Asset tokenization: Unlocking new opportunities for the investment sector

1. The traditional CSD-centric model

This model remains the gold standard in terms of reliability. The investor’s custodian bank handles order routing, settlement and delivery, and asset safekeeping. The fund depositary, acting under delegation from the asset manager, centralizes subscriptions and redemptions and maintains the fund’s share issuance account.

The Central Securities Depository (CSD) plays a pivotal role in the settlement and delivery process, as well as in maintaining the fund share register on behalf of local depositaries.

While this model offers a battle-tested processing chain, it is inherently complex — involving multiple layers of intermediaries such as global custodians, sub-custodians, and clearing houses — and falls short when it comes to cross-border interoperability, as illustrated by the fragmentation between systems like ESES and Euroclear.

2. Hybrid Funds: A stepping stone between the traditional model and full tokenization

The hybrid model introduces a DLT platform as an additional distribution channel for the asset manager. Once an investor has been onboarded onto the platform — covering KYC and client profiling — the platform centralizes their orders acting as an order routing provider (RTO), handles settlement and delivery using the banking mandates granted by the investor, and finally records the fund shares in registered form on its own distributed ledger, typically a private blockchain.

The fund depositary, for its part, aggregates subscription and redemption requests coming from both traditional channels and the DLT platform, thereby maintaining a consolidated view of the fund’s liabilities. This model is particularly well-suited for institutional investors and asset managers looking to pilot DLT technology without disrupting their existing operational workflows.

For retail investors, the hybrid model offers a first taste of subscribing to funds through a blockchain-based distribution platform, but it stops short of genuinely transforming the client experience. Investors can still subscribe the way they always have, through their bank, or alternatively through the DLT platform they have previously registered on. The added value remains limited, however, since the client’s overall wealth picture becomes fragmented between their bank and the platform’s ledger — and the assets fall outside the tax-advantaged PEA wrapper.

In the context of life insurance contracts, the hybrid model is essentially neutral for the retail client. The subscription process is entirely managed by the insurer, who selects the distribution channel — CSD or DLT — without any impact on the client journey. The private bank retains a consolidated view of the client’s holdings regardless of which channel is used, meaning the end client notices no meaningful difference in their day-to-day experience. The real winner here is the insurer or the bank, which optimizes its operational chain — cutting costs, reducing processing times, and streamlining reconciliations — all without changing anything from the client’s perspective.

Institutional players — corporates, treasurers, and life insurers — stand to gain considerably more from the hybrid model, thanks to economic and operational levers that are more directly actionable.

3. Fully Tokenized Funds: A deeper shift, driven by institutional players

The fully tokenized fund model takes things a step further by moving registered ownership entirely onto public DLTs (Ethereum, Polygon, Starknet, etc.), with fund shares issued exclusively by the asset manager in token form.

In practice, the investor provides the distribution platform or their custodian with a wallet address that has been pre-approved (allowlisted) in the fund’s smart contract. The platform or custodian then generates the on-chain transactions and signs them on behalf of the client using the private key associated with their wallet, before triggering the settlement and delivery process directly on the blockchain.

Once the transaction is finalized, the shares are permanently assigned to the client’s wallet. The asset manager maintains the register directly on the public DLT, accessible through their custodian.

With fully tokenized funds, the entire post-trade chain becomes simpler and largely automated: issuance, register keeping, transfers, settlement and delivery, and reporting all run directly on a shared digital infrastructure.

This approach is more ambitious than the hybrid model — it shifts the central register onto the blockchain and fundamentally redefines the role of intermediaries.

For retail investors, subscribing to fully tokenized fund shares requires holding a wallet to secure their asset keys.

In the life insurance context, however, the fully tokenized model has no direct impact on the retail client. The insurer remains the subscriber, and the client’s bank already has a complete view of their holdings regardless of the underlying model. Tokenization is, in effect, invisible to the end client.

For institutional investors, the fully tokenized model delivers on its promise more completely than the hybrid approach — driving down costs through a simplified post-trade chain and natively automated processes.

In summary, while the supply of fully tokenized fund shares remains very limited at this stage, this model is clearly the most efficient and most promising. The operational, financial, and strategic gains it offers are markedly superior to the hybrid model. Broader adoption now hinges on technological familiarity across the industry and on achieving interoperability between banks and DLT platforms.