The ETF Playbook for Tokenization: The Wrapper Wins, Not the Asset

The most useful thing you can do to understand tokenization is to stop staring at the token and study the ETF. The argument being had about tokenized assets right now, that they are redundant because they deliver the same exposure as the traditional version, is not a new argument. It was had thirty years ago about exchange-traded funds. The people who lost that argument were sophisticated incumbents. The people who won it are, today, the three largest asset managers on earth. That is worth understanding before you decide which side you are on this time.

The argument the incumbents lost

The first ETF launched in 1993. For most of the decade that followed, it grew steadily but unremarkably. Global ETF assets were still below 100 billion dollars by 2000. To the incumbents running index mutual funds, this was confirmation of what they already believed: the product was economically redundant. An S&P 500 ETF gave an investor exactly the same exposure as an S&P 500 index fund. Same holdings, same benchmark, same returns. Why would a wrapper around identical exposure ever matter?

They were completely right about the exposure. They were completely wrong about everything that turned out to matter. What they dismissed as redundant carried a structural advantage that had nothing to do with what the fund held: intraday liquidity, in-kind creation and redemption, tax efficiency, and exchange-based tradability. The innovation was never the asset. It was the operating model wrapped around the asset. And the operating model was better in ways that compounded.

The inflection was distribution, and then it was scale

The ETF did not go vertical because the market suddenly appreciated its cleverness. It went vertical when it was integrated into distribution: model portfolios, advisory platforms, and retirement accounts. Once the wrapper was embedded in the channels through which capital actually moves, adoption accelerated. Global ETF assets went from roughly 400 billion dollars in 2005 to around 7 trillion by 2020 and to something like 11 to 12 trillion by 2025. In US equities, ETFs now routinely account for 40 to 50 percent of daily trading volume. The redundant wrapper became the market.

Then came the part that should hold every builder’s attention. The first movers captured the upside, and they kept it. State Street, iShares, now part of BlackRock, and Vanguard together control roughly 75 to 80 percent of global ETF assets. Early scale created advantages that fed on themselves: tighter spreads, deeper liquidity, inclusion in model portfolios, and lower unit costs, each of which attracted more assets, which tightened spreads further. The wrapper stopped being a product and became core infrastructure, and the firms that built it early own it in a way latecomers have never been able to dislodge. Those figures and history are drawn from Boston Consulting Group’s work on the sector.

Now run the same tape on tokenization

The dismissal today is word for word the one the ETF received. A tokenized bond is just a bond. A tokenized fund is just a fund. Same exposure, same cash flows, so what is the point. And once again, the objection is right about the exposure and blind to the operating model.

What tokenization changes is the same category of thing the ETF changed: how the instrument settles, trades, and moves. Programmable settlement instead of a multi-day cycle. Trading that is not confined to market hours. Atomic settlement that removes counterparty risk from the exchange of value. Composability, so an instrument can plug directly into other on-chain systems. And, where it is built correctly, a genuine secondary market with liquidity the traditional private version never had. None of that changes what the asset is. All of it changes what the asset can do. That is exactly the move the ETF made, one layer down.

The innovation is the wrapper. Again.

What this predicts

I try not to make predictions. I try to identify inevitabilities, which are just patterns that have already resolved once and are resolving again. Here is the one this points to.

The value will not accrue to the asset, because the asset does not change. A tokenized treasury bill is the same treasury bill. The value will accrue to the operating layer that owns the better wrapper and the distribution around it, precisely as it did with the ETF. And the concentration pattern will repeat. The firms that build regulated tokenization infrastructure early, the licensed rails for issuing, distributing, custodying, and trading these instruments, will hold a disproportionate and self-reinforcing share, for the same compounding reasons the early ETF providers did. Liquidity attracts liquidity. Distribution attracts assets. Regulatory standing, in this version, is the moat that early scale was in the last one, and it is harder to replicate than scale ever was.

Set that against the demand curve. Boston Consulting Group projects tokenized real-world assets growing from roughly 30 billion dollars today toward as much as 88 trillion by 2035 in its progressive scenario. Whether the number is 88 trillion or a fraction of it, the shape is the same shape the ETF drew: a slow start that incumbents mistake for a ceiling, an inflection driven by distribution, and a small group of early builders capturing most of the durable value.

The takeaway

The ETF did not win by changing the asset. It won by changing the operating model around the asset, and then by being integrated into distribution before the incumbents took it seriously. Thirty years of value flowed to the firms that saw the wrapper for what it was and built it first. Tokenization is the same trade, one layer down, and it is early enough that the wrapper is still being built.

So the question to ask about any tokenization business is not what asset it puts on-chain. It is whether it owns the operating model and the distribution that the value will actually pool into. Study the wrapper, not the token. That is where this went last time, and markets do not usually change their mind about where value lives just because the technology has a new name.

Rob Frasca is Managing Partner and Co-Founder of COSIMO Digital.