Undeniable Sub-sectors in RWA: The Value, Exploration, and Practice of Fund Tokenization

When discussing the tokenization of physical assets ( RWA ), we usually focus on underlying assets such as US Treasury bonds, fixed income, and securities. In fact, currently, 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 ); followed by Centrifuge: $247 million ( asset-backed ); Ondo Finance: $183 million ( government bonds ).

Franklin Templeton is fully a tokenized fund, Ondo Finance also has two tokenized funds, and Centrifuge has established a tokenized fund in the RWA project in cooperation with Aave. It is evident that tokenized funds play an important role in connecting traditional finance and decentralized finance. We believe that this asset form of funds, due to (1) being regulated itself; (2) a relatively standardized digital expression, is the best carrier for RWA assets.

Currently, the RWA we are discussing is more about the unilateral value capture demand of the crypto ecosystem from the perspective of the real world. From the perspective of traditional finance, after the fund is tokenized through blockchain and distributed ledger technology, it can release even greater value.

Therefore, 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 typically the representation of assets on the blockchain after digitalization, leveraging the advantages of distributed ledger technology for accounting and settlement. Assets applied to tokenization can include financial instruments such as stocks, bonds, and funds, as well as tangible assets like real estate and intangible assets such as music streaming copyrights. The tokens generated after asset tokenization serve as carriers of the asset's value and are proof of the asset's rights.

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

The global asset management industry is facing numerous challenges. Although the overall asset management scale of the industry has grown with the rising market, fund management fees are being compressed due to competition among peers and a shift towards passive investment strategies. In addition to investment pressures, the market is also demanding higher digital capabilities from funds to meet the increasing online distribution, asset reporting, regulatory compliance, and personalization needs of investors. The growth rate of fund management costs is outpacing revenue, and fund profit margins are being squeezed.

For private equity funds, due to their poor liquidity and high investment thresholds, their investors are long limited to a few institutional investors. The private equity fund market urgently needs to lower investment thresholds and launch alternative products that can 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 will not only increase the scale of fund assets under management (Asset Under Management, AuM), invest in a broader range of asset classes (RWA tokenized asset diversity ); but also attract new categories of investors (Unbanked investors from Asia, Africa, and Latin America to invest through crypto assets ), improving the user investment experience (smart contracts embedded KYC ); and help funds win in the competition of industrial digital upgrades (digital upgrades ), while greatly reducing their operational and marketing costs (the advantages of blockchain and distributed ledgers ).

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

( 2.1 Tokenization helps promote the digitization of the fund market

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

Transfer Agents ( assist funds by coordinating both ends, responsible for understanding clients' ) KYC (, anti-money laundering ) AML (, combating the financing of terrorism ) CFT ( and economic sanctions screening verification, fund subscription and redemption settlement, reporting to management, and maintaining investor registration records.

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 net asset value by receiving and integrating orders, and settle orders via entry in a centralized register, then reconcile the orders with the cash positions of investors and the fund; ( three days before the settlement of fund shares and cash, both the fund and investors face market volatility and counterparty risk; ) the liquidity of the fund also forces fund managers to maintain cash positions to bear the cost of rebalancing the fund's net asset value.

In contrast, tokenization can significantly simplify the complex processes mentioned above: ( When tokenized funds are issued and traded on the blockchain, the subscription and redemption phases will be settled directly through fund tokens and payment tokens, entering the investors' accounts ) electronic wallets (, and transactions have finality in settlement, thereby eliminating market and counterparty risks; ) Because all transactions are recorded on the distributed ledger of the blockchain, any change in 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 multiple reporting and reconciliation.

At the same time, tokenization will help fund managers and investors achieve digital interaction: ) Due to 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 round-the-clock real-time pricing and settlement; ) Access to a unified ledger for multiple parties enables real-time data sharing, allowing investors to directly access fund data and trade; ( Fund managers will gain richer investor information, as well as trading information.

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) 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 cryptocurrency industry. Recently, it completed a $6 million financing round. Solv Protocol's latest product, 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 circulation for tokenized funds.

We see from 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 allows 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 own 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 in assets, laid out according to the investment strategy of the fund manager Blockin; in addition, another open-end fund RWA: Generate Yield On Your Stable Coins, initiated by the fund manager Solv RWA, raises USDT stablecoins and invests in RWA assets of U.S. Treasury bonds, providing interest income from U.S. Treasuries to stablecoin holders.

Open-end funds refer to funds where the total scale 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 allow investors to redeem regularly. Fund managers typically establish funds using an open-ended corporate structure with a high liquidity investment portfolio as their investment strategy.

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

Solv Protocol states: Currently, most crypto asset management services come from CeFi 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 provide 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.

Olivier Deng from Nomura Securities, an investor in Solv Protocol, stated: "Solv has built a trustless institutional-grade DeFi platform that integrates brokers, underwriters, market makers, and custodians, creating the first liquidity financial infrastructure that bridges DeFi, CeFi, and TradFi on the blockchain."

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3. Settlement of Tokenization Funds

Tokenization funds can to some extent replace some intermediary institutions ), such as fund distributors (, and enhance the digital level of the fund market, but the market does not evolve overnight. For fund managers and investors, the most realistic point is that tokenization will inevitably change the settlement methods for fund subscriptions and redemptions.

) 3.1 Tokenization Fund Settlement

Currently, funds are generally priced based on net asset value, and fund managers settle by receiving or paying cash through the banking system three days later ( T+3) in accordance with the issuance or cancellation of fund shares. However, the pricing of tokenized funds is calculated multiple times a day, and since subscriptions and redemptions will be settled "automatically" on the blockchain, the settlement method based on the banking 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 for a 24/7 market (7/24).

This settlement method using blockchain and distributed ledger technology is known as: Atomic Settlement(, which means that the transaction of cash equivalents and fund shares is directly related.