In 2025, institutional fund managers are no longer asking ‘if’ they should explore tokenization, but ‘how’ to do it in a compliant, scalable way. With firms like Blackrock, Hamilton Lane, Mastercard, and Apollo launching tokenized investment vehicles, the shift from traditional fund models to digital asset-powered investment vehicles is well underway.

A recent whitepaper launched by Boston Consulting Group (BCG), Aptos Labs, and Invesco projected that tokenized funds could reach 1% of total assets under management (AUM) by 2030, equating to over US$600 billion.

What’s driving this adoption, and where is the market headed next? 

The Tokenized Fund Market Today

The real-world asset (RWA) tokenization market has experienced significant growth, with institutional players driving adoption across various asset classes. According to Security Token Market, the market for tokenized real-world assets reached $17.88 billion as of March 2025, up from $10 billion in 2024. The primary drivers of this growth have been tokenized treasuries and tokenized private credit, both of which have seen increased participation from institutional investors.

The Rise of Tokenized Treasuries

Tokenized treasuries have emerged as one of the fastest-growing segments in the tokenized asset space, with more than $4.05 billion in tokenized U.S. Treasuries now issued on-chain.

This growth has been fueled by several factors:

• Institutional Demand for Yield-Bearing Digital Assets: With traditional bond markets experiencing liquidity constraints, institutional investors are seeking on-chain alternatives that provide greater accessibility and real-time settlement.‍
• Market Leaders Driving Adoption: Asset managers like BlackRock, Franklin Templeton, and JPMorgan have been exploring tokenized treasury funds to offer more efficient bond trading solutions. Franklin Templeton’s tokenized money market fund is a prime example of how blockchain is being used to enhance fixed-income fund structures.

Tokenized Private Credit: A New Institutional Investment Frontier

The tokenized private credit market has surpassed $12 billion, making it one of the largest segments within the real-world asset tokenization space.

Private credit has historically been an illiquid asset class, but tokenization is transforming this market by enabling fractional ownership, secondary trading, and automated fund distributions.

• Improving Liquidity for Private Credit Investors: Traditionally, private credit investors faced long lock-up periods with limited exit options. Tokenization allows for programmable liquidity mechanisms, enabling investors to trade loan participations in regulated secondary markets.
• Expanding Institutional Participation: Institutional capital allocators, including pension funds and family offices, are increasingly exploring tokenized private credit to gain exposure to alternative fixed-income instruments with better risk-adjusted returns.
• Smart Contracts for Automated Loan Servicing: Tokenized private credit funds utilize blockchain-based smart contracts to automate loan servicing, interest payments, and compliance reporting, reducing administrative burdens for fund managers.

These trends indicate that tokenization is no longer an experimental concept; it is becoming a fundamental part of institutional asset management strategies.

Recent Developments

• BlackRock USD Institutional Digital Liquidity Fund’s AUM surpasses $1 billion.
• Boston Consulting Group (BCG), Aptos Labs, and Invesco co-launched "Tokenized Funds: The Third Revolution in Asset Management Decoded", projecting that tokenized funds could reach 1% of total assets under management (AUM) by 2030, equating to over US$600 billion.
• Apollo Asset Management, a $733 billion alternative asset manager, announced the launch of a tokenized private credit fund on 6 blockchain networks.
• Mastercard integrated tokenized real-world assets into its Multi-Token Network (MTN), starting with ONDO’s Short-Term US Government Treasuries Fund (OUSG), enabling businesses to access yield-bearing digital assets with enhanced liquidity and settlement efficiency. 
• Abu Dhabi's Realize T-BILLS Fund: In October 2024, Realize, an Abu Dhabi-based technology firm, introduced a tokenized U.S. Treasuries fund. This fund invests in U.S. Treasury-focused ETFs from BlackRock and State Street, converting these assets into digital tokens on blockchain platforms like IOTA and Ethereum. The initiative aims to reach a $200-million fund size, marking the first tokenized fund domiciled in the Abu Dhabi Global Market. 
• State Street's Initiatives: State Street is exploring the establishment of tokenized bonds and money market funds, leveraging cryptocurrency technology within traditional financial frameworks. 
• UBS Asset Management launched its first tokenized money market fund - UBS USD Money Market Investment Fund Token” (“uMINT”) - issued on Ethereum public blockchain, furthering institutional adoption of tokenized financial products

Why Institutional Fund Managers Are Adopting Tokenization

Expanding Investor Access and Capital Raising

Institutional fund managers are exploring tokenization as a way to tap into new investor segments and expand capital formation channels. While both traditional and tokenized funds can have varying minimum investment thresholds, tokenization introduces new distribution pathways that enable funds to reach a broader base of investors.

• New Distribution Pathways: Tokenized funds can be listed on regulated digital asset platforms, allowing institutional investors, family offices, and accredited investors to access investment opportunities that were previously restricted by geographic and operational barriers.
• Alternative Fundraising Avenues: Tokenization introduces new capital sources, particularly from digital asset investors who actively seek institutional-grade investment products.

