Tokenisation, or the act of representing traditional assets such as stocks, bonds and funds as digital tokens on a blockchain, is continuing to gain significant momentum on Wall Street, with major exchanges preparing to launch their tokenised securities platforms, and banks and asset managers rolling out tokenised money market funds.
Notably, the Depository Trust & Clearing Corporation (DTCC), the central clearing house for US securities, custodies approximately US$100 trillion in assets and processes trillions in transactions daily. What if ownership of all those assets was recorded on the blockchain and transferred and settled directly 'on-chain', 24/7? What if you could pledge those assets as margin and receive distributions/yield, directly on blockchain rails?
The indications are that the industry is now very much alive to the benefits of tokenisation, which include:
- 24/7 transfers and potential atomic settlement (delivery-vs-payment) on-chain, including with tokenised cash/stablecoins
- Enhanced collateral mobility (posting Treasuries for margin/repo at any time, including weekends and smart contract, automated responses to variation margin calls). Brian Steele, president of clearing and securities services at DTCC, has been quoted as saying that “collateral continues to be the killer application”
- Programmability, interoperability with broader blockchain ecosystems, reduced counterparty risk and capital efficiency
Reflecting this potential, Citigroup has recently predicted the tokenised securities market will grow to at least US$5.5 trillion by 2030. According to Citi, if just 10% of US retail investors use on-chain solutions by 2030, this could create about US$2.6 trillion of demand for tokenised public equities.
The potential is now becoming reality. DTCC and Wall Street have progressed from early blockchain pilots focused on faster settlement to regulatory approval for large-scale tokenisation of traditional securities.
On December 11, 2025, for example, the SEC issued a no-action letter authorising DTCC to offer a tokenisation service for select DTC-custodied assets, allowing participants to convert security entitlements into blockchain-based tokenised entitlements, recorded on approved networks.
Eligible assets currently include highly liquid securities, such as the Russell 1000 Index stocks, ETFs tracking major indices (such as S&P 500, Nasdaq-100) and US Treasury bills, bonds and notes. The initial focus is on voluntary use by DTC participants and tokens can be held or transferred via registered wallets.
Industry progress
This progress is being mirrored across the banking and investment funds sectors too.
As far as banking is concerned, institutions tend to favour tokenised deposits because they are simply traditional bank deposits represented as digital tokens on the blockchain.
In particular, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) and 17 banks from around the world are preparing to pilot live transactions using tokenised deposits on a new system – digital representations of customers’ account balances that can be transferred over blockchain rails. SWIFT’s blockchain ledger will allow banks to move funds for customers outside traditional business hours, including at nights and on weekends, before completing final settlement through their existing systems.
Elsewhere, more than 100 financial companies including Visa, Mastercard and Coinbase have also linked up to introduce a joint stablecoin, Open USD. In June, a group of large US banks announced plans for a shared network run by The Clearing House that would connect tokenised bank deposits with traditional payment systems.
Meanwhile, the US is also seeing meaningful and accelerating adoption of blockchain technology by investment funds, particularly through tokenised real-world assets (RWAs) like money market funds, Treasury products and crypto exposure vehicles.
This is driven by major asset managers integrating blockchain into their systems for increased efficiency, 24/7 liquidity, programmability and direct on-chain yield. Examples include:
- BlackRock’s BUIDL (USD Institutional Digital Liquidity Fund): launched in 2024 on Ethereum (with subsequent expansion to other chains), this tokenised stable value short-term treasury fund has grown rapidly, to around US$2.8 billion in AUM in mid-2026
- JPMorgan’s tokenised offerings: the firm launched its My OnChain Net Yield Fund (MONY) on Ethereum, a tokenised money market fund seeded with US$100 million
- Fidelity: developed and offered tokenised money market funds, experimenting with blockchain for fractional ownership and real-time settlement
- State Street Galaxy Onchain Liquidity Sweep Fund (SWEEP): launched in May 2026 on Solana, this tokenised private liquidity fund, a partnership between State Street Investment Management and Galaxy, enables 24/7 cash management and stablecoin sweeps into yield-bearing assets
These are not isolated case studies – there are numerous other examples of asset managers pursuing solutions in the tokenisation space too.
