An Undeniable Segment in RWA: The Value, Exploration, and Practice of Fund Tokenization

When discussing RWA, we usually focus on underlying assets such as U.S. Treasury bonds, fixed income, and securities. However, apart from stablecoins, the largest RWA project by asset size is money market funds. The top three projects by asset size are: Franklin Templeton: $312 million ( government bonds ); Centrifuge: $247 million ( asset-backed ); Ondo Finance: $183 million ( government bonds ).

Franklin Templeton is completely a tokenized fund, Ondo Finance also has two tokenized funds, and Centrifuge has also established a tokenized fund in partnership with Aave in the RWA project. This illustrates the importance of tokenized funds in connecting traditional finance and decentralized finance. Currently, the RWA we discuss more reflects the one-sided value capture demand from the crypto field towards the real world, while from the perspective of traditional finance, funds can release greater value after being tokenized through blockchain and distributed ledger technology.

This article will gradually analyze the value of funds after tokenization through observed cases in the current market, as well as the active exploration and practice of market participants.

1. Fund Tokenization

Tokenization ( Tokenization ) is generally the representation of assets on the blockchain after their digitization, utilizing the advantages of distributed ledger technology for accounting and settlement. Assets that can be tokenized include not only financial instruments such as stocks, bonds, and funds but also tangible assets like real estate, as well as intangible assets like music streaming copyrights. The tokens generated after the tokenization of assets serve as the carriers of asset value and are certificates of asset rights.

This innovation and disruption also applies to funds. After tokenization, the fund forms a Tokenized Fund (, which means that the fund shares are recorded in a digital form as tokens on the blockchain distributed ledger, and the tokens are available for secondary market trading. This tokenized fund is different from a Token Fund ), which merely invests in primary and secondary market cryptocurrencies.

The global asset management industry is facing numerous challenges. Although the overall asset management scale of the industry has grown with the market rise, fund management fees are being squeezed by peer competition and a shift towards passive investment strategies. In addition to investment pressure, the market is also demanding higher digital capabilities from funds to meet investors' growing needs for online distribution, asset reporting, regulatory compliance, and personalization. The growth rate of fund management costs is outpacing revenue, squeezing fund profit margins.

For private equity funds, due to their poor liquidity and high investment thresholds, their investors have long been limited to a small number of institutional investors. The private equity fund market urgently needs to lower investment thresholds and launch alternative products that meet the investment needs of non-institutional clients such as small and medium-sized institutions, family offices, and high net worth individuals through appropriate product design.

The tokenization of funds can solve many problems currently faced by the global asset management industry. Advocates of tokenized funds firmly believe that future funds based on blockchain and distributed ledger technology can not only increase the fund's asset management scale ( Asset Under Management, AuM ), invest in a wider range of asset classes ( RWA tokenized asset diversity ); but also attract new categories of investors ( investors from unbanked regions in Asia, Africa, and Latin America can invest through crypto assets ), improve the investment experience for users ( smart contracts embedded with KYC ); and help funds win in the competition of industrial digitalization upgrades ( digital upgrades ), while significantly reducing their operational and marketing costs ( advantages of blockchain and distributed ledger ).

2. Tokenization will have a profound impact on the fund market

( 2.1 Tokenization helps promote the digitalization of the fund market.

Currently, funds and investors are separated by numerous intermediary institutions. The fund distribution end ) Fund Distributors ### includes: financial advisors, fund platforms ( Fund Platform ), and order routing networks ( Order-Routing Networks ); the fund service end includes: paying agents ( Paying Agents ), custodians ( Custodian Banks ), and fund accountants ( Fund Accountants ).

Transfer Agents ( assist funds by coordinating both ends, responsible for understanding customers ) KYC (, Anti-Money Laundering ) AML (, Countering the Financing of Terrorism ) CFT ( and economic sanctions screening verification, settlement of fund subscriptions and redemptions, reporting to management, and maintaining investor registration records.

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The operational process of traditional funds is essentially inefficient: ) Fund shares are established to meet subscriptions and are canceled to meet redemptions; ( Fund pricing is not based on buying and selling but on the net asset value set by the fund accountant; ) Transfer agents price based on the net asset value by receiving and consolidating orders, and settle orders in the centralized registry by posting entries, then reconcile the orders with the cash positions of investors and the fund; ( Three days before the release of fund shares and cash settlements, both the fund and investors will face market volatility and counterparty risks; ) The liquidity of the fund also forces fund managers to retain cash positions to bear the costs of rebalancing the fund's net asset value.

In contrast, tokenization can greatly simplify the complex processes mentioned above: ( When tokenized funds are issued and traded on the blockchain, the subscription and redemption processes will be directly settled through fund tokens and payment tokens, entering the investors' accounts ) electronic wallets (, with transactions having finality in settlement, thus eliminating market and counterparty risks; ) Because all transactions are recorded on the distributed ledger of the blockchain, any change of ownership will be automatically recorded, eliminating the need for centralized registration; ( Since all intermediaries can access and view data on the blockchain, there is no need for multi-party reporting and reconciliation.

