Underrated Segments in RWA: The Value, Exploration, and Practice of Fund Tokenization

When we talk about RWA, we focus more on underlying assets such as US Treasury bonds, fixed income, and securities. Currently, apart from stablecoins, the RWA project with the largest asset scale is the money market fund. The top three projects by asset scale are: Franklin Templeton: $312 million ( government bonds ); followed by Centrifuge: $247 million ( asset-backed ); Ondo Finance: $183 million ( government bonds ).

Franklin Templeton is completely a tokenized fund, Ondo Finance also has two tokenized funds, and Centrifuge is also establishing a tokenized fund in collaboration with a certain DEX in an RWA project. It can be seen that tokenized funds are of great importance in connecting traditional finance and DeFi. We believe that this asset form of funds, due to (1) being regulated itself; (2) and the relatively standardized digital expression, is the best carrier for RWA assets.

Currently, the RWA we are discussing is more about the unilateral demand for value capture from the real world by the crypto world. From the perspective of traditional finance, once funds are tokenized through blockchain and distributed ledger technology, they 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 practices of market participants.

1. Fund Tokenization

Tokenization ( Tokenization ) is usually the representation of assets on the blockchain after digitalization, utilizing the advantages of distributed ledger technology for accounting and settlement. Assets subject to tokenization 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 the tokenization of assets serve as carriers of asset value and are certificates of asset rights.

This innovation and disruption also applies to funds. After tokenization, it forms the Tokenized Fund (, which means that fund shares are recorded in a digital form of tokens on the blockchain distributed ledger, and the tokens are available for trading in the secondary market. This tokenized fund is different from crypto funds ) that only invest 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 market rise, 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 has also raised higher demands for the digital capabilities of funds to meet the increasing online distribution, asset reporting, regulatory compliance, and personalization needs of investors. The growth rate of fund management costs is faster than that of income, 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 small number of institutional investors. The private equity fund market urgently needs to lower the investment threshold and introduce alternative products through appropriate product design that 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 solve many problems 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 the investment experience for users ( smart contracts with embedded KYC ); and help funds win in the competition of industrial digital upgrades ( digital upgrade ), 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 facilitates the digitalization of the fund market.

Currently, funds and investors are separated by numerous 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 customer ) KYC (, Anti-Money Laundering ) AML (, Counter Financing of Terrorism ) CFT ( and economic sanctions screening and verification, settlement of fund subscriptions and redemptions, reporting to management, and maintaining investor registration records.

The operating process of traditional funds is essentially inefficient: ) Fund shares are established to meet subscriptions and 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 consolidating orders, and settle orders through accounting entries 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, the fund and investors will face market volatility and counterparty risk; ) The liquidity of the fund also forces fund managers to maintain cash positions to bear the costs of rebalancing the fund's net asset value.

In contrast, tokenization can greatly simplify the complex processes mentioned above: ( When tokenized funds are issued and traded on the blockchain, subscription and redemption phases will be directly settled through fund tokens and payment tokens, entering the investors' accounts ) electronic wallets (, trading has finality in settlement, thus 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 the data on the blockchain, there is also no need for multiple reports and reconciliations.

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 increase; ( Based on blockchain's more efficient atomic settlement, achieving 24/7 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 as well as transaction 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 has recently completed a $6 million financing round. The latest product from Solv Protocol, Solv V3, sets a new standard for on-chain fund issuance. The tokenized funds created through Solv Protocol can achieve on-chain fundraising, issuance, subscription, redemption, trading, and settlement, enabling efficient capital flow for tokenized funds.

We saw on the official website that Solv Protocol has implemented 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 the Solv Protocol allows fund managers to create on-chain funds, depositing the raised funds of ( stablecoins, BTC, ETH, and others 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-ended fund managing approximately $2.6 million in assets, allocated according to the investment strategy of the fund manager Blockin; in addition, another open-ended fund RWA: Generate Yield On Your Stable Coins, initiated by the fund manager Solv RWA, raises USDT stablecoins and invests in U.S. Treasury RWA assets to provide interest income from U.S. Treasuries to stablecoin holders.

Open-end funds refer to funds where the total size 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 allows investors to redeem regularly, typically using a high liquidity investment portfolio as the investment strategy. Fund managers usually establish these funds using an open-ended corporate structure.

The fully on-chain tokenized fund issued by the Solv Protocol raises funds from BTC/ETH/stablecoins, and the assets invested are also native crypto assets or tokenized assets such as US Treasury RWA). This fully on-chain tokenized fund structure can maximize the value brought by tokenization. For example, the tokenized fund of the Solv Protocol allows fund managers to interact directly with investors, obtaining more investor data and trading information; it eliminates many frictions from fund service intermediaries, reducing costs; the fundraising, issuance, trading, and settlement of the tokenized fund are all realized through blockchain and recorded in a distributed ledger, which is efficient and transparent; the fund's net asset value (NAV) is updated in real time, and fund share subscriptions/redemptions can be done anytime, anywhere, 7/24, among many other advantages.

Solv Protocol states: Currently, most cryptocurrency asset management services come from centralized institutions, which have opaque asset creation and fund management processes, 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 reduces the barriers to participating in Web3 while promoting the maturity of the cryptocurrency market.

Solv Protocol investors 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."

3. Settlement of Tokenization Funds

Tokenization funds can partially replace certain intermediary institutions like fund distributors (, and enhance the digital level of the fund market, but the market does not change overnight. For fund managers and investors, the most realistic point is that tokenization will inevitably change the settlement method of fund subscriptions and redemptions.

) 3.1 Tokenization Fund Settlement

Currently, funds are generally priced based on net asset value. Fund managers settle by collecting or paying cash through the banking system, and the settlement is done by issuing or canceling fund shares three days later, ( T+30 1928374656574839201. In contrast, 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+30 1928374656574839201, 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 in an around-the-clock market, ( 7/24).

This settlement method that leverages blockchain and distributed ledger technology is known as: Atomic Settlement###, which means that the transactions of cash equivalents and fund shares are directly linked, that is, when a transfer of one asset occurs, the transfer of another asset happens.