What are tokenized funds?
Tokenized funds are investment funds whose units or shares are recorded as tokens on a distributed ledger. The fund still holds bonds, shares or money market instruments; only the register of who owns the fund changes. The German term is Kryptofondsanteile for fund units under the KryptoFAV.
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Tokenized funds in brief
| Term | Tokenized fund, also fund token. Tokenized funds meaning: a fund with its share register on a ledger. German: Kryptofondsanteil |
|---|---|
| German law | Verordnung über Kryptofondsanteile (KryptoFAV) of , based on section 95(5) of the investment code (KAGB) |
| EU law | UCITS units with assets under management below EUR 500 million can go on a DLT market infrastructure (Article 3(1) of Regulation (EU) 2022/858) |
| Supervisors | BaFin, FMA, FINMA |
| Example type | Money market funds that invest in US Treasury bills (FSB) |
| A number | More than USD 1 billion in tokenized money market products on public blockchains in May 2024, about double the May 2023 value (FSB) |
How do tokenized funds work?
Tokenized funds work like other funds, with one difference: the transfer agent or depositary keeps the share register on a ledger. Fund tokenization changes the record of ownership and leaves the portfolio alone. The FSB notes for money market funds that "it is the shares of the fund itself that are being tokenised, and not the assets (such as Treasuries) in which the fund predominantly invests" (FSB, ).
One of the examples of tokenized funds is the Franklin OnChain U.S. Government Money Fund. Its summary prospectus of states that the transfer agent "maintains the official record of share ownership via a proprietary blockchain-integrated system" that uses one or more public blockchain networks. The transfer agent admits wallets through a whitelist and can correct errors and limit transfers. The prospectus adds: "The recording of Fund shares on the blockchain will not affect the Fund's investments."
What are tokenized money market funds?
Tokenized money market funds are money market funds whose shares exist as tokens. The FSB describes them as tokens representing a claim on a money market fund "investing in financial assets such as Treasury bills". The Franklin fund invests at least 99.5% of its total assets in US government securities, cash and fully collateralized repurchase agreements, and it tries to keep a stable share price of USD 1.00.
Why tokenized money market funds? The FSB lists general arguments of proponents of tokenization that apply here: digital channels open 24/7 and fewer operational barriers to using an asset as collateral. It also states that many of these benefits "have yet to be fully proven". A tokenized treasury fund is a fund under securities law; a stablecoin falls under MiCA as an e-money token or asset-referenced token, even when both sit on the same blockchain.
Tokenized funds vs ETF: what is the difference?
An ETF is a fund whose shares trade on a stock exchange; a tokenized fund is a fund whose share register sits on a ledger. The two features are independent of each other. The Franklin fund above is a money market mutual fund with a tokenized register. In the EU, the DLT Pilot Regime admits UCITS units to a DLT trading venue if the fund manages less than EUR 500 million.
Is a tokenized fund safe?
A tokenized fund carries the risks of the fund plus the risks of its ledger. The Franklin prospectus calls the use of blockchain technology "relatively new and still evolving for mutual funds". The CPMI writes that for tokenized assets, custody risk "may therefore apply to both the token and any underlying assets" (BIS CPMI, ). The prospectus of a tokenized fund states who keeps and corrects the official register and who holds the fund's assets. This page gives no investment advice.
Tokenized funds in Germany, Austria and Switzerland
In Germany, the KryptoFAV allows the units of a fund (Sondervermögen), or single share classes, to be issued fully or partly as Kryptofondsanteile (section 1). These are electronic unit certificates entered in a crypto securities register, and parts of the eWpG apply to them (section 2). The register is kept by the fund's depositary or by a company the depositary appoints that holds a license for crypto securities registers under the KWG or the Securities Institutions Act (section 3).
In Austria, UCITS units can be traded on DLT market infrastructures under the EU DLT Pilot Regime, which applies directly. The FMA is the competent authority for crypto-assets under the MiCA-VVG.
In Switzerland, FINMA states that the assets of Swiss collective investment schemes must be held by a Swiss custodian bank under Article 72 of the Collective Investment Schemes Act, and that direct investments in crypto-based assets must generally be held there too (FINMA Guidance 01/2026, ). This page gives no legal advice.
Sources
- Germany: Verordnung über Kryptofondsanteile (KryptoFAV),
- Germany: Gesetz über elektronische Wertpapiere,
- European Union: Regulation (EU) 2022/858 on a pilot regime for market infrastructures based on distributed ledger technology,
- Financial Stability Board: The Financial Stability Implications of Tokenisation,
- BIS Committee on Payments and Market Infrastructures: Tokenisation in the context of money and other assets,
- Franklin Templeton Trust: Franklin OnChain U.S. Government Money Fund, summary prospectus (SEC filing),
- Austria: MiCA-Verordnung-Vollzugsgesetz, BGBl. I Nr. 111/2024
- FINMA: Guidance 01/2026, Custody of cryptobased assets,