Tokenized fund shares represent one of the broadest categories in tokenized assets, encompassing any investment fund — money market, bond fund, private equity, hedge fund, or alternative — where investor interests are recorded, issued, or transferred using blockchain infrastructure. Despite the wide umbrella, two fundamentally different models exist, with distinct regulatory treatment, investor rights, and operational mechanics.
Model One: Blockchain as Transfer Agent Record
In this model, the fund itself is a conventional registered investment company or partnership. Blockchain does not change the fund’s legal structure, regulatory obligations, or investor rights. Instead, blockchain replaces the traditional transfer agent’s recordkeeping system — the database that tracks who owns how many shares.
Franklin Templeton’s OnChain US Government Money Market Fund (FOBXX) pioneered this approach. Franklin applied to the SEC in 2019 and received approval in 2021 to use a blockchain (initially Stellar, later Polygon) as the official record of fund share ownership. FOBXX is fully registered under the Investment Company Act of 1940. Its portfolio managers invest in US Treasuries and government obligations exactly as they would for any other 1940 Act fund. The innovation is purely administrative: when investor A transfers shares to investor B, that transfer is recorded on the Stellar or Polygon blockchain rather than in a centralized database.
Investor implications: All standard 1940 Act protections apply — daily NAV calculation, redemption rights within one business day, SIPC-adjacent protections, independent board oversight, regular SEC reporting. Token = fund share = same economic and legal interest as a traditional mutual fund share.
WisdomTree launched its government money market fund and several other products (tokenized gold, tokenized bitcoin) using the same model, distributing through its WisdomTree Prime app. Arca launched an SEC-registered tokenized Treasury fund using a similar structure.
Model Two: Token as Legal Instrument
In this model, the token itself is the security. There is no separate registered fund with blockchain as a supplemental record — the token constitutes the investor’s ownership interest in the underlying vehicle.
Securitize’s PE fund tokenizations (KKR, Apollo, Hamilton Lane, Ares) follow this model. The underlying fund is a limited partnership or LLC. Securitize creates ERC-3643 tokens representing LP interests. The token IS the LP interest — holding the token is equivalent to holding an LP position. Securitize, as SEC-registered transfer agent, maintains the legal record, but the token is the operative instrument.
Investor implications: Depends entirely on the underlying vehicle. For Reg D 506(c) offerings, restricted to accredited investors. No daily liquidity — LP redemption terms apply. Tax treatment follows partnership rules (K-1 reporting). Secondary trading is possible through Securitize Markets ATS but thin.
BlackRock BUIDL uses a hybrid: a private fund (not 1940 Act registered) with interests represented as ERC-20 tokens, restricted to qualified purchasers, operating as a Reg D private placement.
SEC Stance
The SEC has accepted both models. Franklin’s 2021 approval confirmed that 1940 Act funds can use blockchain as their transfer record without additional regulatory approvals beyond the initial exemptive relief. Reg D tokenized fund interests are treated as private securities, requiring standard Reg D compliance. The SEC has not issued comprehensive guidance on tokenized funds but has reviewed individual structures through exemptive application processes.
Key Pending Questions
1940 Act blockchain funds at scale: If a 1940 Act fund used a public, permissionless blockchain (rather than the permissioned Polygon and Stellar networks used by Franklin), would SEC approve? Not yet tested.
Redemption mechanics: For blockchain-recorded 1940 Act funds, if an investor transfers tokens to a non-KYC’d wallet, does that create a compliance violation? Platforms address this through whitelisting — only verified wallet addresses can hold fund tokens.
NAV timing: Traditional funds calculate NAV once daily. Blockchain infrastructure could theoretically support real-time NAV calculation. No fund has yet sought SEC approval for intraday NAV in a 1940 Act structure.
Growth Trajectory
US tokenized fund AUM exceeded $5B in late 2025, primarily driven by BUIDL’s rapid growth after BlackRock’s March 2024 launch. The category is expected to grow substantially as: major asset managers apply for blockchain-based fund structures, private wealth distribution expands through Securitize and similar platforms, and DeFi integration of tokenized fund shares increases institutional demand.