December 10, 2024
By Our Correspondent
According to a recent report by the Boston Consulting Group (BCG), the tokenization of all managed funds globally could potentially unlock approximately US$100 billion in annual returns for investors and US$400 billion in trading opportunities for fund managers.
The BCG report highlights that once operational, tokenized funds would provide investors with numerous benefits, including 24/7 secondary transfers, fractionalization, a reduced investment threshold, and immediate collateralization, contingent upon the establishment of appropriate regulatory frameworks.
The report estimates that if all mutual funds worldwide were tokenized, mutual fund investors could see an increase in annual investment returns of around US$100 billion, while sophisticated investors might generate up to US$400 billion by capitalizing on intra-day value fluctuations.
The analysis points to a pressing demand for tokenized funds, which would effectively replace many back-office functions with blockchain technology, amounting to US$290 billion, with the potential for trillions more as traditional financial institutions increasingly adopt on-chain money solutions.
However, the path to achieving the full potential of tokenization is not without its challenges, as noted in the BCG report. It emphasizes the necessity for industry-wide collaboration and regulatory approval.
“To fully harness the potential of fund tokenization, the industry must first lay down solid foundations, which include clear regulations, global operational standards, and technical interoperability,” the report states.
Furthermore, financial institutions will gain from six essential capabilities: a strategic vision for tokenized funds, a roadmap for use cases, on-chain compliance, the implementation of blockchain technology and operational frameworks, the capacity to manage cross-chain interoperability, and the establishment of a center of excellence.
Authored by BCG consultants David Chan, Yue Hong Zhang, Teddy Hung, and Allison Xu, in collaboration with Aptos Labs and Invesco, the paper suggests that fund tokenization is merely 12 to 18 months away from reaching a critical turning point.
The report highlights various token initiatives currently underway in Hong Kong, the UK, and Singapore, as well as several operational funds developed on-chain by prominent institutions such as BlackRock and Franklin Templeton. The document posits that tokenization represents the “third revolution” in the financial sector, following the recent changes in exchange-traded funds (ETFs) and the initial investment transformation in 1940, which led to the establishment of unitized mutual funds in the United States.
According to the BCG analysis, those who act swiftly in this domain are likely to gain the most substantial benefits. The report indicates that early adopters among asset managers are expected to capture significant market share and occupy advantageous positions, with straightforward products aiding in the development of brand recognition and economies of scale. In contrast, those who follow later may need to focus on innovation within specialized niches.
