Tokenization Disrupts ETFs

Ralf Wandmacher

Chapter 5 in Cryptofinance:A New Currency for a New Economy, 2021, pp 87-103 from World Scientific Publishing Co. Pte. Ltd.

Abstract: The traditional asset management industry has grown substantially over the last decades with three main sectors: active asset management, passive asset management, and alternatives asset management. Crypto-assets as cryptocurrencies and tokens are a new asset growing from a small base and may move through the tokenization of individual assets into asset management.The efficiency of the asset management industry may be substantially improved through the tokenization of existing assets. This research will discuss the implications of tokenization for passive asset management, in particular, for exchange-traded funds (ETFs) as one of the most efficient asset management products known so far.ETFs are a success story in the asset management industry over the last two decades. The substantial growth in volume results from the low costs for clients and it’s easy handling. ETFs create a picture of a no-risk, no-frills investment product. It seems to be easily understandable, easy to handle, and transparent with limited risks.These “obvious” advantages are only partially congruent with the results of the exercised research. Risks of ETFs are in existence and are well documented in the selling prospectuses of the ETF providers. In addition, this research finds that fees are not fully transparent. Furthermore, governance problems of passive asset management products such as ETFs do arise and have not been solved so far.One solution to the research challenges of ETFs may be the usage of the latest technology, i.e., the tokenization of assets, which could lead to the abolition of ETFs by using crypto-asset management instead.

Keywords: Cryptocurrencies; Digital Currencies; Bitcoin; Blockchain; Fintech; Tokenization; BitLicense; Crypto-Asset (search for similar items in EconPapers)
JEL-codes: G1 G11 (search for similar items in EconPapers)
Date: 2021
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