“Why E2E Tokenization Is Moving from Experiment to Strategic Imperative for UCITS”
Author: Dr. Benjamin Schellinger, Business Operations Manager at 21X
Introduction
Economic pressure on asset managers is increasing year-on-year. Margins are under scrutiny, distribution models are changing, and new market participants are demonstrating that digital infrastructures can move capital more efficiently, more granularly and more swiftly, particularly in settlement, collateral usage and distribution efficiency². Against this backdrop, an end-to-end approach for tokenised UCITS funds is gaining relevance – one that takes an integrated view of the entire fund life cycle.
The tokenisation of fund units has been considered an obvious use case for distributed ledger technology (DLT) for years. Nevertheless, its implementation in the European UCITS (Undertakings for Collective Investment in Transferable Securities) environment has remained selective to date. The reason lies less in a lack of technology than in the structure of the fund ecosystem itself: fragmented value chains, parallel register management, complex post-trade processes and a high degree of regulatory coordination between custodians, transfer agents, trading venues and distributors¹.
Definition and delimitation
A tokenised UCITS fund is a regulated investment fund whose units are issued, transferred and represented and processed via DLT-based infrastructure³. The key question here is what role the token plays from a legal and operational perspective.
The three faces of tokenization
- The twin: A digital ‘receipt’ for an off-chain asset. (Slow)
- The hybrid: Ledger functions on DLT; legal weight elsewhere. (Complex)
- The native: The token represents the asset within an integrated infrastructure. (Atomic by design)
A common misconception is to equate tokenisation with complete decentralisation. In the UCITS context, the distinction is more nuanced. Public blockchains enable open access at the network level, while private or permissioned chains restrict participation by design. Regulatory-compliant tokenisation models typically do not rely on closed networks, but instead combine public blockchain infrastructure with permissioned access layers. In such setups, the underlying ledger remains publicly verifiable, while participation, transfers and ownership are restricted through regulatory controls.
Use cases and areas of application
a) Issuance and fund servicing
In a tokenization setup, the issuance of fund units is directly linked to fund administration, register management and compliance logic. Subscription, token minting and register updates are synchronised. Studies show that transfer agents and fund administrators in particular benefit from consistent data management and reduced reconciliation²³⁶.
In specific setups, a specialised fund service provider takes over traditional UCITS administration, including custody, transfer agency and regulatory reporting, while tokenization acts as an additional register (or replaces parts of traditional register logic depending on the setup) and transfer logic. This division of labour is crucial, as UCITS funds must remain fully embedded in existing supervisory structures.
b) Distribution and investor outreach
Tokenized fund shares enable new distribution channels, such as via authorised trading platforms or wallet structures with whitelisting. For asset managers, this can potentially increase reach within regulatory boundaries. At the same time, the role of traditional intermediaries is changing, as access and transfer restrictions are technically mapped in the token itself.
c) Trading and settlement
A key promise of tokenised funds is the closer integration of trading and settlement. The EU DLT Pilot Regime allows trading and settlement functions to be bundled within an integrated DLT infrastructure for the first time⁸. Unlike traditional T+2 cycles can reduce settlement time significantly and enable near real-time capital release, allowing managers to reinvest immediately and reduce the need for excessive collateral buffers and improve capital efficiency.
d) Operational control and reporting
Digital native or hybrid models enable partially automated processing of corporate actions, reporting and audit trails. The added value lies less in complete automation than in consistent, verifiable data management throughout the entire fund life cycle.
e. Potential, and challenges
The true promise of an E2E approach is not merely faster processing but a fundamental shift in capital velocity. Ina traditional UCITS environment, capital is often “trapped” in multi-day settlement cycles (T+2), creating a persistent “cash drag” on fund performance.
By integrating trading and settlement into a single DLT rail, 21X enables atomic settlement. This transforms f und units increasing their effective velocity within the system that can be redeemed, traded, or potentially redeployed as collateral in near real-time, depending on market integration. For asset managers, this unlocks significant efficiency reserves, reducing the need for costly liquidity buffers and allowing for more granular, real-time portfolio management.