For instance, InvestaX is building a robust market for tokenized funds by connecting tokenized fund issuers with over 20 million verified users across regulated digital asset platforms.

Enhancing Liquidity and Secondary Market Access

Liquidity remains one of the primary challenges in private markets. Tokenized funds introduce secondary market trading, allowing investors to exit earlier through compliant secondary trading platforms.

One such regulated secondary market is IXS, which provides liquidity solutions for tokenized assets via its Automated Market Maker (AMM) and decentralized exchange (DEX) for security tokens, offering fund managers a compliant way to enhance liquidity for their investors. 

Enhanced Flexibility in Fund Structuring

Tokenization allows fund managers to design more flexible investment vehicles, catering to different investor preferences and regulatory requirements.

• Customizable Share Classes: Fund managers can structure tokenized funds with multiple share classes, enabling tailored investment terms for different investor types such as institutions, family offices, and high-net-worth individuals.
• Programmatic Distribution & Liquidity Options: Smart contracts enable automated fund distributions and can incorporate predefined liquidity mechanisms such as secondary trading in regulated markets.
• Hybrid Fund Models: Many asset managers are exploring hybrid structures where traditional fund units and tokenized shares coexist, allowing institutional investors to gradually integrate digital assets into their portfolios without operational disruptions.

Where Is the Market Headed Next?

Projected Market Growth and Institutional Adoption

Tokenized funds are on track to become a significant part of the asset management industry, driven by technological advancements, regulatory clarity, and shifting investor preferences. While still in the early stages, multiple projections indicate that the market for tokenized funds will experience substantial growth by 2030:

• BCG, Invesco & Aptos Labs estimate that tokenized funds could reach 1% of total mutual fund and ETF assets under management (AUM) within seven years, equating to over $600 billion in AUM by 2030. They also suggest that if regulators permit the direct conversion of existing mutual funds and ETFs to tokenized formats, the market could reach multiple trillions in AUM.
• Standard Chartered projects that tokenized assets could grow to $30.1 trillion by 2030, a figure that includes a wide range of tokenized securities, including private market funds.
• Deloitte provides a more conservative estimate, predicting $2 trillion in tokenized assets over the next five years, as the industry navigates regulatory and infrastructure development.

The variations in these forecasts highlight that while tokenized funds are widely expected to grow, the speed and scale of adoption will depend on how key market factors evolve in the coming years.

Challenges and Barriers to Growth

While the outlook for tokenized funds is promising, several challenges remain:

1. Regulatory Uncertainty and Legal Frameworks

• Despite progress, inconsistent regulations across jurisdictions create complexities for institutional fund managers looking to issue tokenized funds.
• Some regulators, such as the SEC (U.S.), remain cautious, requiring tokenized funds to fit into existing legal frameworks rather than creating new structures specifically for them.
• However, regulators in Singapore (MAS), the UK (FCA), and Hong Kong (SFC) are actively shaping policies that provide more structured pathways for tokenized fund issuance and distribution.

2. Institutional Infrastructure and Custody Solutions

• Many institutional investors require traditional fund infrastructure (e.g., prime brokerage, fund administrators, custodians) to fully integrate with tokenized funds.
• Leading asset servicing firms such as State Street and BNY Mellon are currently developing tokenization-focused custody solutions, but adoption remains gradual.

3. Liquidity and Secondary Market Development

• The promise of enhanced liquidity is a key advantage of tokenized funds, yet most tokenized funds still lack deep and liquid secondary markets.
• Secondary trading is currently limited to select regulated digital asset exchanges, with broader institutional adoption dependent on regulatory approval and exchange partnerships.

What Fund Managers Should Watch for in the Next 3-5 Years

Given the current trajectory, institutional fund managers should pay close attention to:

• Regulatory Developments: Will major regulators create clearer frameworks for tokenized fund conversions?
• Institutional Custody and Fund Administration: How quickly will custodians and fund administrators adapt to tokenized securities?
• Expansion of Digital Asset Investment Platforms: Will institutional investors gain broader access to tokenized funds through traditional fund marketplaces?
• Liquidity Evolution: Will secondary market infrastructure mature, enabling real institutional-level liquidity for tokenized funds?

For fund managers evaluating tokenization, the next five years will be crucial in determining how and when to integrate tokenized structures into their portfolios.

Conclusion

For fund managers looking to future-proof their fund structures, tokenization presents an opportunity to enhance operational efficiency, expand distribution channels, and access new liquidity options. As regulatory frameworks evolve and more institutional players enter the space, tokenized funds could become a mainstream component of asset management within the next decade.

At InvestaX, we're positioned to provide the licensed infrastructure and access necessary for your tokenized fund strategy to scale. Through strategic alliances, we connect issuers to over 20 million verified users across regulated digital asset platforms. Contact us to discuss your tokenization strategies.