At the same time, tokenization will help fund managers and investors achieve digital interaction: ) With the integration of KYC, AML, CFT, and economic sanctions screening verification, the speed of investor account opening will be improved; ( Based on blockchain's more efficient atomic settlement, achieving around-the-clock real-time pricing and settlement; ) Access to a unified ledger by multiple parties will enable real-time data sharing, allowing investors to directly access fund data and trade; ( Fund managers will gain richer investor information and trading information.

) 2.2 Solv Protocol's on-chain fund issuance and fundraising platform

Founded in 2020, Solv Protocol is dedicated to providing blockchain-based financial tools and diversified asset management infrastructure for the crypto industry, and recently completed a $6 million financing round. The latest product from Solv Protocol, Solv V3, sets a new standard for on-chain fund issuance. The tokenized funds created through Solv Protocol enable on-chain fundraising, issuance, subscription, redemption, trading, and settlement, achieving efficient capital flow for tokenized funds.

We saw on the official website that Solv Protocol has already achieved the issuance and fundraising of 74 tokenized funds, including Open-end Funds and Close-end Funds, serving over 25,000 investors and managing more than 160 million dollars in assets.

The core mechanism of Solv Protocol is to allow fund managers to create on-chain funds, depositing the raised funds such as ( stablecoins, BTC, ETH, etc., into the smart contracts of the Solv protocol, and generating corresponding NFT/SFT certificates that represent fund shares for investors, enabling fund managers to invest according to their investment strategies with the raised funds.

For example, we see that the Blockin GMX Delta Neutral Pool is an open-end fund managing approximately 2.6 million USD in assets, positioned according to the investment strategy of the fund manager Blockin; additionally, another open-end fund RWA: Generate Yield On Your Stable Coins, initiated by the fund manager Solv RWA, raises USDT stablecoins to invest in US Treasury RWA assets, providing interest income from US Treasuries to stablecoin holders.

Open-end funds refer to funds where the total size of fund units or shares is not fixed at the time of establishment by the fund manager. The fund can issue shares at any time and allows investors to redeem them periodically. Fund managers using a high liquidity investment portfolio as their investment strategy typically establish funds using an open-ended corporate structure.

The fully on-chain tokenization fund issued through the Solv Protocol raises funds from BTC/ETH/stable coins, and the assets invested also belong to native crypto assets or tokenized assets ) like US Treasury RWA (. This structure of a fully on-chain tokenization fund can maximize the value brought by tokenization. For example, the tokenization fund of Solv Protocol, )1( allows fund managers to directly face investors and obtain more investor data and trading information; )2( eliminates much of the friction from fund service intermediaries, reducing costs; )3( the fundraising, issuance, trading, and settlement of the tokenization fund are all realized through blockchain and recorded in a distributed ledger, making it efficient and transparent; )4( the net asset value (NAV) of the fund is updated in real-time, and fund share subscriptions/redemptions can be done anytime, anywhere, 24/7, among many other advantages.

Solv Protocol states: Currently, most crypto asset management services come from centralized institutions, whose asset creation and fund management processes are opaque, leading to trust issues. Better decentralized solutions provide a transparent and secure investment experience while helping asset management companies gain trust and liquidity. Solv is building the infrastructure and ecosystem to offer comprehensive services, including creation, issuance, marketing, and risk management. This lowers the barriers to participating in Web3 while promoting the maturity of the crypto market.

The investor of Solv Protocol said: "Solv has built a trustless, institutional-grade decentralized financial platform that integrates brokers, underwriters, market makers, and custodians, creating the first liquidity financial infrastructure that bridges decentralized finance, centralized finance, and traditional finance on the blockchain."

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3. Settlement of Tokenization Funds

Tokenization funds can partially replace certain intermediary institutions such as fund distributors (, and improve the digital level of the fund market, but the market does not change overnight. For fund managers and investors, the most realistic aspect is that tokenization will inevitably change the settlement method of fund subscriptions and redemptions.

) 3.1 Tokenization Fund Settlement

Currently, funds are generally priced based on net asset value, with fund managers settling through the bank system to receive or pay cash, which occurs three days later with ( T+3) for the issuance or cancellation of fund shares. In contrast, tokenized funds calculate their prices multiple times a day, and because subscriptions and redemptions will be "automatically" settled on the blockchain, the settlement method based on the bank system ( T+3) will be replaced. We can see in the case of the Solv Protocol that fully blockchain-based tokenized funds can achieve real-time pricing and real-time settlement in an around-the-clock market (7/24).

This settlement method leveraging blockchain and distributed ledger technology is known as: Atomic Settlement(, which means that the transaction of cash equivalents and fund shares is directly linked, that is, when one asset transfer occurs, the transfer of another asset occurs simultaneously. In other words, the precondition for settlement is that both the buyer's and seller's electronic wallets have cash and fund shares available for exchange, and the settlement ultimately depends on the simultaneous exchange. If cash or shares are not delivered, the transaction will not occur. This settlement method eliminates counterparty risk while enabling real-time settlement, greatly enhancing the efficiency of transactions.

Bitcoin was designed from the beginning to achieve decentralization.