Tokenization as “Mutual Fund 3.0”: the blockchain evolution of investment funds
The Bank of America calls tokenization the next development of investment products and describes it as a “Mutual Fund 3.0”. Representing holdings on a blockchain enables quicker settlements, the splitting of assets into smaller parts, and the automation of basic processes through smart contracts. This article explains what tokenization is, the benefits it brings and the main challenges to its adoption.
What is tokenization?
Tokenization means issuing digital tokens that represent units of a real asset or of a fund, with a blockchain that records ownership and enforces the rules of those tokens. Such tokens can reflect ownership, cash flows or shares in a collective investment vehicle, and smart contracts automate payments, redemptions and governance rules, reducing reliance on manual processes and central intermediaries.
Operational and market benefits
Tokenized funds change operations and markets, which explains the label “Mutual Fund 3.0”. Liquidity and speed improve because on-chain transactions and settlements can shorten time from days to seconds, enabling better secondary markets. Accessibility increases through fractionalization, making expensive assets reachable for individual investors and small managers. Cost reduction comes from automating custody, auditing and compliance, and on-chain interoperability connects tokenized funds with exchanges, custodians and DeFi protocols to expand distribution.
Implementation challenges
The change does not happen automatically and faces challenges across regulation, technology and market structure. Regulatory clarity is needed on the classification of tokens as securities and on custody rules to protect investors and enable institutional distribution. Distribution and adoption require brokers and platforms to adapt infrastructure, governance and KYC/AML processes. Technological risks such as smart contract errors, custody weaknesses and cyberattacks can cause losses and reputational harm, and real liquidity depends on the existence of liquid secondary markets.
Defining tokenization as “Mutual Fund 3.0” captures the ambition to improve liquidity, accessibility and efficiency of funds through blockchain technology. The potential is real, but realizing it requires solving unclear rules, strengthening technology and building sound secondary markets so tokenized funds become secure and truly useful instruments for investors and managers.
