Tokenized Funds: UCITS, AIFs, and the Luxembourg Advantage

Tokenized Funds: Institutional Adoption at Scale

The tokenized fund sector has attracted more institutional AUM than any other tokenized asset class outside of tokenized government bonds. By February 2026, the aggregate market for tokenized money market funds and institutional digital liquidity products had surpassed $2.5 billion globally, with three funds dominating: BlackRock’s BUIDL fund ($1.7 billion), Franklin Templeton’s Benji fund ($420 million+), and WisdomTree’s suite of tokenized fund products.

These are not experimental proofs-of-concept. BlackRock’s BUIDL is a registered investment fund regulated by the SEC under the Investment Company Act of 1940, investing in US Treasury bills, repurchase agreements, and cash equivalents. Its tokenization layer—provided by Securitize as transfer agent and token issuance platform—allows accredited investors to hold their fund interests as ERC-20 tokens on Ethereum, enabling instantaneous transfer and use as collateral in DeFi protocols.

The significance for compliance officers and fund managers is that the regulatory framework for tokenized funds is, in most cases, the same as for traditionally structured funds—with the tokenization layer adding technical complexity rather than fundamental regulatory uncertainty. The compliance questions shift from “is this legal?” to “how do we implement existing fund law requirements within a DLT architecture?”

BlackRock BUIDL: The Reference Architecture

BlackRock USD Institutional Digital Liquidity Fund (BUIDL) launched in March 2024 as the first tokenized fund offered by the world’s largest asset manager. Its compliance architecture has become the de facto reference model for institutional tokenized fund products.

Fund structure: BUIDL is organized as a segregated portfolio company (SPC) in the British Virgin Islands, registered as an exempt investment fund under BVI law. It is not registered under the US Investment Company Act, as it relies on a private fund exemption (Section 3(c)(1) or 3(c)(7)) and is offered exclusively to accredited investors. This structure avoids the full SEC registration burden while maintaining BlackRock’s institutional credibility.

Investments: BUIDL invests 100% of assets in US Treasury bills, overnight repurchase agreements collateralized by US government securities, and cash. The fund targets a stable $1.00 NAV per token.

Token infrastructure: Securitize serves as transfer agent and tokenization platform. Fund interests are represented as ERC-20 tokens on Ethereum. Each token represents $1.00 of fund NAV. Token transfers are restricted to whitelisted wallets—only KYC-verified, accredited investors whose wallets are registered in Securitize’s compliance database can receive or hold BUIDL tokens.

On-chain yield: BUIDL accrues yield daily and distributes it monthly in the form of additional tokens to holders’ wallets, rather than cash distributions. This design enables yield to compound automatically and allows fund interests to be used as near-cash collateral in DeFi protocols (Ondo Finance, Superstate, and others have built yield-bearing stablecoin products using BUIDL as collateral).

Investor access: BUIDL is available to institutional investors globally with a $5 million minimum investment. KYC/AML is handled by Securitize using Securitize ID, its institutional-grade identity verification system.

Redemption: Investors can redeem BUIDL tokens for cash within approximately 12–24 hours via Securitize, or can transfer tokens to Securitize for immediate redemption in USDC through a liquidity facility provided by Circle.

Franklin Templeton: Blockchain-Native Pioneer

Franklin Templeton’s OnChain US Government Money Fund (FOBXX, ticker BENJI) predates BUIDL by nearly three years. Launched on the Stellar blockchain in April 2021 and subsequently expanded to Polygon, FOBXX is the first US-registered mutual fund to use a public blockchain for transaction processing and share ownership records.

Unlike BUIDL’s BVI structure, FOBXX is registered with the SEC under the Investment Company Act of 1940—a far more demanding regulatory pathway. The SEC’s approval of FOBXX’s use of the Stellar blockchain as the fund’s official transfer agent record was a landmark event, establishing that public blockchains can serve as authoritative securities registers under US fund law.

FOBXX invests in US government securities and repurchase agreements. Its BENJI app enables retail-eligible investors (subject to standard fund subscription requirements) to hold BENJI fund shares as tokens. As of February 2026, FOBXX’s AUM has exceeded $420 million, validating the retail-accessible tokenized money market fund as a commercially viable product category.

Franklin Templeton has subsequently launched additional tokenized funds on Polygon, including a tokenized equity fund and a tokenized bond fund, demonstrating that the regulatory framework established for FOBXX extends to a broader range of asset types.

WisdomTree: ETF-Adjacent Tokenized Funds

WisdomTree—the US-based ETF provider managing approximately $100 billion in global assets—entered the tokenized fund market with its WisdomTree Prime platform, launched in 2023. WisdomTree Prime offers tokenized fund shares across multiple asset classes: US treasuries, gold, commodities, and equity. Its regulatory approach differs from both BUIDL and FOBXX: WisdomTree operates under a federal broker-dealer license and its tokenized funds are structured as digital fund shares accessible through the WisdomTree Prime mobile application.

WisdomTree secured a limited purpose trust charter in New York in 2023, enabling it to hold and transfer digital assets directly. This trust charter, combined with its existing broker-dealer registration and investment adviser registration, gives WisdomTree a multi-license regulatory stack that positions its tokenized fund products as compliant with both securities law (fund interests) and digital asset law (custody of the tokens).

Luxembourg: The EU Hub for Tokenized Funds

Luxembourg has established a decisive advantage in the EU tokenized fund market through a combination of statutory legal certainty, regulatory engagement from the CSSF, and an ecosystem of established fund administration service providers willing to support tokenized operations.

