Sage Advisory has been active in the ETF market since the mid-1990s and has seen firsthand how ETF technology has expanded access and improved portfolio implementation. From that perspective, tokenization may represent the next step in ETF market modernization.

Adoption remains early and primarily institutional, with activity concentrated in tokenized wrappers, infrastructure pilots, and settlement-focused applications rather than fully native on-chain ETFs. In our view, the more credible near-term outcome is modernization of the infrastructure that supports issuance, settlement, recordkeeping, distribution, and market access.

Key Observations

Progress to date has been most visible in tokenized exposure to Treasury, money-market, and short-duration fixed income strategies, as well as in distributed-ledger pilots for recordkeeping and settlement. At the same time, recent SEC guidance makes clear that tokenized securities remain subject to the existing securities-law framework, reinforcing that tokenization changes the operating rails rather than the underlying investor-protection regime.

Taken together, these developments suggest that the most credible path forward is not immediate exchange-listed adoption, but the gradual emergence of regulated pathways for tokenized ownership, settlement, and market infrastructure.

Strategic Implications

If adopted at scale, tokenization could materially improve ETF operations through faster settlement, broader trading windows, more efficient arbitrage, real-time ownership tracking, and expanded cross-border distribution. For issuers and allocators, the significance lies less in immediate product disruption and more in the prospect of a more efficient market structure over time.

The most important developments to monitor are likely to be blockchain-based share registries, tokenized share classes, and selected on-chain creation and redemption workflows operating within regulated frameworks.

Outlook

Over the next several years, adoption is likely to remain gradual and infrastructure-led. Near-term progress will most likely center on permissioned blockchain registries, tokenized recordkeeping, and limited tokenized share classes within existing fund structures.

Fully on-chain ETFs remain a longer-term possibility and will require further regulatory progress in custody, transfer-agent functions, listing standards, and settlement architecture. In our view, among the traditional investment mediums, ETFs remain the best positioned to migrate meaningfully onto blockchain-based infrastructure.

Bottom Line

Tokenization is not yet redefining the ETF industry, but it is beginning to modernize the infrastructure around it. In the near term, its significance lies in improving settlement, recordkeeping, distribution, and market access rather than replacing the ETF wrapper itself.

For investors, the more important takeaway is structural: tokenization should be understood as a consequential market-structure evolution with the potential to extend the long history of ETF-driven innovation.

Industry Overview

Sage has been an active participant in the ETF market for decades and has seen the investment medium evolve into a core investment portfolio tool. From that vantage point, tokenization appears to be the next step in the ETF’s long pattern of innovation.

Current Focus Areas of ETF Tokenization

Tokenized Exposure to Money Market and Treasury ETFs

The most visible activity to date has emerged in tokenized exposure to traditional ETF strategies, particularly U.S. Treasury, money market, and short-duration fixed income exposures.

These instruments are generally issued on public blockchains such as Ethereum, Solana, and Polygon, fully backed by underlying ETF shares, and supported by regulated custody arrangements that extend trading beyond traditional market hours.

Importantly, these structures are not newly issued on-chain ETFs; rather, they are tokenized wrappers built around existing ETF exposures. Examples may be found at:

• Ondo Finance tokenizing BlackRock and State Street Treasury ETFs,
• Backed Finance issuing tokenized versions of European ETFs,
• Matrixdock offering tokenized short term Treasury ETF exposure.

Blockchain-Based Share Registry and Recordkeeping Pilots

A second area of development is the use of distributed-ledger technology in ETF recordkeeping, shareholder registry functions, and related operational workflows such as:

• recording ETF share ownership on private blockchains,
• using distributed ledgers for creation/redemption workflows,
• tokenizing the share registry rather than an ETF itself.

These efforts are under way across multiple jurisdictions, including the United States, Switzerland, Singapore, and Hong Kong.

The strategic objectives of these activities are to reduce settlement friction, lower servicing costs, and improve operational precision across the ETF lifecycle. In practical terms, this represents the infrastructure layer of ETF tokenization.

Tokenized ETF Units for Institutional Settlement

A third area of experimentation involves tokenized ETF units designed to support institutional collateral movement, intraday settlement, and cross-border liquidity management.

These applications are not currently designed for broad retail market use, but they indicate that tokenization is beginning to influence core ETF market plumbing.

Current Constraints on ETF Tokenization

Despite recent progress, several foundational elements of a fully tokenized ETF market structure remain absent.

No fully on-chain ETFs

No ETF currently maintains its official share ledger on a public blockchain. Existing regulatory requirements still rely on centralized transfer-agent functions, traditional custody frameworks, and conventional settlement infrastructure.

No SEC approved “tokenized ETF share class”

The SEC has not approved tokenized ETF share classes, blockchain-native ETF issuance, on-chain settlement, or smart-contract-based creation and redemption within registered ETF structures.

No tokenized ETF trading on U.S. exchanges

Where tokenized ETF units do trade today, activity remains limited to crypto platforms, alternative trading systems, and offshore venues rather than major U.S. exchanges such as the NYSE, Nasdaq, or CBOE.

Why ETFs Are Well Suited for Tokenization

ETFs are especially well positioned for tokenization because many of the necessary operational components already exist within the current structure.

This helps explain why many market participants view ETFs as one of the most likely traditional investment mediums to migrate meaningfully onto blockchain-based infrastructure.

Likely Next Steps, 2026–2030

Over the medium term, the most probable developments are likely to emerge first in infrastructure, registry design, and regulated workflow changes rather than in fully native on-chain ETF structures.

