In the 1990s, Exchange-traded funds (ETFs) were a novel idea. Many saw them simply as a new wrapper for traditional assets: a convenient repackaging of mutual funds. In reality, ETFs triggered a revolution in market structure. By introducing creation/redemption mechanisms and arbitrage-driven liquidity, ETFs fundamentally changed how markets worked and how investors accessed assets. ETFs blurred the line between primary and secondary markets and made arbitrage the mechanism to hold the system together.
How does tokenization reflect the revolution in ETF market structure? In almost all key aspects.
A robust tokenized asset is not simply “issued” once like a stock or bond; It can typically be minted or burned on demand against some set of underlying assets or claims. For example, when a token represents shares of a fund or stock, authorized participants (or smart contracts acting as such) should be able to deposit the underlying tokens and mint new tokens or redeem them for the underlying assets.
If the token trades above the value of its underlying holdings, arbitrageurs will mint new tokens (injecting supply) until prices realign; if you quote below, they will redeem tokens (reducing supply) until the discount closes. The economic principle is identical to that of ETFs. The token is a wrapper of the same assets and arbitrage keeps its price honest.
With respect to both ETFs and tokenization, the wrapper is simply a liquid representation of a basket of economic exposures. An ETF share is not the underlying securities themselves, but rather a standardized asset over a basket that trades efficiently because creation and redemption keep it aligned with the underlying assets. Tokenization follows the same logic. The token becomes the liquid instrument, while the underlying assets remain the economic anchor. What matters is not the shape of the wrapper, but the strength of the arbitration bond between the wrapper and the basket.
ETFs have already represented a huge leap in transparency by making baskets of assets continuously traded on exchanges, with visible prices, intraday liquidity, and alignment with the underlying value through arbitrage. Tokenization builds on this foundation. Where blockchains can go further is in making issuances, transfers, and outstanding supply observable in near real-time, potentially expanding visibility into how the envelope evolves relative to the underlying basket.
One of the most important features of tokenized markets is their ability to trade continuously, even when the underlying markets are closed. For anyone who has traded ETFs globally, this is not new, but a familiar and highly valuable capability of market structure. Continuous trading outside local market hours allows prices to incorporate new information as it emerges, rather than waiting for the next open, and allows investors across time zones to transfer risk when they really need to. These prices reflect informed expectations, constructed using correlated instruments, futures, currencies and broader market signals, in the same way that international and cross-time zone ETFs have operated for decades.
US-listed ETFs containing European or Asian stocks already demonstrate how credible prices can exist when the underlying cash market is closed. Those ETFs continue to trade during the US session even after Europe or Asia has closed, and their market price naturally reflects updated expectations (based on futures, currencies, ADR, macroeconomic news and other correlated signals) rather than outdated closing figures. In practice, authorized participants and market makers continually estimate an “intrinsic fair value” for the ETF, including an expected next opening price for holdings in closed markets, and quote around that value to keep the market price of the ETF anchored at that fair value.
The same concept can be applied to tokenized Apple shares, for example, which can be traded on Saturday based on the assessment of Apple’s next likely trading price on Monday. If big news broke on Saturday, you would see the token react immediately. Liquidity providers would quote a price that takes that news into account, likely hedging with any related instruments, such as Nasdaq futures, if they were available. By Monday’s open, Apple’s actual stock price would likely reach the level the token traded at over the weekend. In effect, the token becomes a leading indicator of the underlying stocks.
Not all market participants (especially in different time zones) trade based on US Eastern Time. A European investor holding a tokenized US bond fund would love to be able to adjust positions at 8 pm CET on a Friday, rather than waiting until Monday. While providing 24/7 liquidity increases the “holding cost” or risk of holding a position when the underlying markets are closed. In practice, this simply means that spreads may be slightly wider during purely after-hours trading, as they are, for example, in the currency markets on a holiday, but the key difference is that the digital asset market remains open. And as more participants join and risk management tools improve, these costs decrease. In the long term, a 24/7 market should become as natural as the 24/5 forex market is today.
The current dialogue around tokenization looks a lot like the early days of ETFs: initial skepticism, early traction in niche segments, and growing institutional participation. That same pattern eventually transformed ETFs into a $10+ trillion market.
I firmly believe that tokenization is going down the same path, because the structural forces driving it are the same ones that made ETFs successful. The relevant test is not technological novelty, but whether it improves efficiency, access and robustness at the system level. When those conditions are met, tokenization is not simply comparable to the evolution of the ETF: it represents its logical continuation.
