Tokenization is attracting attention from two segments of the investment market: traditional exchange-traded funds and private assets such as credit and equity funds.
Recent surveys by ST0x Group and Clearwater Analytics show that many institutional investors are already testing tokenized products or preparing to offer them to clients.
In a survey commissioned by ST0x, 40% of institutional investors and wealth managers said they actively invest in and trade tokenized ETFs. Another 39% are running pilot programs or paper-trading the products. A further 21% are researching the market but have not yet invested, while only 2% have no plans to explore tokenized ETFs.
Expectations for the long term differ. Around 26% of respondents believe tokenized ETFs will completely replace traditional funds in core portfolios within the next decade. Another 44% expect the two formats to coexist, with tokenized products used for strategies that require round-the-clock trading or easier cross-border access. Just 6% think tokenized ETFs will fail to gain meaningful traction compared with conventional ones.
The interest is driven largely by practical advantages. For 35% of respondents, the ability to trade around the clock, including outside traditional market hours, is a major benefit. Another 34% highlighted automatic settlement, which can make transactions close to instantaneous.
Fractional ownership also appeals: roughly one in five respondents said it allows investors to allocate smaller amounts of capital instead of buying whole units. Lower transaction, clearing and custody costs were mentioned less frequently.
When asked which assets would work best inside a tokenized ETF, 34% chose global equities, followed by traditional fixed income (29%) and illiquid assets (23%). Digital assets and cryptocurrencies were named by 12%.
Regulation remains a significant obstacle. In the ST0x survey, 51% of respondents said uncertainty around the rules and differences in compliance requirements between jurisdictions made it harder to increase their activity. Another 24% were concerned about technical risks, including vulnerabilities in smart contracts and attacks on blockchain bridges.
Interest is not limited to ETFs. A separate report by Clearwater Analytics, The Crowded Trade, examines how asset managers are approaching tokenized investments, particularly in private markets.
Of the 250 senior executives surveyed, 24% said their firms already offer tokenized investments to clients. Another 44% plan to start offering them within the next 12 months, and 16% expect to follow within one to two years. Taken together, 97% anticipate having tokenized products available within three years.
Private credit stands out. Almost all respondents (96%) described tokenized private credit funds as attractive. Interest in private equity was lower but still substantial: 56% viewed tokenized private equity funds as an attractive option, including 26% who called them very attractive.
Tokenization can make it easier to break private-market exposure into smaller units. In private credit, this could give a broader range of investors access to funds holding business loans. Asset managers are also looking at tokenization as a way to modernize their infrastructure and respond to demand for private-market investments.
However, offering tokenized products is only part of the challenge. Firms still need systems that can accurately track investments across both traditional and digital assets. Kirat Singh, Clearwater Analytics’ President of Risk and Alternative Assets, noted that a tokenized fund continues to depend on reliable investment records, consistent data and a clear view of risk.
One finding from the Clearwater survey is particularly striking: 86% of firms said they had doubts about important data at least once a week. Adding tokenized investments increases the volume of records and raises the stakes for ensuring that information remains consistent across different systems.
For investors evaluating tokenized ETFs, the issuer’s regulatory standing is another key factor. In the ST0x survey, 44% said the issuer’s regulatory status and jurisdiction mattered most when assessing a product’s safety. A further 26% prioritised daily independent audits of the underlying assets, while 21% focused on the blockchain’s security record and reliability.
Both surveys indicate that tokenization has moved beyond industry experiments. Asset managers are preparing to apply it across different types of investments, from ETFs to private credit. How quickly adoption progresses will depend, in part, on whether regulators and market participants can resolve the practical and regulatory issues that still surround these products.
