ST0x: Tokenised ETFs are gaining ground over traditional counterparts
Continuous trading and automatic settlement are seeing professional investors replace traditional ETF allocations with tokenised alternatives, global research from ST0x shows.
Two-fifths (40%) of the 200 institutional investors and wealth managers surveyed actively invest and trade tokenised ETFs, while 39% are currently running pilot programmes or paper-trading them.
More than a fifth (21%) are actively researching tokenised ETFs but have not deployed capital and just 2% have no current plans to look into tokenised ETFs, the research across North America, the UK, continental Europe, the Middle East and Asia Pacific found.
Looking to the next ten years, 26% of respondents say tokenised ETFs will completely replace traditional ETFs for core holdings, while 44% predict they will run as a parallel book for specific 24/7 or cross-border strategies.
Almost one-fifth (18%) believe they will be used sparingly, restricted to niche or alternative asset classes, while 7% say they will be fully integrated into a single unified 'digital-first' asset trading desk. Just 6% say tokenised ETFs will fail to gain meaningful traction compared to traditional T+1 ETFs.
When asked the primary operational benefit driving their interest in trading tokenised ETFs over traditional ETFs, more than a third (35%) say24/7/365 trading availability outside of legacy market hours, and 34% highlight automatic settlement (near-instantaneous delivery vs. payment).
One-fifth of study participants say tokenised ETFs benefit from deep fractionalisation allowing highly precise capital allocation which enables investors to invest exactly the amount of money they want rather than having to buy whole ETF units.
One in ten favour reduced transaction, clearing, and traditional custody fees. Finally, 3% point to enhanced composability with decentralized finance (DeFi) protocols meaning tokenised ETF or other tokenised asset can be used within other blockchain-based financial applications, rather than simply being held or traded.
In terms of portfolio construction, 44% of professional investors surveyed say tokenised ETFs are a much safer, regulated wrapper to gain blockchain-adjacent exposure compared to traditional blockchain assets.
While there is clear growing appetite for tokenised ETFs, survey participants say they are still obstacles to investment. More than half (51%) say regulatory ambiguity and conflicting international compliance laws is the single greatest deterrent preventing them from scaling up trading volume in tokenised ETFs.