The rapid rise of blockchain-based financial infrastructure is reshaping traditional investment products. At the centre of this shift is tokenisation, representing financial assets as digital tokens on a distributed ledger. While the technology promises greater efficiency and accessibility, regulators are now examining its implications for market structure. A discussion paper published by the Central Bank of Ireland (CBI) on 5 March 2026 flags that tokenisation could blur the long-standing distinction between ETFs and open-ended mutual funds with real consequences for competition, liquidity, and investor protection.
What Is Tokenisation and Where Is It Being Used?
Tokenisation refers to creating digital representations of financial assets, such as fund units, bonds, or equities, on a distributed ledger technology (DLT) platform, allowing ownership and transfers to be recorded digitally rather than through traditional market infrastructure. As blockchain infrastructure evolves, financial institutions are also exploring tokenised versions of traditional securities, including equities. For example, initiatives such as Nasdaq and Kraken Team Up to Bring Tokenized Stocks to Global Markets demonstrate how tokenisation could extend beyond funds into broader capital markets.
Proponents of tokenisation argue it delivers four core benefits:
Despite the promise, adoption remains uneven across markets. Current tokenisation applications remain concentrated in select asset classes such as bonds and certain fund structures, while broader capital market adoption, including equities and investment funds, is still developing, according to regulatory assessments.
Why ETFs and Mutual Funds May Start to Look the Same
Traditionally, the two structures operate very differently. Tokenised mutual fund units capable of secondary trading could replicate ETF hallmarks, particularly intraday transferability and improved liquidity, closing that gap considerably:
If mutual fund units become tokenised and tradeable throughout the day on digital platforms, the operational differences between the two structures could become far less pronounced, intensifying competitive pressure on asset managers to rethink how products are structured and distributed.
The ETF Arbitrage Mechanism: What’s at Risk
A defining feature of ETFs is the arbitrage mechanism, operated by Authorised Participants (APs), specialised institutions that keep ETF prices aligned with NAV. Here is how it works:
The CBI warns that if tokenised funds enable efficient secondary trading without this creation/redemption process, the role of APs could be altered, potentially weakening the arbitrage mechanism that supports ETF liquidity and price alignment with NAV.
The CBI’s Three Key Regulatory Concerns
A Broader Regulatory Wave
The CBI is engaging closely with IOSCO and several international bodies on these questions. The table below captures the state of regulatory action across key jurisdictions:
PwC’s Global ETF Leader Marie Coady has stressed the need for a fit-for-purpose regulatory framework providing clarity and consistency as the market evolves. CBI Deputy Governor Vasileios Madouros similarly called on market participants, academics, and policymakers to contribute to the consultation process. (Source: PwC Global ETF Report)
GCC Outlook: A Regional Opportunity
While the CBI’s discussion focuses on Europe, similar developments are gaining traction in the Gulf Cooperation Council (GCC). To put the scale in context: the global real-world asset (RWA) tokenisation market stood at nearly $20 billion in early 2026, up from just $1.1 billion in 2023. A joint report by Kearney and Ctrl Alt estimates the GCC alone could unlock up to $500 billion in potential value by 2030, with the strongest potential in private markets and public equities. (Source: Consultancy-me.com)
Country-level momentum is building across the region. The UAE leads adoption. The Dubai Land Department has launched a flagship real estate tokenisation project targeting AED 60 billion in assets by 2033, with several tokenised funds already live at scale. Saudi Arabia has introduced a national real estate tokenisation infrastructure initiative aligned with foreign ownership reforms. Bahrain is expanding regulated digital asset activity through a central bank-led framework; Qatar has launched a Digital Assets Framework and Lab; and Oman is developing its formal regulatory framework for virtual assets.
As GCC financial centres modernise, tokenised investment funds could form a central pillar of the region’s next wave of capital market innovation, making the structural questions raised in Europe directly relevant to Gulf investors and asset managers.
The Bigger Picture
If tokenised mutual funds begin offering ETF-like trading features, the boundaries between fund structures may become increasingly blurred. For investors, that could mean more flexible access to investment products. For regulators and asset managers, it raises deeper questions about market infrastructure, liquidity mechanisms, and investor protection frameworks.
The next phase of development will depend not just on technological capability, but on how effectively regulatory frameworks evolve alongside it in Europe, the GCC, and beyond. The CBI’s discussion paper is both a warning and an invitation: the industry has a window to help shape what comes next.
