Tokenised funds need a settlement layer, not another pilot

Demonstration op-ed. The author, the asset manager and the situations described are fictional.

Hardly a month goes by without an asset manager announcing the tokenisation of a money market or bond fund. The press releases look alike: a first, a chosen blockchain, a technology partner, a handful of institutional investors. Then, more often than not, nothing. Assets stay modest and secondary market volumes are close to zero.

The problem is not the token

Representing a fund unit as a token is technically well understood. What is missing is the other leg of the transaction. For a tokenised unit to change hands in seconds, payment has to take place on the same infrastructure at the same time. Today, in most projects, the token moves on a blockchain while the money goes through the usual banking channels, with their delays and cut-off times.

The result is a paradox: a more modern register, but a settlement cycle that has not changed. Investors have no reason to prefer the tokenised version.

Three options, none of them simple

There are three routes. Regulated stablecoins offer money available around the clock, but many institutions are reluctant to hold a private issuer’s liability to settle securities. Tokenised bank deposits keep deposit protection, but remain limited to the issuing bank’s clients. Wholesale central bank money on a shared ledger would be the most robust solution, but its timetable remains uncertain.

Stop the isolated pilots

Rather than multiplying experiments fund by fund, the market would do better to focus on interoperability between these three options and on a clear framework for their use in settlement. Until that layer is in place, every new pilot will add a press release without adding a market.