BNY Mellon Reports FOMO Driving Asset Managers to Tokenized Funds
0h ago|3 min readQuick Read
Fazen Markets Editorial Desk
Collective editorial team · methodology
tokenizationblockchain-etf
Fazen Markets Editorial Desk
Collective editorial team · methodology
Trades XAUUSD 24/5 on autopilot. Verified Myfxbook performance. Free forever.
Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The majority of retail investor accounts lose money when trading CFDs. Vortex HFT is informational software — not investment advice. Past performance does not guarantee future results.
BNY Mellon identified fear of missing out, or FOMO, as a primary catalyst for asset managers accelerating their exploration of blockchain-based exchange-traded funds (ETFs). The bank's analysts noted this trend is gaining momentum as major financial institutions seek an early foothold in tokenized finance. This shift represents a strategic response to the potential redistribution of assets under management in a rapidly digitizing financial landscape.
The push for tokenized funds follows a series of successful blockchain-based debt issuances. The European Investment Bank issued a 100 million euro digital bond on a blockchain platform in April 2024. JPMorgan executed its first-ever blockchain-based collateral settlement on May 20, 2026, moving tokenized money market fund shares. These developments occur against a macro backdrop of rising institutional adoption of digital assets and supportive regulatory clarity in key jurisdictions like the EU with MiCA regulation.
Asset managers face mounting pressure from allocators demanding exposure to digital asset infrastructure. The success of spot Bitcoin ETFs, which amassed over $80 billion in assets within two years of US approval, demonstrated investor appetite for digitally-native products. This precedent created a compelling business case for exploring tokenized traditional assets, which offer similar operational efficiencies.
Total assets locked in tokenized funds reached $50 billion globally as of Q2 2026, up from $30 billion year-over-year. This represents 67% growth despite relatively flat traditional ETF flows during the same period. BlackRock's BUIDL tokenized treasury fund surpassed $5 billion in assets since its March 2024 launch, demonstrating institutional demand.
| Metric | Tokenized Funds | Traditional ETFs |
|---|---|---|
| YTD Flow Growth | +67% | +8% |
| Average Expense Ratio | 15 bps | 35 bps |
| Settlement Time | T+0 | T+2 |
BNY's analysis suggests tokenization could reduce fund administration costs by 20-40 basis points through automated compliance and streamlined reconciliation. This cost advantage becomes particularly significant for funds with complex strategies or international distribution requirements.
Traditional custody banks like State Street (STT) and BNY Mellon (BK) face both disintermediation risk and new revenue opportunities. These institutions must invest heavily in digital asset infrastructure to avoid losing assets to native blockchain custodians. Asset managers with existing digital capabilities, including BlackRock (BLK) and Franklin Templeton (BEN), stand to capture market share through first-mover advantage.
Blockchain infrastructure providers stand to benefit significantly from this trend. Chainlink (LINK) provides critical oracle services for tokenized funds, while Ethereum (ETH) remains the dominant settlement layer for institutional tokenization projects. The main counterargument concerns regulatory uncertainty in key markets like the United States, where the SEC has been slow to approve blockchain-based ETFs beyond cryptocurrency exposures.
Institutional flow data shows pension funds and insurance companies allocating 1-3% of their portfolios to tokenized yield products. This capital movement primarily comes from reductions in traditional money market fund allocations and short-duration bond ETFs.
The SEC's decision on BlackRock's application for a tokenized S&P 500 ETF expected by Q3 2026 will serve as a critical regulatory signal. Approval would likely trigger a wave of similar applications from other major asset managers. The European Central Bank's digital euro project, with pilot results due in September 2026, could establish important technical standards for tokenized asset settlement.
Market participants should monitor the spread between tokenized treasury yields and traditional government securities. A persistent premium of more than 10 basis points would indicate strong structural demand for blockchain-based yield products. Technical support for Ethereum rests at the $3,500 level, which represents the breakout point from its 2025 consolidation range.
Tokenized funds represent traditional investment products like ETFs or mutual funds using blockchain technology. Each share becomes a digital token on a distributed ledger, enabling 24/7 trading, instant settlement, and programmable compliance features. These funds maintain the same underlying assets as traditional products but use smart contracts for administration and distribution, potentially lowering costs and expanding accessibility to global investors.
Tokenization offers asset managers reduced operational costs through automation of compliance, distribution, and reconciliation processes. Blockchain-based settlement eliminates the need for multiple intermediaries, potentially reducing transaction costs by 30-50%. Tokenized funds also enable fractional ownership of large-ticket products like private equity or real estate funds, expanding potential investor bases beyond institutional limits.
Tokenized funds introduce technology risks including smart contract vulnerabilities, blockchain network failures, and cybersecurity threats that traditional funds don't face. Regulatory treatment remains uncertain in many jurisdictions, particularly regarding tax reporting and consumer protections. Investors also face liquidity risks if secondary markets for tokenized shares fail to develop sufficient trading volume, potentially resulting in wider bid-ask spreads.
FOMO is accelerating institutional adoption of tokenized funds as asset managers position for blockchain-driven redistribution of $5 trillion in assets.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
Vortex HFT is our free MT4/MT5 Expert Advisor. Verified Myfxbook performance. No subscription. No fees. Trades 24/5.
Trade the assets mentioned in this article
Trade on BybitSponsored
Open a demo account in 30 seconds. No deposit required.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.