Why tokenization is an ETF-style market structure revolution

The current tokenization dialogue and pattern resemble ETFs’ early days, which ultimately transformed into a $10+ trillion market, Lie argues.

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 market structure revolution. By introducing creation/redemption mechanisms and arbitrage-driven liquidity, ETFs fundamentally changed how markets functioned and how investors accessed assets. ETFs blurred the line between primary and secondary markets and turned arbitrage into the mechanism for holding the system together.

How does tokenization mirror the ETFs market structure revolution? In almost every key aspect.

A robust tokenized asset isn’t simply “issued” once like a stock or bond – it typically can be minted or burned on demand against some pool of underlying assets or rights. 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 and mint new tokens or redeem tokens 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 it trades below, they will redeem tokens (reducing supply) until the discount closes. The economic principle is identical to ETFs. The token is a wrapper on 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 a standardized claim on 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 form of the wrapper, but the strength of the arbitrage link between wrapper and basket.

ETFs already represented a major leap in transparency by making baskets of assets trade continuously on-exchange, with visible prices, intraday liquidity, and alignment with underlying value through arbitrage. Tokenization builds on this foundation. Where blockchains can go further is in making issuance, transfers and outstanding supply observable in near real time, potentially widening visibility into how the wrapper evolves relative to the underlying basket.

One of the most important features of tokenized markets is their ability to trade continuously, even when underlying markets are closed. For anyone who has traded ETFs globally, this is not new but a familiar and highly valuable market‑structure capability. Continuous trading outside local market hours allows prices to incorporate new information as it emerges, rather than waiting for the next open, and enables investors across time zones to transfer risk when they actually need to. These prices reflect informed expectations — built using correlated instruments, futures, FX, and broader market signals — in the same way international and cross‑timezone ETFs have operated for decades.

U.S.-listed ETFs that hold European or Asian equities already demonstrate how credible pricing can exist when the underlying cash market is closed. Those ETFs continue to trade during the U.S. session even after Europe or Asia has shut, and their market price naturally reflects updated expectations — based on futures, FX, ADRs, macro news and other correlated signals — rather than stale closing prints. In practice, authorized participants and market makers continuously estimate an “intrinsic fair value” for the ETF, including an expected next-open price for holdings in closed markets, and quote around that to keep the ETF’s market price anchored to that fair value.

The same concept can be applied to tokenized Apple stock, for example, which can trade on Saturday based on the evaluation of Apple’s likely next trading price come Monday. If big news broke on Saturday, you’d see the token react immediately. Liquidity providers would quote a price that factors in that news, likely hedging with any related instruments, such as Nasdaq futures, if available. By Monday’s open, Apple’s real stock price would likely catch up to wherever the token traded over the weekend. In effect, the token becomes a leading indicator for the underlying stock.

Market participants (especially across different time zones) don’t all operate on U.S. Eastern Time. A European investor holding a tokenized U.S. bond fund might love the ability to adjust positions at 8 p.m. CET on a Friday, rather than waiting until Monday. While providing liquidity 24/7 raises the “cost of carry” or the risk of holding a position when underlying markets are closed. In practice, this just means spreads might be a bit wider during purely off-hour trading, as they are, say, in currency markets on a holiday – but the key difference is that the digital asset market stays open. And as more participants join and risk management tools improve, these costs diminish. In the long run, a 24/7 market should become as natural as the 24/5 FX market is today.

The current tokenization dialogue closely resembles the early days of ETFs: initial skepticism, early traction in niche segments and increasing institutional involvement. That same pattern ultimately transformed ETFs into a $10+ trillion market.

I firmly believe tokenization is on the same path, because the structural forces pushing it forward are the same ones that made ETFs successful. The relevant test is not technological novelty, but whether it improves efficiency, access and system-level robustness. Where those conditions are met, tokenization is not merely comparable to the ETF evolution — it represents its logical continuation.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

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