ETFs transformed how capital accesses markets, not how markets are built. They bundled existing assets into efficient, liquid vehicles and standardized distribution at scale. It was a meaningful innovation, but it stopped at the wrapper.

Tokenization operates at the asset level. It changes the asset itself. When ownership rights, transfer restrictions, eligibility rules, and corporate actions are embedded directly into code on a shared ledger, issuance, servicing, and settlement collapse into a single native workflow. The result is not a new product format, but a new market structure.

This distinction matters because the next wave of growth is not in public beta exposure, but in private capital. Private markets have long been constrained by manual registers, custom legal processes, illiquid transfer mechanics, and slow corporate actions. Tokenization addresses these constraints at their source, turning private instruments into programmable assets that can move, settle, and govern natively. Retail pathways may open under future U.S. rules, but the near term impact is institutional.

Why Private Markets, Not Public Ones, Stand to Gain

Private assets never mapped neatly onto ETFs. Where ETFs wrapped existing assets, tokenization rewrites the asset itself. Recent attempts to package private credit exposed liquidity and pricing strains that wrapper-based solutions can’t solve.

What tokenization changes is structural. The smart contract assumes the role of the transfer agent. Eligibility checks, transfer permissions, and ownership updates are enforced directly at the asset level. Secondary access can be controlled without making the instrument public. Fractionalization becomes an intentional design choice, with minimums, roles, and permissions defined in code rather than negotiated off chain.

Issuers can define limited secondary windows or request for quote mechanisms that respect transfer restrictions and investor status. This enables selective liquidity without converting private instruments into continuously traded public securities. Ownership records update automatically, keeping audits, distributions, and corporate actions synchronized.

If private markets are the target, asset managers are the first to feel the shift.

The New Competitive Edge: Protocol Over Product

For asset managers, the competitive edge moves from pure product manufacturing to protocol and rule design. Tokenization turns shareholder registers, eligibility checks, and distribution waterfalls into software. This is what makes compliance portable and repeatable across venues.

Fee pools migrate from wrapper manufacturing to servicing and rule design, including identity logic, distribution rules, and automated corporate actions. Custody, transfer agency, and fund administration converge around the same standard interfaces, compressing the time from allocation to settled exposure. Leading banks project a $400 billion annual revenue opportunity in distributing alternative investments to individuals, particularly where advisor platforms want granular exposures with cleaner servicing than legacy paper processes allow.

Allocators gain capital efficiency. Instant, all-or-nothing settlement and synchronized records cut exceptions, move collateral on schedule, and accelerate subscription-to-trade timelines. For pension funds and endowments seeking private market exposure, tokenized units allow more precise exposure construction, shorter lockups in defined windows, and targeted liquidity profiles that reflect the asset rather than an ETF wrapper.

Early production efforts in tokenized funds and cash equivalents already show institutions streamlining liquidity management and collateral operations. This is an early signal that the infrastructure is maturing.

But competitive advantage means nothing if assets can’t move.

When Assets Carry Their Own Passports

In today’s structure, moving private assets between custodians or lending platforms can take weeks of documentation, verification, and manual reconciliation. In a tokenized structure, assets carry their own data and logic. A private credit position can be pledged as collateral or transferred between institutional balance sheets within minutes, provided the receiving wallet satisfies identity and eligibility requirements.

This portability changes how technology gets evaluated. In an asset-native world, the winning designs minimize legal friction, move collateral reliably, and interoperate across multiple ledgers. Asset managers and financial institutions will judge infrastructure by measurable outcomes: time to cash, exception rates, and the cost of serving a fragmented investor base. Reports from established institutions show tokenized workflows clearing real volume in traditional use cases, an early signal that the infrastructure is reaching operational maturity.

Which brings us to the real battleground.

Who Writes the Rules Everyone Else Follows

ETFs delivered a distribution breakthrough. Tokenization is an asset-level transformation. The industry now faces a battle over who writes the rules that everyone else implements.

Asset managers, custodians, and market operators should converge on independent, modular standards that keep compliance and identity portable, allow forced actions where law requires, and preserve compatibility with existing token formats. The winning blueprint remains neutral and modular, supports transfer controls and role permissions, and maintains broad compatibility so assets can plug into multiple venues without custom rewrites.

The firms that publish these standards will become the settlement layer. This is how private markets achieve selective liquidity at scale and how efficiency gains accrue to investors without introducing new operational risk.

Standards choose the winners. Those who control the interface between assets and platforms will shape liquidity, economics, and ultimately market power. Tokenization will not just improve private markets, it will standardize the assets themselves.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.