AML
Addressing anti-money laundering concerns and regulations remains a critical point, of course and tokenised funds are currently adopting a hybrid approach, including on-chain tokens and off-chain identity controls. Some asset managers are creating a permissioned, whitelisted system with strict onboarding rules for new investors, who must complete enhanced KYC/AML checks, verify qualified purchaser/accredited investor status, provide source-of-funds information and sign subscription agreements before they can subscribe.
In such cases, the minimum investment permitted is also typically high (around US$5M) to exclude retail investors. This process of whitelisting means that tokens can only be transferred between pre-approved wallets. Smart contracts can enforce these controls in real-time.
Although tokenised funds can mitigate the many AML risks better than pure crypto exchanges, challenges do persist, including:
- Identity vs. pseudonymity: public blockchains show all transactions transparently, but linking on-chain activity to real identities requires robust off-chain KYC
- Transfer and secondary market controls: unrestricted peer-to-peer transfers risk non-compliant holders. This can be solved with smart contract-enforced whitelists but scaling secondary market liquidity demands real-time compliance checks
- Cross-border and jurisdictional risks: varying global rules, such as FATF standards, MiCA in EU and the US Patriot Act, create fragmentation
- Ongoing transaction monitoring and beneficial ownership: detecting suspicious patterns requires advanced tools. Tokenisation doesn't automatically move full AML/KYC on-chain
- Smart contract and operational risks: vulnerabilities could allow exploitation to launder funds. Permissioned designs and audits help, but tech risks add to traditional AML burdens
- Ensuring robust KYC compliance: this can be particularly challenging for funds seeking to provide or access liquidity on decentralised exchanges, where counterparties may be pseudonymous and traditional onboarding processes are difficult to enforce
Tokenised funds in the Cayman Islands
As a leading domicile for investment funds and cross-border structures, Cayman is very much on the front foot regarding the tokenisation opportunity. Its approach has been to integrate tokenisation within its existing legislative framework rather than treating it as a separate ecosystem.
The March 2026 amendments to the Mutual Funds Act, Private Funds Act and Virtual Asset Services Provider (VASP) Act reflect this, providing clarity by expressly recognising tokenised fund interests within an established regime.
Crucially, the legislation confirms that tokenised equity or investment interests do not constitute a virtual asset issuance under the Virtual Asset (Service Providers) Act, except where relevant virtual asset services are undertaken.
This removes a key area of uncertainty and reinforces that tokenisation does not fundamentally alter the regulatory status of the underlying fund. At the same time, the framework introduces additional obligations reflecting the operational realities of tokenised structures. For more details, see Laura McGeever’s article: Tokenised funds in the Cayman Islands: Governance and regulation.
Looking forward, tokenised funds have the capacity, in theory, to fundamentally reshape how investor ownership in hedge funds is evidenced and recorded.
However, adoption of tokenisation in the offshore hedge fund world (primarily Cayman Islands and BVI) remains in an early albeit accelerating phase, largely focused on specific use cases like liquidity enhancement, operational efficiency and secondary trading, rather than a broad transformation.
Nevertheless, the interest is undoubtedly there. A recent PwC/AIMA report states that around 33% of hedge funds are committed to or are exploring fund tokenisation. Among digital asset hedge funds specifically, 12% are already investing in tokenised assets.
Opportunity
While tokenisation offers clear benefits for the hedge fund space, full integration is likely to take a few years yet.
As it stands, the blockchain is currently duplicative of the existing share registers currently maintained by hedge fund administrators, representing additional costs. Traditional centralised ledgers (like DTCC in the US public markets and Hedge Fund Administrators share registers) remain the authoritative records for now, but with tokenisation as an optional overlay for those seeking efficiency and innovation.
We are likely, however, to see accelerating interest over the coming years, and if the industry can keep up that level of progress, the opportunity, both for fund managers and indeed Cayman, could be significant.
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