Tokenised funds set to reach $235 billion with DeFi surge

A new survey of asset managers and decentralised finance providers has identified a $235 billion opportunity for tokenised funds, driven by greater convergence between traditional asset management and decentralised finance (DeFi) platforms.

Research conducted by ValueExchange for Calastone indicates that tokenised funds are set for substantial growth, projecting assets under management (AUM) to rise from $4 billion in 2024 to $235 billion by 2029 - an increase of 58 times over five years.

The study reveals that asset managers are increasingly turning towards tokenisation as the quickest channel into digital assets. Nearly a third of asset managers (28%) plan to distribute tokenised funds by 2030, compared to 13% expecting to do so by 2026. Money market funds and private asset funds rank as the most popular asset classes for initial tokenisation efforts.

According to the research, close to two-thirds (65%) of asset managers who have already launched tokenised funds report tangible benefits over traditional models. These include greater automation, improved liquidity, and increased access to new investor segments. There is also a strong inclination among asset managers to work with technology partners and digital distribution platforms, rather than build tokenisation capabilities in-house or interact directly with end investors.

DeFi and traditional finance converge

The research also surveyed decentralised finance (DeFi) and Web3 platform providers about their appetite for tokenised products. A significant proportion (80%) believe that tokenised money market funds could enhance treasury management, while half expect their tokenised holdings to rise by at least 25% by 2030. Furthermore, three quarters (75%) say tokenised money market funds could help retain client assets and 40% think these products could help attract new investors to their platforms.

Currently, many DeFi platforms rely on traditional money market funds or bank deposits for managing liquidity, even though their operations are built on decentralised technology. The survey identifies that DeFi investors seek access to tokenised versions of these financial products directly on crypto-trading venues. This creates parallel demand among both platform operators and investors for tokenised funds combining the familiarity, safety and yield of traditional money markets with blockchain-native advantages, such as on-chain settlement, integration with digital wallets, and the ability to transact using stablecoins.

Industry perspectives

Commenting on the findings, Adam Belding, Chief Technology Officer at Calastone, said:

"DeFi has created a new class of platforms and investors who want to access the same trusted products that underpin traditional markets - but in a way that fits their digital-native infrastructure. Our research shows treasuries are eager for tokenised money market funds to manage cash efficiently, while investors want access to them on the same venues where they hold and trade their digital assets."

"Tokenisation provides the bridge, enabling asset managers to meet both needs with products that are immediately usable within the DeFi ecosystem. This is where supply and demand finally converge; we have reached a turning point where asset managers can leverage tokenisation to compete and win new customers in the DeFi space now."

Shift in distribution strategy

The survey findings suggest that traditional financial service providers and DeFi platforms, who have historically operated in separate spheres, are increasingly overlapping through tokenised products. While Australia's banking sector's reliance on stable deposits reduces its domestic dependence on money market funds compared to other markets, the global trajectory towards fund tokenisation is consistent across regions according to Calastone's research.

Distribution infrastructure

Calastone's Tokenised Distribution Solution is being positioned as a way for asset managers to quickly and efficiently deliver tokenised versions of their existing funds to market, utilising an established funds network and connecting to both traditional and decentralised markets without altering their core infrastructure.

DeFi, as defined by Investopedia, is an emerging financial system that utilises blockchain and cryptocurrencies to enable direct financial transactions between individuals and businesses, removing the need for traditional intermediaries.

The findings point to growing demand for tokenised products from both traditional financial institutions and newer digital-native platforms, with industry participants expecting significant growth in tokenised assets and increased interaction between traditional and decentralised finance in the coming years.