JPMorgan: Tokenization to reshape funds, use cases years away

Ciarán Fitzpatrick, JPMorgan’s global head of ETF product in securities services, wrote on Friday that tokenization will reshape ETFs and the broader funds industry but that practical applications remain a few years off. JPMorgan is exploring potential implementations through Kinexys, its blockchain business unit.

Fitzpatrick listed potential benefits including faster creation and redemption of ETF shares, near-instant settlement and 24/7 access to products that currently trade only during exchange hours. He said tokenized structures could improve the mechanics of ETF trading and fund administration.

“We believe tokenization will certainly drive how the market changes, not just for ETFs but across the funds industry as a whole,” Fitzpatrick wrote. He added that while the technology is promising, “we’re a couple of years away from some good use cases,” and that Kinexys is running experiments to identify viable applications.

Regulators and established market participants have increased engagement with tokenized versions of traditional assets. An SEC commissioner urged firms developing tokenized products to engage directly with the agency, and the SEC approved a rule change allowing Nasdaq to support tokenized share trading. The New York Stock Exchange, Robinhood, Kraken and Coinbase are among firms pursuing projects to scale tokenized equities.

Projections cited by industry observers range from about $2 trillion to more than $10 trillion in tokenized assets by 2030.

Market participants are testing how tokenized funds would operate within existing clearing, custody and settlement frameworks. Firms are evaluating custody arrangements, order routing and secondary trading models to ensure they meet disclosure, investor protection and market surveillance requirements. Kinexys is conducting proofs of concept to test custody, transfer and settlement under current market rules.

JPMorgan’s public comments come alongside announcements from exchanges, brokerages and crypto platforms that are advancing efforts to create tradable digital versions of shares and funds.