The current tokenization dialogue and pattern resemble ETFs’ early days, which ultimately transformed into a $10+ trillion market, Lie argues.
By Michael Lie|Edited by Betsy Farber Jun 4, 2026, 2:44 p.m. 4 min readMake preferred on (MCCAIG/Getty Images)During the 1990s, the concept of exchange-traded funds (ETFs) was initially viewed as a new format for traditional investments—essentially a modernized version of mutual funds. However, ETFs sparked a revolution in market structure. They introduced mechanisms for creation and redemption and liquidity driven by arbitrage, fundamentally altering market operations and investor access to assets. ETFs blurred the distinction between primary and secondary markets, making arbitrage the glue that held the system together.
How does the tokenization process parallel the ETF market structure revolution? In nearly every significant way.
A strong tokenized asset isn’t merely “issued” once like a conventional stock or bond; it can usually be minted or burned on demand, based on a pool of underlying assets or rights. For instance, when a token signifies shares of a fund or stock, authorized participants (or smart contracts acting on their behalf) can deposit the underlying assets to mint new tokens or redeem existing tokens for those assets.
If a token trades at a premium to its underlying assets, arbitrageurs will create new tokens (increasing supply) until prices realign; conversely, if it trades at a discount, they will redeem tokens (decreasing supply) until the gap closes. This economic principle mirrors that of ETFs. The token acts as a wrapper for the same assets, with arbitrage ensuring its price remains fair.
In both ETFs and tokenization, the wrapper serves as a liquid representation of a collection of economic exposures. An ETF share is not the underlying securities; instead, it is a standardized claim on a basket that trades efficiently, thanks to the creation and redemption processes that keep it aligned with the underlying assets. Tokenization adheres to this rationale, where the token serves as the liquid instrument while the underlying assets act as the economic anchor. The critical factor is not the wrapper's form but the robustness of the arbitrage relationship between the wrapper and the basket.
ETFs have already made significant strides in transparency by enabling baskets of assets to trade continuously on exchanges, complete with visible prices, intraday liquidity, and alignment with underlying values through arbitrage. Tokenization enhances this framework. Blockchain technology can further improve visibility into issuance, transfers, and outstanding supply in near real-time, potentially providing greater insight into how the wrapper evolves in relation to the underlying basket.
One of the key advantages of tokenized markets is their ability to facilitate continuous trading, even when the underlying markets are closed. For those familiar with trading ETFs globally, this is a well-established and valuable market structure capability. Continuous trading outside local market hours enables prices to reflect new information as it arises, rather than waiting for the next opening, allowing investors across different time zones to manage risk as needed. These prices are informed expectations, formulated using correlated instruments, futures, FX, and broader market signals, similar to how international and cross-time zone ETFs have functioned for years.
U.S.-listed ETFs that include European or Asian equities illustrate how reliable pricing can be maintained when the underlying cash market is inactive. These ETFs continue to trade during U.S. sessions even after European or Asian markets have closed, with their market prices reflecting updated expectations based on futures, FX, ADRs, macro news, and other correlated signals, rather than outdated closing prices. In practice, authorized participants and market makers continuously estimate an "intrinsic fair value" for the ETF, factoring in an expected next-open price for holdings in closed markets, and adjust quotes accordingly to keep the ETF’s market price tethered to that fair value.
This same principle can apply to tokenized shares of Apple, for instance, which could trade on a Saturday based on predictions for Apple’s next trading price on Monday. If significant news emerged on Saturday, the token would likely react immediately. Liquidity providers would offer a price reflecting that news, possibly hedging with related instruments like Nasdaq futures, if available. By Monday’s open, Apple’s actual stock price would likely align with the trading price of the token over the weekend. Essentially, the token serves as a leading indicator for the underlying stock.
Market participants (especially those in different time zones) do not all operate on U.S. Eastern Time. A European investor with a tokenized U.S. bond fund might appreciate the capability to adjust positions at 8 p.m. CET on a Friday instead of waiting until Monday. While 24/7 liquidity increases the “cost of carry” or risks associated with holding a position when underlying markets are inactive, this typically results in slightly wider spreads during off-hour trading, much like currency markets on holidays. The primary distinction is that the digital asset market remains open. As more participants engage and risk management tools advance, these costs are expected to decrease. In the long term, a 24/7 market should become as commonplace as the current 24/5 FX market.