Tokenization Is Growing, But Still Not Grown Up

If you tokenize it, will they come? 

It’s still early innings, but tokenized securities are on the board. Yesterday, Janus Henderson launched a tokenized Nasdaq-100 fund, JQQQ, available to eligible non-US professional investors with a $100,000 minimum. And others including BlackRock, JPMorgan and Franklin Templeton have launched tokenized money market funds. With tokenized shares, investors trade on a blockchain rather than on an exchange,  saving time and money, while opening products up to a global audience, proponents say. 

Meanwhile, the SEC’s new “innovation exemption” grants temporary approval for certain platforms to host trading on a blockchain. The monthly trading volume of tokenized stocks and ETFs, while still relatively small, has increased nearly 18 times since January, per data from Dune Analytics. 

But there’s still a way to go, since the arena thus far has been limited to third-party and derivative tokenization, said Rali Perduhova, CEO of Andra, a tokenization platform for ETF issuers. “Up to this point, we don’t really have a real tokenized ETF or stock,” she said. “For you to really, truly tokenize an ETF, you need to have an issuer-sponsored model.” 

Token Effort 

It’s still unclear how strong the demand for tokenization really is. “It’s starting to grow, and firms are starting to get much more interested, but outside of money-market funds, we’re talking about a handful of billion dollars in assets,” said Loren Fox, director of research at Fuse Research Network. Since financial advisors generally look at things from a long-term perspective, the benefit of instantaneous trading doesn’t always land, he said. “It’s not really clear how quickly this will catch on.” 

To that end:  

• Tokenized stocks and ETFs trading amounted to more than $37 billion and perpetuals on stocks, ETFs and equity indices traded $201 billion on Hyperliquid in the third quarter, per Dune. 
• One third of advisors surveyed by Fuse said they believe that tokenization will be moderately to very highly relevant to their practice over the next three years.

Take a Walk: JQQQ is a step forward for tokenization in that it’s an issuer-sponsored fund from a credible asset manager, but it’s still private and not available to US investors. The fund is a segregated portfolio of Anemoy Capital, a British Virgin Islands segregated portfolio company, with Janus Henderson as the subinvestment manager, per the announcement.  “It isn’t the end state, because it isn’t an ETF,” Perduhova said. “The next step is still a US, ’40 Act, issuer-sponsored ETF where the tokenized share is the same security any investor holds.”