SEC approval of blockchain based share registries

This would allow ETFs to maintain their official shareholder records on a private blockchain.

Tokenized share classes of existing ETFs

This could mirror the share-class approach used elsewhere in asset management, but with a tokenized class incorporated into the ETF structure.

On-chain creation/redemption

Market makers could create and redeem ETF shares on-chain, potentially reducing settlement risk and operational friction.

Fully on-chain ETFs will require (longer term):

• new custody rules,
• new transfer agent rules,
• new exchange listing standards.

While these are longer term goals, these outcomes are increasingly viewed by many market participants as credible.

Expected Market Developments

Tokenization has entered the ETF market through tokenized wrappers, infrastructure pilots, and institutional settlement experimentation, but the core regulatory structure of the ETF vehicle still remains unchanged. Even so, the direction of ETF market structure is becoming clearer.

If regulatory and operational frameworks continue to evolve in parallel, tokenization has the potential to become a meaningful force in reshaping the ETF market’s structure over time in the following ways.

Primary-Market Transformation: On-Chain Creation and Redemption

Tokenization has the potential to reshape the primary-market mechanics at the core of the ETF structure, particularly through changes to creation and redemption workflows. For example:

• instant trade settlement will replace T+1/T+2,
• smart-contract-based baskets will automate the exchange of securities for ETF shares,
• 24/7 primary market operations will become possible,
• global APs (authorized participants) will interact on-chain without legacy settlement mechanisms.

The broader implication is that this may lead to a more competitive and potentially more liquid ETF ecosystem because it will:

• reduce operational risks,
• lower capital requirements for APs,
• expand the number of firms that can act as liquidity providers.

Secondary-Market Evolution: Continuous Trading and Global Liquidity

Over time, tokenized ETFs could trade continuously, across borders, and across multiple blockchain networks.

• ETFs will become global assets, not exchange specific listings.
• Liquidity pools will merge across regions.
• Arbitrage will continue across time zones instead of being constrained by regional exchange hours, while increased competition could help tighten bid-offer trading spreads.

Transfer-Agent Evolution: Blockchain as the Share Registry

Today, ETF ownership records depend on transfer agents, custodians, and reconciliation processes that sit across multiple operational layers. Through the adoption of a blockchain mechanisms the ETF market will operate by using:

• a single, canonical ledger,
• real time ownership tracking,
• automated corporate action processing.

This will lead to:

• lower operational costs,
• fewer trade errors,
• faster shareholder reporting,
• the potential elimination of unnecessary intermediaries.

Product Innovation: Tokenized Share Classes and New ETF Formats

Tokenization could also expand the range of ETF structures available to issuers and investors. For example, we will likely see:

• tokenized share classes of existing ETFs;
• fractional ETF shares existing natively on-chain;
• multi chain ETF distribution platforms;
• programmable ETFs with built-in rules (e.g., automated rebalancing);
• new types of investors (DeFi, global retail) will have greater access to a wider range of ETFs.

Liquidity and Market-Making: A More Efficient Arbitrage Mechanism

One of the most important potential effects of tokenization is a more efficient arbitrage process, which sits at the center of ETF price alignment with regard to establishing net asset value. Tokenization will support:

• on-chain NAV calculation,
• automated arbitrage bots,
• real time basket valuation,
• cross venue liquidity aggregation,
• faster price discovery,
• more resilient liquidity during periods of market stress.

Distribution and Access: Toward a More Borderless ETF Market

Tokenization has the potential to reduce many of the geographic and operational frictions that still constrain global ETF distribution and market growth today. Through tokenization:

• investors in emerging markets could access U.S. ETFs without local intermediaries,
• ETFs could be distributed directly to digital wallets,
• compliance could be automated via on-chain mechanisms.

Integration with Digital Market Infrastructure

As tokenized ETFs develop, they could become increasingly interoperable with digital market infrastructure, including collateral, liquidity, and yield-oriented applications. In this context, they will likely be used:

• as collateral for lending,
• in liquidity pool assets,
• in automated yield strategies,
• in tokenized ETF index baskets,
• as a core part of a 24/7 programmable agentic financial system,
• to create new liquidity channels outside of the current traditional exchanges.

Regulatory Evolution: The Framework for On-Chain ETFs

To reach optimal tokenization regulators and institutional market participants will need to create:

• transfer agent rules,
• custody definitions,
• settlement requirements,
• exchange listing standards,
• approval of blockchain based share registries,
• tokenized share classes,
• on-chain settlement pilots.

Eventual Structural Outcome: ETFs become the Leading On-Chain Asset Medium

ETFs are particularly well suited for tokenization because their existing structure already aligns with many of its core operating and structural features such as:

• basket-based issuance,
• centralized custody,
• reliance on transfer agents,
• operating with high transparency.

In that sense, tokenization would not require a wholly new ETF model; it would place an already efficient structure on a more advanced and capable operating system.

Our Long-Term Tokenization Outlook

Based on our analysis, we believe the following features and trends will broadly emerge in the ETF markets:

• ETFs will trade more efficiently across market boundaries, every day,
• ETF creation/redemption will become instantaneous,
• NAVs will be calculated in real time,
• liquidity will become deeper and more distributed,
• costs will fall across the value chain.

We believe that over time, ETFs will emerge as one of the leading traditional asset mediums to be used in tokenized form.

ETF Market Structure Comparison: Traditional Framework vs. Tokenized Model