This article is part of CoinDesk's upcoming ‘Tokenization Weekly’ newsletter, with details to be announced soon.
For many investors, crafting a portfolio typically involves purchasing various stocks, bonds, and funds or entrusting the task to an asset manager. However, tokenization could redefine this process.
BlackRock, recognized as the largest asset manager globally, has provided a preview of this evolution through its collaboration with Ondo Finance. They have introduced Intelligent Portfolios, which tokenize professionally developed investment strategies on the blockchain.
The three portfolios created by BlackRock for Ondo feature a mix of assets aimed at high income, diversified growth, and substantial growth. Investors can now hold a single token that encapsulates the entire portfolio, eliminating the need to manage and rebalance individual investments separately.
While this may seem like a minor adjustment—given that mutual funds and ETFs have long bundled investments—it represents a significant shift. By placing the portfolio on-chain, it gains unique advantages not found in traditional structures, such as the ability to transfer between wallets and platforms, visibility on the blockchain, and potential use as collateral for loans or integration with other financial products.
Significance of This Shift
The current tokenization trend has primarily focused on individual assets, such as Treasury funds, private credit, and stocks. The offerings from BlackRock and Ondo suggest a new phase: combining these assets into cohesive investment strategies that can also be tokenized.
Crypto investment firm Pantera highlighted this transition in a recent report, stating it represents a shift “from single securities to on-chain portfolios.” According to their analysts, this change simplifies the management process for investors by reducing the number of positions and rebalancing decisions they must oversee.
This concept has significant backing, with model portfolios—pre-constructed combinations of funds utilized by wealth managers—holding approximately $9.8 trillion in assets as of June, according to Broadridge. Tokenization could provide asset managers with an additional means to distribute these strategies.
BlackRock underscored this potential in their announcement regarding the Ondo partnership. Lisa O'Connor, the firm's global head of model portfolio solutions, noted, “Tokenization creates new ways for portfolio strategies to be delivered through digital infrastructure.”
Several others are also investigating similar methods to tokenize entire investment strategies. For instance, Bitwise recently launched Automated Token Portfolios in collaboration with Coinbase (COIN) and a16z-backed Glider, enabling eligible non-U.S. investors to follow portfolios of tokenized stocks while retaining the individual assets in their wallets. Glider's technology manages the stock allocations automatically to maintain alignment with target weights.
While the approaches differ slightly, they share a common goal: to transform portfolio management into software solutions that directly engage with blockchain assets.
The Bigger Picture
The developments hinted at by these products signal a broader transformation in how investment portfolios may evolve in the future. Tom Staudt, president and COO of ARK Invest, expressed to CoinDesk that tokenization could fundamentally alter not only how investors acquire funds but also the types of assets available for inclusion in portfolios.
Traditional portfolio frameworks were established when everyday investors had access to a limited selection of assets. Assets like private equity, private credit, and cryptocurrencies were largely inaccessible, and reaching international markets was more challenging. Tokenization could broaden access to these investments through the same digital channels.
This potential is amplified when combined with AI technology, allowing software to tailor portfolios to an investor's specific goals, risk tolerance, or tax circumstances, while tokenization facilitates the buying and selling of a wider array of assets.
“It’s beneficial to have AI suggest an ideal portfolio, but if the assets aren’t accessible, it’s irrelevant,” Staudt noted. “Blockchain and tokenization will clearly enable access to funds, strategies, asset classes, and jurisdictions that are currently out of reach for many.”
For investors, this could signify a move beyond the conventional selections of stocks, bonds, and funds, towards portfolios constructed from a more diverse set of resources. For asset managers, it might simplify the integration of products from various firms into a unified portfolio, altering both competitive dynamics and collaborative efforts.
As Staudt articulated, “This represents a significant advancement in democratization.”
Ondo has already hinted at an even more automated future. In a June interview, John Hoffman, who was recently appointed as head of portfolio products at Ondo, remarked that tokenization is progressing more rapidly than the ETF evolution. He anticipates a future where autonomous software continuously assesses markets and allocates capital through expertly managed portfolios that adapt to changing conditions.
“Our ultimate goal is to have portfolios that are professionally managed, real-time, and responsive to market fluctuations and data updates,” Hoffman stated.
However, achieving this vision requires more than just tokenized stocks and funds. The industry must first develop a wider range of assets on-chain, establish prime-brokerage infrastructure, and create asset-management strategies that can be natively executed on blockchain networks, Hoffman explained.
Dan Romero, chief business officer at Stripe-backed blockchain Tempo, noted that tokenization may lag a few years behind the disruption seen with stablecoins. Stablecoins brought cash onto the blockchain, while tokenization is now integrating a broader investable universe. He believes that marrying the two will enable developers to craft entirely new financial products.
Romero likened this to the emergence of specialized neobanks: once underlying infrastructure became more accessible, firms could create products tailored to specific customer needs rather than merely replicating traditional banking models.
“This same infrastructure will soon be available with tokenized assets and stablecoins, allowing for the creation of innovative financial experiences,” he asserted.
The overarching takeaway from BlackRock's recent initiative is that while the initial phase of tokenization focused on getting individual assets onto blockchains, the next phase will involve aggregating these assets into portfolios that can be actively managed, rebalanced, and easily transferred—ultimately customizable to meet individual investor needs.