Fund Tokenization Explained With Real Examples

The world of finance is undergoing a quiet revolution, and at its heart lies fund tokenization—a transformative process turning traditional investment vehicles into digital assets on the blockchain. While alternative investments like private equity, venture capital, and real estate funds have long offered high-return potential, they’ve also been gatekept by high entry costs, long lock-up periods, and limited liquidity. Tokenization breaks down these barriers, converting fund shares into tradable digital tokens that unlock global access, improve efficiency, and democratize wealth-building opportunities.

Though often associated with illiquid or high-barrier assets, tokenization benefits a broad spectrum of fund types, from hedge funds to carbon credit portfolios. It doesn’t replace traditional structures—it enhances them. Whether you're an investor seeking diversification or a fund manager aiming to scale, tokenization offers tools to streamline operations, reduce costs, and reach new markets.

In this guide, we’ll explore:

• What fund tokenization really means
• Real-world examples of successful tokenized funds
• How tokenized funds differ from traditional ones
• The step-by-step tokenization process
• Key benefits for investors and issuers
• Challenges in the space—and how to overcome them

Let’s dive in.

What Is Fund Tokenization?

Fund tokenization is the process of converting ownership units in a traditional investment fund—such as a mutual fund, private equity fund, or real estate fund—into digital tokens recorded on a blockchain. Each token represents a share of the underlying asset, enabling fractional ownership and programmable functionality through smart contracts.

This method of fundraising is often referred to as a security token offering (STO), where regulated digital securities are issued to accredited or institutional investors.

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Which Types of Funds Can Be Tokenized?

Almost any fund strategy can benefit from tokenization. Here are some of the most impactful use cases:

• Variable Capital Companies (VCCs): A flexible fund structure in Singapore that supports multiple sub-funds under one legal entity. Tokenizing VCCs enhances tradability, reduces administrative overhead, and opens up new distribution channels via distributed ledger technology (DLT).
• Real Estate Funds: Traditionally illiquid and capital-intensive. Tokenization lowers investment minimums and enables secondary market trading.
• Private Equity & Venture Capital Funds: High-growth asset classes previously reserved for elite investors. Tokenization allows fractional participation, broadening access.
• Carbon Credit Funds: ESG-focused funds can tokenize carbon assets to boost transparency, liquidity, and investor engagement.
• Hedge Funds: Complex strategies become more accessible through tokenized shares with improved transparency and automated compliance.
• Infrastructure Funds: Large-scale public projects can now attract smaller investors via tokenized equity stakes.
• Commodities Funds: Gold, oil, diamonds—physical commodities can be backed by tokens, making trading faster and more efficient.
• Debt Funds: Bonds and government securities gain liquidity when tokenized, offering flexible access to fixed-income markets.

Real-World Examples of Tokenized Funds

Tokenized funds are no longer theoretical—they’re live, regulated, and attracting billions in assets. Here are three notable examples shaping the future of finance.

BlackRock's BUIDL: The World’s Largest Tokenized Treasury Fund

Launched in March 2024, BUIDL by BlackRock quickly became the largest tokenized fund globally. By May 2025, it had amassed over $2.9 billion in assets under management (AUM), capturing nearly 30% of the $1.3 billion tokenized U.S. Treasury market within weeks.

Built on the Ethereum blockchain and issued through Securitize, BUIDL offers investors yield-bearing exposure to short-term U.S. Treasuries with daily redemption options. Its success marked a watershed moment—proving that institutional-grade asset tokenization is not only viable but scalable.

TradeFlow Capital’s Commodity Trade Finance Fund

Based in Singapore, TradeFlow Capital manages around $100 million in assets with a track record of stable returns and zero defaults. Their tokenized commodity finance fund allows investors to participate in insured, pre-booked commodity trades.

Available through regulated platforms like InvestaX and Obligate, this offering exemplifies how real-world trade finance can be made more liquid and accessible through blockchain technology.

Diamond Standard’s Commodity Fund

This innovative fund brings diamonds into the mainstream investment arena. Backed by physical diamond commodities and benchmarked against the Bloomberg-published DIAMINDX index, it’s one of the first regulator-licensed diamond commodity products.

Tokenized via Oasis Pro and listed on an SEC-registered Alternative Trading System (ATS), the fund later expanded to Asia through InvestaX—demonstrating cross-border potential in compliant digital asset markets.

