BNY Launches Blockchain Fund Service as Wall Street Builds Tokenization Infrastructure

The new service lets fund managers keep the official ownership records of tokenized investment funds on public blockchains instead of traditional databases. It also lets investors buy and redeem fund shares using cash or stablecoins – digital tokens pegged to fiat currencies. The service will first be available to select clients in the US and UK, with BNY Investments Dreyfus, Baillie Gifford and BlackRock expected to be the first issuers. 

"With this new capability, BNY is helping power the future of financial markets through digital market infrastructure with a global, scalable platform that integrates tokenization, distribution, and custody," said Emily Portney, global head of asset servicing at BNY. 

Experts say the move by BNY, which oversees $59.4tn, highlights that the next challenge is no longer creating tokenized assets but building the infrastructure that allows financial institutions to use them.

From products to infrastructure

Emily Bao, key advisor to Mantle and spot executive at Bybit, told Sandmark blockchain-based funds already exist, citing Franklin Templeton's FOBXX as one example, but BNY's launch is significant because it brings the technology to one of the world's largest transfer agency businesses. 

"What BNY has done is take that proven concept and industrialize it," Bao said. She added that BNY's platform is designed for multiple asset managers rather than a single fund and serves a transfer agency business that holds about $8.6tn in assets across more than 7.6mn investor accounts.

Bao said the industry's biggest challenge is no longer creating tokenized assets but finding ways to use them across financial markets. "The bottleneck has moved: the scarce thing is no longer tokenized assets, it's places where you can put them to use," she added.

The launch comes as tokenized assets continue to grow, with about $36.8bn worth of assets now tokenized on public blockchains, according to RWA.xyz. Tokenization is the process of turning traditional financial assets, such as money market funds (MMFs), into digital tokens that can be issued, owned and transferred on a blockchain.

Building the financial plumbing

Michal Pospieszalski, chief executive of web3 wallet infrastructure company AmericanFortress, said the industry's largest firms are focusing on different parts of the tokenization market.

"Everyone in this race is tokenizing a different layer, and BNY just claimed the deepest one," he said. "BlackRock tokenizes the asset, BUIDL proved a fund share can live on-chain. Securitize tokenizes issuance. JPMorgan is tokenizing settlement and deposits through Kinexys. BNY is tokenizing the record of ownership itself – the books-and-records layer that every one of those products ultimately depends on."

A transfer agent keeps track of who owns fund shares and processes transactions when investors buy or redeem them. By keeping those records on a blockchain, BNY could simplify recordkeeping and make fund shares easier to transfer.

"Fund administration today is largely a reconciliation industry, thousands of people paid to make separate databases agree with each other," Pospieszalski said. "A shared ownership ledger makes that entire discipline start to evaporate: the transfer agent's job shifts from keeping the record to verifying and governing it."

The launch could challenge crypto infrastructure firms whose business models rely on providing services that large banks increasingly develop in-house.

Sandmark reached out to BNY for comment but has not yet heard back.