Daiwa Securities bets on tokenization! TradFi giants compete to bring cash funds on-chain

State Street is building tokenized money market funds, ETFs, and deposits, planning to launch digital asset custody in 2026, and collaborating with Galaxy Digital to launch tokenized private placement funds. Research shows nearly 60% of institutional investors plan to increase digital asset allocations, with firms like BNY Mellon and Franklin D. Roosevelt also accelerating their deployments.

TradFi Tokenization Wave: On-Chain Existing Products, Not Native Crypto

Major financial firms are prioritizing tokenized versions of existing cash and fund products rather than launching new crypto-native offerings. This strategic choice reflects TradFi giants’ pragmatic attitude toward blockchain technology. Unlike crypto-native companies building entirely new products from scratch, traditional institutions like State Street are choosing to migrate mature, regulated products onto the blockchain. This gradual innovation reduces regulatory risks and market acceptance barriers.

State Street has not launched native cryptocurrencies but positions tokenization as an upgrade to existing investment structures. This positioning is highly strategic. For institutional investors, they are already familiar with the mechanics and risk profiles of traditional products like money market funds, ETFs, and bank deposits. Tokenizing these products means retaining the original legal frameworks, accounting treatments, and regulatory compliance, simply upgrading the underlying technology infrastructure to blockchain.

The bank plans to work with asset managers and clients, leveraging its asset management division, which last month partnered with Galaxy Digital to launch a tokenized private liquidity fund. This collaboration exemplifies the integration model between TradFi and crypto-native firms. Galaxy Digital brings deep expertise in blockchain technology and digital assets, while State Street offers regulatory compliance and an extensive institutional client network, creating a complementary partnership.

The launch of tokenized private liquidity funds has a demonstration effect. These funds typically invest in high-quality short-term debt instruments, providing cash management solutions for institutions. Tokenizing such funds means investors can enjoy blockchain benefits: 24/7 trading, instant settlement, lower transaction costs, and composability with other on-chain assets. This upgrade significantly enhances product competitiveness without altering the fundamental nature of the funds.

Comprehensive Analysis of State Street’s Tokenization Product Layout

This move builds on State Street’s current role serving the crypto market, where it already provides management and accounting services for crypto ETFs, and announced plans last year to expand into digital asset custody by 2026. State Street’s digital asset strategy presents a clear three-phase progression.

Phase one is as a service provider. State Street has managed funds and provided accounting for multiple Bitcoin and Ethereum spot ETFs, gaining practical experience and regulatory knowledge in handling digital assets. While these ETFs operate within traditional finance, their underlying assets are cryptocurrencies, providing real-world training in understanding digital asset characteristics.

Phase two is issuing tokenized products. According to Thursday’s announcement, the custodian bank is establishing tokenized money market funds, ETFs, and cash instruments such as tokenized deposits and stablecoins. This marks an upgrade from service provider to product issuer. The diversity of tokenized products demonstrates a comprehensive deployment ambition:

State Street Tokenized Product Line

Tokenized Money Market Funds: On-chain short-term debt portfolios providing liquidity management tools

Tokenized ETFs: Index fund shares tokenized for real-time trading and settlement

Tokenized Deposits: Blockchain representation of bank deposits, retaining their liability nature

Stablecoin-Related Products: Exploring regulated stablecoin frameworks

Phase three is digital asset custody. State Street plans to expand into digital asset custody in 2026, enabling it to directly hold and safekeep clients’ cryptocurrencies and tokenized assets. Custody services are core to institutional-grade digital asset infrastructure, as institutional investors require compliant, professional custody solutions. As one of the world’s largest custodians managing over $40 trillion in assets, State Street’s entry into digital asset custody will significantly advance market maturity.

Tokenized Deposits: A Stablecoin Alternative within the Banking System

Tokenized deposits and fund shares are becoming regulated alternatives to stablecoins within the banking system. This push coincides with the acceleration of digital cash initiatives by custodian banks. Earlier this month, BNY Mellon launched a tokenized deposit service designed for payments, collateral, and margin, creating blockchain-based representations of bank deposits that remain direct liabilities of the issuing bank, not stablecoins.

This distinction is crucial. Stablecoins like USDC or USDT are issued by private companies, claiming to be dollar-pegged, but their legal status and regulatory frameworks are still evolving. In contrast, tokenized deposits are blockchain representations of traditional bank deposits, protected by full banking regulation, insured (e.g., FDIC in the US), and are direct liabilities of the bank.

For institutional investors, this legal certainty is highly attractive. TradFi institutions are subject to strict regulation and must consider compliance, capital adequacy, and audit standards when choosing cash management tools. Tokenized deposits meet these requirements perfectly, as they are essentially bank deposits in a different form.

BNY Mellon’s tokenized deposit service is designed for payments, collateral, and margin, demonstrating practical use cases. For payments, tokenized deposits can enable instant cross-border settlement without traditional SWIFT systems. For collateral, counterparties can verify collateral existence and value instantly, reducing counterparty risk. For margin, derivatives exchanges can calculate and adjust margin requirements in real time, improving capital efficiency.

Franklin D. Roosevelt and the Trend of Full On-Chain TradFi

Other top asset managers are taking similar steps. This week, Franklin D. Roosevelt updated two institutional money market funds to support blockchain-based settlement and ownership records, enabling traditional cash tools to connect with tokenization and regulated stablecoin frameworks without changing fund management or regulation.

Franklin D. Roosevelt’s approach demonstrates another path for tokenization: not creating entirely new tokenized products, but upgrading existing products to support blockchain settlement. The advantage of this approach is continuity. Existing investors do not need to redeem old funds and buy new ones but can automatically enjoy the upgraded blockchain settlement features. The investment strategies, risk profiles, and regulatory status of the funds remain unchanged; only the backend technology infrastructure is modernized.

The phrase “enabling traditional cash tools to connect with tokenization and regulated stablecoin frameworks” reveals the ultimate goal of TradFi tokenization: to establish a unified digital asset ecosystem where traditional financial products and crypto-native assets can operate seamlessly together. This interoperability will unlock significant efficiency gains and innovation potential.

State Street previously noted that institutional demand for these changes is growing. In a research report published in October 2025, the bank stated that nearly 60% of institutional investors plan to increase digital asset allocations, with many expecting a substantial portion of their portfolios to be tokenized over time.

This 60% figure is highly persuasive. Institutional investors tend to be conservative and cautious, basing their allocation decisions on rigorous due diligence and risk assessment. When nearly two-thirds of them plan to increase digital asset holdings, it signals a consensus forming in the industry. More importantly, “a substantial portion of assets will be tokenized” implies that tokenization will not be just a fringe experiment but will become a mainstream approach to portfolio management.