How Do Tokenized Funds Differ From Traditional Funds?

While both serve the same core purpose—pooling capital for investment—tokenized funds introduce structural advantages powered by blockchain.

Despite these benefits, regulatory frameworks remain evolving. Investors and managers must choose licensed platforms to ensure compliance.

The Fund Tokenization Process: Step by Step

Tokenizing a fund involves seven key stages:

1. Asset Selection & Evaluation

Identify a suitable asset—whether real estate, private debt, or equity—and conduct a professional valuation using standard financial methodologies.

2. Legal Structuring

Choose between two primary models:

• Tokenized SPV (Indirect): The asset is held in a special purpose vehicle (e.g., trust or company), which is then tokenized. This fits better within securities regulations.
• Direct Asset Tokenization: Tokens represent direct ownership of the asset—less common due to regulatory complexity.

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3. Custody of RWA & Tokens

Physical assets (like diamonds or whiskey barrels) are secured by licensed custodians. Digital tokens can be:

• Self-custodied: Full control via personal wallets (e.g., hardware wallets).
• Held by licensed digital custodians: Regulated entities using MPC, multi-sig wallets, and HSMs for enhanced security.

4. Token Issuance

Tokens are minted on a blockchain (e.g., Ethereum) representing shares in the fund. These are known as Real World Asset (RWA) tokens.

5. Primary Offering

Tokens are sold directly to investors through regulated platforms—raising capital efficiently while complying with KYC/AML rules.

6. Secondary Trading

After issuance, tokens trade on:

• Licensed broker-dealers (e.g., InvestaX)
• Regulated exchanges (e.g., IX Exchange)
• Decentralized exchanges (DEXs)

7. Ongoing Management

Includes dividend distribution via smart contracts, investor reporting, regulatory updates, audits, and corporate actions—all streamlined through blockchain-based systems.

Benefits of Fund Tokenization

For Investors:

• ✅ Lower entry thresholds enable participation in high-return private markets.
• ✅ Greater liquidity allows exit flexibility previously unavailable in PE or VC.
• ✅ Transparency via immutable on-chain records builds trust.

For Fund Managers & Issuers:

• ✅ Global capital access expands investor pools beyond regional limits.
• ✅ Operational efficiency reduces paperwork and settlement times.
• ✅ Cost savings from automated processes and fewer intermediaries.

For Service Providers:

• ✅ Faster settlements reduce counterparty risk.
• ✅ Reduced reconciliation thanks to a single source of truth.
• ✅ New revenue models emerge in custody, compliance tech, and trading infrastructure.

Challenges in Tokenizing Assets

Despite its promise, RWA tokenization faces hurdles:

• Regulatory uncertainty: Rules vary across jurisdictions; compliance requires expert navigation.
• Infrastructure gaps: Few providers offer end-to-end solutions—from issuance to secondary trading.
• Technical literacy: Investors need basic blockchain knowledge to participate securely.
• Custody risks: Poor key management can lead to irreversible losses in self-custody scenarios.

Jurisdictions like Singapore, Hong Kong, and Switzerland lead in creating supportive legal frameworks. Choosing a licensed platform is critical for mitigating risk.

Frequently Asked Questions (FAQ)

Q: Are tokenized funds regulated?
A: Yes—reputable tokenized funds operate under existing securities laws. Platforms like InvestaX are licensed in Singapore to ensure full compliance.

Q: Can retail investors participate in tokenized funds?
A: Increasingly yes—especially as fractional ownership lowers minimums. However, many offerings still target accredited or institutional investors.

Q: How secure are RWA tokens?
A: When issued on secure blockchains and held with licensed custodians using MPC or multi-sig technology, they are highly secure—often more so than traditional paper-based systems.

Q: What happens if I lose my private keys?
A: Unlike banks, there’s no “reset” option in self-custody. That’s why using regulated custodians is strongly recommended for large holdings.

Q: Is tokenization only for alternative assets?
A: No—while private equity and real estate benefit greatly, even government bonds and money market funds are being tokenized successfully.

Q: How fast can a fund be tokenized?
A: With an all-in-one platform like InvestaX, the process can take weeks instead of months—dramatically accelerating time-to-market.

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