New financial products entail well-known risks, and blockchain issued investment funds are not immune. Assets in blockchain-based funds have almost tripled in a year-from $ 11.1 billion to almost $ 30 billion. New participants Vaneck, Fidelity, GDP Paribas and Apollo recently launched on-chain investment funds. Others come.
Blockchain-based and digital native securities products have the potential to be the next major investment trend, as the technology utilizes lower costs, faster and more efficient financial products. But as the story shows, investors need to be aware of not succumbing to the same prisons that defined previous mania.
SPAC Boom, Non-commerce Reits Dille, and Cryptos ICO wave promised all access and economic democratization, but left largely investors holding the bag. What these events are exposed is worth remembering now: When new distribution channels collide with hype, opportunists often rush in with products that are more risky, more expensive or less transparent than their colleagues.
The risk of investors in digital markets is how new technology will be used. Blockchain has the potential to reduce costs, increase transparency and unlock new and new investment vehicles. But as blockchain-based funds move into mainstream, this same technology could be used to recycle failed strategies or justify high fees in the form of “digital innovation.” The result may be products that do not provide any real improvement in relation to their traditional equivalents or worse, saddle investors with higher costs and weaker protection.
Investors need to remember this saying: Timeō Danaōs a dōna ferentēs – “Take care of Greeks carrying gifts.” Real blockchain-native vehicles can offer potential improvements, such as more effective pricing and continuous yield, but investors should remain careful with products that invoke Blockchain’s promise merely to redirect old economic structures without providing meaningful benefits.
The task of investors is to separate true progress from Odysseus’ Trojan horse.
A useful test is the fee structure. Processes after trading performed on blockchain rails must replace intermediaries to reduce costs. If the total spending relationship is more than traditional colleagues, the buyer must take care of. Noted digital asset critic Stephen Diehl did the math:
“Blackrock’s tokenized money market fund will charge investors between 20 to 50 basic points in management fees. The non-tokenized version charges as little as 0.12 base. It’s up to 42 times more expensive.”
Investors should not pay more for buzzwords.
Be discerning about which products are migrating on-chain and why. Is the issuer who tokenizes a product because it offers genuine benefits for all parties, or is blockchain just a new distribution channel for overly complex and opaque products? Private funds previously banned for retail investors should not suddenly reappear as “exclusive blockchain offers” that charge fees at institutional levels for illicitated bearings. There is a reason why early product innovation has focused on simple fund structures such as money market funds.
Products with suspiciously high return or a hidden investment strategy deserve increased control.
Product structure also tells a story. A security that was issued natural on-chain in origin should be more efficient and oblique operating costs. On the other hand, a tokenized security is an existing active mirror of a blockchain that often reflects tradfi costs by preserving the product’s off-chain processes and attributes. Issuers must be aware of the structure of their on-chain products and what it means for costs, shareholder rights and liquidity.
True democratization of capital markets means wider access and lower entry barriers to investors without sacrificing investor protection. But don’t take the industry’s words for it – look for cost compression and participation from trusted, older institutions. A recent example of the latter is the credit rating agency Moody’s test of a proof-of-concept project to integrate its municipal bond assessments into tokenized securities. A simulated municipal bond was tokenized with a credit rating attached to the asset’s on-chain, demonstrating how off-chain data can help link securities products with greater transparency. Integrating an industry standard rating system within a new and new product set gives investors a well-known and trusted touch stone.
In April 2025, SEC President Paul Atkin emphasized the importance of “utilizing blockchain technology to modernize aspects of our financial system” and emphasized his expectation of “enormous benefits of this market innovation for efficiency, cost reduction, transparency and risk limitation.” But this must be done on the basis of SEC’s goal of maintaining investor protection. SIFMA repeated the importance of preserving investor protection in the middle of the market modernization in September.
Although the early return on blockchain technology promises these benefits and more cost-effective markets, it is no cure for all the spectrum of charlatans, from Run of Mill Optings to Bona Fide Bad actors. Investors must bring the same vigilance to the digital markets that they apply in traditional markets: read fund prospects, interrogate cost conditions and demand neutral third party to add market data and trust that are fundamental in traditional markets.
If issuers, investors and other market participants are aware of these standards as the markets have been modernized, digital markets have the potential to deliver efficiency and genuine innovation promised by “democratization”.