Legal Foundation

Luxembourg’s Law of March 1, 2019, amended by the Law of January 22, 2021, provides explicit statutory recognition of dematerialized securities issued and transferred on distributed ledgers. Article 18bis of the Luxembourg Law of August 5, 2005 on financial collateral arrangements was amended to confirm that securities accounts maintained on DLT satisfy the legal requirements for securities accounts under Luxembourg law—removing the fundamental uncertainty about whether on-chain records constitute legally valid ownership records.

This legislative clarity—the only such clarity in the EU as of 2026—means that Luxembourg-law fund units issued as tokens are unambiguously legally valid and enforceable. Investors in Luxembourg tokenized funds hold legally recognized interests regardless of whether those interests are recorded on a traditional registrar’s book or a blockchain.

CSSF Guidance

The CSSF (Commission de Surveillance du Secteur Financier) issued foundational guidance on fund tokenization in its FAQ of March 2021, updated in November 2023. Key positions:

• Luxembourg fund management companies can use DLT for the issuance, recording, and transfer of fund units, provided the DLT infrastructure meets the same standards as traditional systems (data integrity, auditability, cyber security)
• The fund’s prospectus and fund documents must describe the DLT-based issuance mechanism
• The fund’s depositary must be able to perform its safekeeping and oversight functions in respect of tokenized units, which requires the depositary to either operate its own DLT node or rely on a licensed third-party custodian with DLT capability
• UCITS funds may issue tokenized units, subject to all standard UCITS requirements

The CSSF does not require a separate license for the act of tokenizing fund units; the existing UCITS management company license or AIFM license covers the tokenization activity. However, CASPs (Crypto-Asset Service Providers under MiCA) operating secondary market trading venues for Luxembourg fund tokens require CASP authorization from the CSSF.

Fund Structures Available

UCITS (Undertakings for Collective Investment in Transferable Securities): The retail-accessible EU fund structure. Passportable across all 27 EU member states. Maximum leverage restrictions, liquidity requirements (10% maximum illiquid holdings), and daily dealing obligation apply. Suitable for tokenized equity, bond, and money market funds.

SIF (Specialized Investment Fund): Reserved for well-informed investors (minimum €125,000 investment or professional investor qualification). More flexible investment universe than UCITS. Preferred for tokenized alternative investment strategies.

RAIF (Reserved Alternative Investment Fund): No prior CSSF product approval required (managed by an EU-authorized AIFM). Fastest time-to-market for institutional tokenized alternative fund products. Minimum investor €125,000 or professional investor.

SICAR (Société d’Investissement en Capital à Risque): Venture capital and private equity vehicle. Can be tokenized using Luxembourg DLT-law provisions. Used by several blockchain-native venture funds.

ERC-3643 for Fund Units

The ERC-3643 token standard (the T-REX protocol) developed by Tokeny Solutions—a Luxembourg-based company—has become the standard for EU fund unit tokenization. Its relevance to funds specifically includes:

Compliance modules: T-REX’s modular compliance architecture allows fund-specific rules to be encoded on-chain, including:

• Maximum investor number limits (e.g., UCITS’s prohibition on more than 10 investors holding more than 10% each for UCITS ETFs structured as closed-ended funds)
• Geographic restrictions (e.g., exclusion of US persons under Regulation S)
• Lock-up periods for AIF units
• Redemption gate mechanics

Corporate actions: T-REX supports forced transfers necessary for corporate actions (mergers, liquidations), which is essential for fund administration.

Identity integration: ONCHAINID (the identity framework used by T-REX) integrates with fund KYC providers including Onfido, Lexis Nexis, and Comply Advantage, enabling automated investor onboarding with on-chain identity attestations.

Euroclear Digital Securities Issuance (D-SI)

Euroclear, as the world’s largest ICSD (International Central Securities Depository) with €37 trillion in assets under custody, launched its Digital Securities Issuance (D-SI) platform in 2023. D-SI enables issuers to issue tokenized securities (including fund units) that are settled and held within Euroclear’s existing infrastructure.

The D-SI platform uses a permissioned DLT network operated by Euroclear under CSDR authorization. Tokenized fund units issued on D-SI are held in Euroclear accounts, enabling access by all of Euroclear’s 2,000+ institutional clients globally without those clients needing independent DLT infrastructure. This “hub-and-spoke” model—where DLT issuance is concentrated in a single regulated infrastructure and distributed conventionally—is likely to be the dominant path to scale for EU tokenized funds.

Investor Onboarding for Tokenized Funds

The investor onboarding process for tokenized fund subscriptions differs from traditional fund onboarding primarily in the digital identity layer. The substantive requirements (KYC, AML, professional investor verification, subscription agreement) are identical to traditional fund subscriptions.

The tokenization layer adds a wallet provisioning step: each investor must have a whitelisted wallet address (or have their custodian provide a whitelisted address) before tokens can be allocated. This step requires coordination between the fund administrator, the tokenization platform, and the investor’s digital asset custodian.

For institutional investors using Fireblocks, BitGo, Anchorage Digital, or Coinbase Prime as digital asset custodians, wallet whitelisting can typically be completed within 24–48 hours of KYC approval. Retail investors using self-custody wallets require additional verification steps.

For broader regulatory analysis, see the Securities Tokenization overview, Jurisdictions, and the Luxembourg licensing guide.

Authority references: ESMA · MiCA (EUR-Lex) · MAS Digital Assets