Professional market participants should therefore ask themselves three questions:
- Is the token the actual legal asset – or just a digital shadow of an off-chain record?
- How are correction and default mechanisms regulated – how, for example can the system undo command in an immutable environment?
- And to what extent can the model be realistically integrated into wider fund ecosystems or is the fund trapped in a single venue silo?
Implications and classification of 21X
For asset managers, an end-to-end approach represents a strategic infrastructure decision. Banks and market makers must assess how their role between custody, trading and settlement is changing.
21X is a German-based operator of a DLT trading and settlement system under the EU DLT Pilot Regime. The platform combines a public blockchain infrastructure with permissioned access and compliance mechanisms. In collaboration with Apex Group as a global fund administrator, 21X addresses key parts of the lifecycle of tokenised UCITS funds.
In this model, Apex handles traditional fund administration, including transfer agency, custody and regulatory compliance, while 21X, as a regulated market infrastructure, enables the issuance, trading and settlement of tokenised fund units¹ ⁴. The tokenisation process is executed within a verifiable, regulatory-embedded framework.
A defining characteristic of this setup is its end-to-end structure: issuance, distribution, trading and settlement are not viewed in isolation, but as an integrated process. The aim of reducing time to market to a few months should be understood less as a purely technical promise and more as the result of pre-defined regulatory and operational structures¹ ⁵.
Conclusion – from pilot to production
The coming years are likely to mark a structural shift in European asset management. The industry is moving past the era of pure technology experiments and into a phase where infrastructure is the ultimate competitive differentiator. The decisive factor for scaling tokenized UCITS funds will not be the blockchain itself, but the ability to integrate the entire fund lifecycle into a single, regulatory-compliant rail.
For asset managers, the economic mandate is clear – staying tethered to fragmented legacy systems is becoming increasingly inefficient. By adopting an end-to-end model – where issuance, trading, and settlement are unified – firms can finally move from the ‘digital twin’ prototypes of the past to the high-velocity, digital-native funds of the future.
The 21X and Apex partnership offers the blueprint for this transition. It provides the regulated market infrastructure and global administrative expertise necessary to reduce time-to-market from years to months. In an increasingly granular and competitive capital market, the question is no longer if fund architecture will be digitized, but which managers will be the first to own the new infrastructure of value.
In an increasingly granular and competitive capital market, the question is no longer if fund architecture will be digitized, but which managers will be first to adopt and operationalize it.
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References
- European Commission: Regulation (EU) 2022/858 (DLT Pilot Regime), 2022
- BCG: Tokenized Funds – The Third Revolution in Asset Management (Decoded), 2023
- Investment Association: Tokenised Funds – What, Why, How, 2023
- Fund Tokenization Report, 2023
- ESMA: Report on the Functioning and Review of the DLT Pilot Regime, 2024
- Tokeny: The Complete Tokenization Process, 2023
- BIS: Bulletin No. 115 – Tokenised Money Market Funds, 2025
- ESMA: DLT Pilot Regime – Key Design Features, 2023
- PwC: Tokenisation in Asset and Wealth Management, 2024
- PwC: Transforming Financial Services – The Impact of Asset Tokenization, 2023
- FCA: CP25/28 Progressing Fund Tokenisation, 2025
- FCA: Discussion on DLT Operational Resilience, 2025
- ESMA: Register of DLT Market Infrastructures, 2025
Further articles for you:
Why the next leap in efficiency is not called tokenization but collateral mobility
Tokenization alone does not create efficiency. What truly matters is that tokenized money market products can move seamlessly as collateral within regulated, integrated markets.
The state of tokenization
Tokenization is no longer an abstract concept but an infrastructural evolution in which assets are implemented as digital, executable market objects on DLT.
The state of tokenization – Part 2
The focus shifts from definition to execution: DLT, smart contracts, and regulated infrastructures demonstrate how tokenization is already being adopted at an institutional level.
