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

When discussing RWA, we often focus on underlying assets such as U.S. Treasuries, fixed income, and securities. However, apart from stablecoins, the largest RWA project by asset size is the money market fund. 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 entirely a tokenized fund, Ondo Finance also has two tokenized funds, and Centrifuge has established a tokenized fund in collaboration with Aave in its RWA project. This illustrates the importance of tokenized funds in bridging traditional finance and DeFi. Currently, our discussion of RWA focuses more on the unilateral value capture demands of Crypto( or DeFi) regarding the real world. From the perspective of traditional finance, after funds are tokenized through blockchain and distributed ledger technology, they can unlock greater value.

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

1. Fund Tokenization

Tokenization ( Tokenization ) is usually the expression of assets after digitization on the blockchain, and it utilizes the advantages of distributed ledger technology for accounting and settlement. Assets that are tokenized can include not only financial instruments such as stocks, bonds, and funds, but also tangible assets like real estate, as well as intangible assets such as music streaming copyrights. The tokens generated after asset tokenization are carriers of asset value and serve as proof 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 a blockchain distributed ledger, and the tokens are available for trading on the secondary market. This tokenized fund is different from a Token Fund ) that merely invests in 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 market rise, fund management fees are being compressed due to peer competition and the industry's shift towards passive investment strategies. In addition to investment pressures, the market is also raising higher demands for the digital capabilities of funds to meet investors' increasing needs for online distribution, asset reporting, regulatory compliance, and personalization. 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 have long been limited to a few institutional investors. The private equity fund market urgently needs to lower investment thresholds and introduce alternative products through appropriate product design that can meet the investment needs of non-institutional clients such as small and medium-sized institutions, family offices, and high-net-worth individuals.

The tokenization of funds can address many issues currently facing 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 scale of fund asset management ( Asset Under Management, AuM ), invest in a broader 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 to invest through crypto assets ), improve user investment experience ( smart contracts embedding KYC ); and help funds succeed in the competition of industrial digital 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 digitization of the fund market

Currently, funds and investors are separated by a large number of intermediaries. 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 the two 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 fund accountants; ) Transfer agents price based on net asset value by receiving and integrating orders, and settle orders through accounting in a centralized register, then reconcile 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 will face market volatility and counterparty risk; ) The liquidity of the fund also forces fund managers to retain cash positions to bear the costs of rebalance 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 processes will be directly settled through fund Tokens and payment Tokens, entering the investors' accounts ) electronic wallets (, with transactions having finality in settlement, thereby eliminating market and counterparty risks; ) Because all transactions are recorded on the distributed ledger of the blockchain, any changes in ownership will be automatically recorded, eliminating the need for centralized registration; ( As all intermediaries can access and view the data on the blockchain, there is also 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, achieve around-the-clock real-time pricing and settlement; ) Access to a unified ledger for multiple parties can enable real-time data sharing, allowing investors to directly access fund data and trade; ( Fund managers will gain richer investor information and 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 crypto industry, and recently completed a financing of 6 million dollars. 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 of funds, achieving efficient capital flow for tokenized funds.

We can 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 over 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 of ( stablecoins, BTC, ETH, etc. into the smart contracts of the Solv protocol, and generating corresponding NFT/SFT certificates representing 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, arranged 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 US Treasury RWA assets to provide interest income from US Treasuries for stablecoin holders.

Open-end funds refer to funds where the total scale of fund units or shares is not fixed when the fund manager establishes the fund. The fund can issue shares at any time and allows investors to redeem regularly. Fund managers who typically use a high liquidity investment portfolio as their investment strategy usually establish the fund using an open-ended corporate structure.

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The fully on-chain tokenized fund issued through the Solv Protocol raises funds from BTC/ETH/stablecoins, and the assets invested also belong to native crypto assets or tokenized assets like US Treasury RWA). Such a fully on-chain tokenized fund structure can maximize the value brought by tokenization. For example, Solv Protocol's tokenized fund,(1) allows fund managers to face investors directly, obtaining more investor data and transaction information;(2) eliminates many frictions from fund service intermediaries, reducing costs;(3) the fundraising, issuance, trading, and settlement of tokenized funds are all realized through blockchain and recorded on a distributed ledger, ensuring efficiency and transparency;(4) the fund's net asset value NAV 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 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 stated: "Solv Protocol 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, centralized finance, and traditional finance on the blockchain."

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3. Tokenization Fund Settlement

Tokenization funds can partially replace certain intermediaries ), such as fund distributors (, and enhance the digital level of the fund market, but the market will not change overnight. For fund managers and investors, the most realistic point is that tokenization will inevitably change the settlement method 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 collecting or paying cash through the banking system, with settlement occurring three days later, ( T+3), by issuing or redeeming fund shares. However, the pricing of tokenized funds is calculated more than once a day, and since subscriptions and redemptions will be "automatically" settled on the blockchain, the method of settlement through the banking system, ( T+3), will be replaced. We can see in the case of Solv Protocol that a fully blockchain-based tokenized fund can achieve real-time pricing and around-the-clock market settlement, (7/24).

This settlement method using blockchain and distributed ledger technology is called: atomic settlement ( Atomic