Beyond the blockchain: The changes needed for tokenised funds to realise their full potential

A day on Capitol Hill

We joined our fellow Coalition for Tokenized Markets (CTM) founding members for a day of meetings in Washington. This was with Senate Banking Committee majority staff in the morning, the SEC’s Crypto Task Force in the afternoon, and Treasury and FinCEN after that.

We went with a clear purpose: to introduce the coalition to policymakers, and to make the case on one issue in particular – the walled gardens that keep tokenised assets locked inside single-issuer ecosystems. Nobody needed convincing that a fund can sit on a distributed ledger; that argument is largely settled. What officials wanted to test was the practical case. If tokenised funds are already live, what is actually preventing them from scaling? And why does a US investor seeking exposure to a tokenised money market strategy so often end up using an offshore, permissionless product rather than a regulated one?

There is no single answer. Regulation, infrastructure, custody, distribution, and investor adoption all play a role. But the thread running through the day was how digital identity, ownership credentials, and investor verification move across networks. The technology can already issue and transfer tokenised assets. The harder challenge is ensuring that investors, intermediaries, and regulators can interact with those assets across platforms while maintaining appropriate safeguards.

The walled garden problem explained

Janus Henderson has tokenised strategies in production across Treasury, credit, and equity markets, so this is not a theoretical exercise for us. They work. They settle. And like almost every tokenised fund in the market, they largely operate inside a closed ecosystem of wallets that have been onboarded directly. Tokens move between known participants, or they do not move at all.

| Tokens move between known participants, or they do not move at all.

Technology is not the constraint here. Identity is part of the problem, and is one of the main barriers to scaling a regulated onshore tokenised fund market. Breaking down these walled gardens is what unlocks the basic utility of the technology – peer-to-peer transferability and genuine secondary market trading.

Under the US Bank Secrecy Act, each institution is separately responsible for verifying its own customers. Firms can in principle rely on another regulated firm’s checks; in practice almost nobody does. This is because reliance requires bilateral contracts and annual certifications while the residual liability stays with the firm relying on the other firm’s checks. No compliance officer will accept liability for someone else’s failure. Reliance is also limited to institutions with a federal functional regulator, which excludes many of the state-licensed trust companies and money transmitters doing the credentialing in digital markets.

The analogy we used with policymakers was that it is like requiring a traveller to apply for a new passport at every airport. The investor has already been checked to a high standard, but as yet the credential simply cannot travel with them.

For investors, the consequences are concrete. Secondary liquidity is thin because tokens can only move between whitelisted wallets – that is, wallets belonging to investors that each platform has itself identity-checked and pre-approved. Collateral mobility – arguably the single biggest prize in tokenisation – barely exists if a fund unit cannot leave its own network. And the operational savings that justify the whole exercise are eroded by the same investor being onboarded three or four times over.

What’s possible today, without waiting for Congress

Most client conversations on US digital-asset policy start with the CLARITY Act, so it is worth being clear on where it stands. The bill has passed the House of Representatives and cleared the Senate Banking Committee. A cloture motion has since been filed. Cloture is the Senate procedure used to end debate on a bill and move it to a final vote; it requires the support of 60 of the 100 senators, so that threshold must be met before the bill can progress. The sticking point is an unresolved dispute over conflict-of-interest provisions – not tokenisation. For asset managers, the relevant provision is Section 505, which preserves the SEC’s authority to modernise custody, recordkeeping, and settlement rules for tokenised securities while confirming that a tokenised security remains the security it represents.

But in our view legislation is the wrong place to look for the next step. Much is already possible under existing rules: there is no technical hurdle stopping an asset manager from tokenising funds or share classes today. The harder problem is that the pieces must develop in tandem – involving the buyers, the intermediaries, the custodians, and the regulation. Legislation would accelerate one piece of this. It would not, on its own, deliver the rest.

That is why the infrastructure signals are worth watching at least as closely as the legislative ones. When exchanges, custodians, and clearing infrastructure demonstrate that tokenised securities can be traded and settled in live production, that changes what is practically possible far more immediately than a Senate vote does. Progress is also coming through agency guidance and rulemaking rather than statute alone – which is quicker, though a framework built on agency discretion is less settled than one written into law.

| Legislation would accelerate one piece of this. It would not, on its own, deliver the rest.

The UK and EU are running on a different clock

This is not a US-only story, and the sequencing differs by market. In the UK, the Financial Conduct Authority (FCA)’s policy statement PS26/7 on fund tokenisation is now in force, including an optional Direct-to-Fund dealing model. The FCA and Bank of England have also issued a joint call for input on tokenisation in wholesale markets. The UK question has moved from “is this permitted?” to “how does it scale?”

In the European Union (EU), Markets in Crypto-Assets Regulation (MiCA) applies to crypto-assets while tokenised fund units generally sit outside it as MiFID regulated financial instruments, with the DLT Pilot Regime providing the trading and settlement sandbox. A review of MiCA is under way, and the boundary between MiCA and MiFID remains one of the least resolved questions in the file.

Three jurisdictions, three timetables, but one shared principle of modernising the mechanics and preserving the substance. But without deliberate work on interoperability (the ability to move between systems) now, we end up with three well-regulated markets that cannot talk to each other – and investors pay for that fragmentation in spreads and operating costs.

Where we stand, and why we’re engaged

We believe blockchain is one of the most transformative technologies to reach our industry in decades, and tokenisation is how that transformation reaches investors. That conviction is why we are engaged in the policy debate rather than waiting for its outcome. As a global asset manager, our interest is in a rulebook that lets regulated activity remain onshore and within the protections investors already rely on, rather than migrating to venues built around different standards.

That means pressing on three things in particular. First, breaking down the walled gardens so that verified investors and their assets can move between platforms. Second, keeping rules technology-neutral, so that equivalent assets receive equivalent treatment regardless of how ownership is recorded. And third, promoting interoperability between jurisdictions, so that the UK, EU, and US frameworks converge rather than fragment.

What does this mean for investors and portfolios?

The headlines around tokenisation can be misleading. It is important to be clear that tokenisation does not change what an asset is or what it returns. A tokenised money market fund is a money market fund, with the same risks and the same regulatory protections as its conventional equivalent. What changes is the infrastructure beneath it. These infrastructure improvements show up gradually: in settlement times, in what can be pledged as collateral, in the operational cost of holding a position, in the range of strategies that can be delivered efficiently at smaller sizes.

Those effects compound. This means that the firms and jurisdictions that resolve the plumbing first will offer investors more flexibility and lower friction than those that do not, and that gap will widen well before it is obvious in performance data. So, the signal to watch is not the next product launch. It is whether a tokenised holding can move – across platforms, across borders, and into collateral pools – because that is when the technology becomes a better market.