market funds and deposits is also growing rapidly. Analysis suggests that stablecoins, together with digital MMFs and tokenized deposits, could reach $3.6 trillion by 2030.¹

For asset managers and service providers, the question is now how quickly tokenized funds can be brought to market at scale with institutional-grade controls. To fully capture the benefits, asset managers must work with a partner that can deliver robust front-to-back servicing and seamless access to capabilities across the MMF and ETF lifecycle. 

Patrick Corker, Head of Digital Cash, Collateral and Payments for Product & Innovation Hub says, “We’re bringing our trusted, resilient, secure traditional infrastructure to the digital economy, enabling clients to invest with even greater flexibility, reduce operational friction and harness scalable, programmable finance with confidence.”

Encompassing new investors

As the industry moves from experimentation to execution, tokenization is poised to deliver tangible results for asset managers and their investors, helping to eliminate pain points in existing operating models that have endured for decades.

“Most clients’ priorities are fundamentally unchanged,” says Neate. “They want faster execution, lower costs, reduced operational friction and certainty of settlement.” The importance of these goals is growing, however, as global capital markets move toward an always-on operating model. “By enabling near-real-time settlement and improved transparency, tokenization both fulfills clients’ longstanding objectives and meets demands to improve liquidity and broaden investor access in this new market environment.”

At the same time, a new cohort of crypto- and blockchain-native investors is emerging. These digital-native investors currently hold stablecoins and are looking to deploy capital. But currently they cannot easily earn a yield on these holdings by, for instance, investing in a tokenized MMF. To do so, they must first sell stablecoins and then buy fiat currency – a cumbersome process. Equally, asset managers want to ease integration into the on-chain ecosystem and improve asset mobility by facilitating the use of funds as collateral in tokenized form.

For managers, tokenized funds are therefore not a novelty – they are key to their evolving model and to their ability to easily access rapidly growing investor pools. Their eagerness to accommodate investors’ preferences in this new world is reflected in growing demand for different share classes to be available on a variety of blockchains. Adding a tokenized class expands distribution to consumers who have use cases for transacting in tokenized assets, such as real-time settlements or alternative payments. Tokenization also enables fractionalization, lowering minimums and opening access to assets such as real estate that were previously inaccessible.

An evolutionary, not revolutionary path

Although tokenization is a major innovation, it does not require asset managers to reinvent their models, says Bob Humbert, Managing Director, Global Product Head of ETFs, Registered Funds and Alternatives at BNY. Instead, tokenized funds are viewed as another option alongside traditional funds. 

“Tokenized MMFs are being launched as additional share classes within existing fund structures rather than as entirely new vehicles,” says Humbert. “This approach preserves familiar governance, risk and regulatory frameworks while extending distribution and settlement capabilities onto blockchain rails.” Tokenized ETFs will likely follow a similar playbook. “There are additional regulatory hurdles compared to MMFs, but tokenized ETFs are coming,” he adds. 

However, not every asset will benefit from being on-chain, and not every process needs to be, says Neate: “It’s therefore important that providers’ platforms are asset-class agnostic – on-chain and off.” 

Seamless integration for a unified workflow

Asset managers’ preference to maintain existing processes and governance models – and the fact that some assets are unsuited to being on-chain – is reflected in the operational approach taken by BNY.  

“We’re evolving and reinforcing our model to enable market participants to establish and manage MMFs and ETFs within standardized operational and governance frameworks,” says Humbert.

In practice, this will entail layering blockchain connectivity and communication on top of existing system architecture rather than treating tokenization as a parallel workflow. This delivers full integration of on-chain transaction capabilities with existing systems and controls. With traditional and blockchain-enabled systems working in concert, clients will be able to move seamlessly between processes, whether to launch new funds, support ongoing activity or manage risk for a fund and its investor base. Over time, this integration will unlock new possibilities.

Tokenization necessitates operational and control innovations. “We’ve expanded our toolkit to meet new market realities,” says Humbert. We are building out capabilities to mint and burn tokens, we are also working on upgrading its risk and control infrastructure. “Our objective is always to maintain governance and robust controls while enabling operational efficiency and market access,” he adds. Custody, data management, recordkeeping, investor onboarding and servicing have also been enhanced.

Scaling with confidence on proven infrastructure

In building the financial infrastructure of the future by integrating and operationalizing tokenization, BNY starts with a valuable advantage over many other providers. “We can leverage the connectivity of our Fund & Investor Solutions platform with other parts of the firm to deliver end-to-end support across the MMF and ETF lifecycle,” says Humbert.

Provider integration should span not only asset servicing but also structuring, trading, financing and collateral management. That way, it is possible to deliver solutions that simplify processes, enhance transparency, and create a low-friction, seamless experience for investors. Effective integration also more easily facilitates the provision of a broader ecosystem of services. 

One essential but often overlooked component in delivering success across the value chain is transfer agency. “The role and services of the transfer agent must change to accommodate tokenization, and we are focused on transforming our capabilities to help our clients get ready for this next phase of growth. We’re excited by what blockchain will mean for our transfer agency offering,” says Neate. 

BNY’s capabilities enable asset managers to bring tokenized funds to market and scale with confidence. “By choosing BNY, you gain the reassurance that comes from partnering with the only U.S. G-SIB² offering digital asset custody under state and federal oversight. We have a proven track record and deep expertise in building resilient market infrastructure,” says Neate.  

A valued partner for the next era

Tokenization is finally moving beyond early-stage excitement to practical reality. The necessary infrastructure is already in place, and while regulatory clarity is still required in some jurisdictions, the direction of travel is clear: the utility, mobility, distribution and liquidity that go with being on-chain is at hand.

BNY expects to see more tokenized ETFs in the coming months. While crypto natives as an investor base with assets to deploy could be important, the perennial drive to expand ETF use cases as well as finding opportunities to reduce friction and accelerate processes will be key to bringing the broader asset management community on board. 

BNY has been closely monitoring tokenization for many years to evaluate its operational implications and anticipate potential client challenges and opportunities. “We’ve worked hard to create a robust interoperable infrastructure that connects traditional and digital assets on one platform. Together with our integrated transfer agency and deep and longstanding fund servicing expertise, we can support the next era of fund innovation,” says Neate. “We intend to be at the forefront of tokenization – advancing the market and elevating the investor experience as a valued partner.”

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