Tokenised Funds and Stablecoins

Fund tokenisation, the use of distributed ledger technology to digitally represent ownership interests in an investment fund, has moved from a niche concept to a realistic consideration for institutional investment fund managers. For experienced fund professionals, the challenge is no longer understanding the technology but cutting through persistent misconceptions to assess where tokenisation genuinely adds value.

Tokenisation should be assessed less as a transformative re‑imagining of fund structures and more as an infrastructure improvement. Its value lies in simplifying record‑keeping, reducing reconciliation, improving data integrity and supporting more efficient operational processes, rather than displacing well‑understood fund concepts.

Across the Crown Dependencies, the conversation is increasingly pragmatic. Established international financial centres are applying their long-standing experience in regulated funds, alternatives and cross-border structures to the practical adoption of tokenised and digitally enabled fund models.

Within investment funds, tokenisation is now being examined in practical terms. Managers, and service providers are assessing the use of tokenised fund interests, on‑chain registers and programmable transfer restrictions as operational tools rather than theoretical concepts. Despite this progress, tokenised funds remain surrounded by myths.

One of the most persistent misconceptions encountered in the market is the belief that the token itself constitutes the investment. A token is simply a digital representation of an existing security or fund interest. A tokenised fund is not a new fund type; it is a new method of recording and transferring fund interests.

From an institutional perspective, this distinction is fundamental. The investment analysis remains unchanged: legal structure, economic rights, valuation methodology and risk profile continue to determine suitability and performance.

Another common myth is that tokenised fund interests sit outside familiar regulatory frameworks or introduce novel legal risk. In practice, this concern is often overstated.

Tokenised fund interests are not a new asset class. They are established securities or fund units administered using different technology. As a result, the key legal and regulatory questions remain familiar: investor rights, fiduciary duties, custody arrangements, disclosure standards and regulatory classification.

Tokenisation is frequently described as revolutionary. For institutional market participants, a more accurate characterisation is evolutionary.

In practice, tokenisation enhances financial architecture rather than replacing it wholesale. Improvements to record‑keeping, reconciliation and settlement processes can be introduced in phases, aligned to existing governance and risk frameworks.

Over time, these efficiencies may enable more transformative outcomes, including improved transparency, faster processing and better integration with emerging technologies. However, adoption is typically incremental, controlled and shaped by institutional risk tolerance.

Tokenisation is sometimes framed as primarily relevant to crypto‑native or retail‑focused products. For established fund managers, the most compelling use cases are institutional.

Tokenised fund structures can address long standing operational challenges: fragmented data, manual reconciliation, complex investor onboarding and limited real time visibility. A shared ledger model offers a practical way to streamline interactions between managers, administrators, depositaries and investors, without compromising governance or control.

Tokenisation is often assumed to eliminate administrators and governance oversight. In reality, it alters the administrative toolkit, not the underlying responsibilities. NAV calculation, investor record maintenance, subscription and redemption processing, and compliance with constitutional documents continue to sit firmly within the administrator’s remit.

The only difference is that these functions now take a different form encompassing operating or overseeing the token minting process, controlling wallet whitelisting and transfer permissions to reconciling on-chain records to off chain accounting systems.

While funds and real-world-assets can now be represented digitally using distributed ledger technology, the absence of frictionless and interoperable payment mechanisms has constrained adoption at scale. This is where stablecoins, which are digital tokens typically pegged to a sovereign or traditional fiat currency or other assets to maintain value, have emerged as a key enabler.

Financial institutions and central banks have developed and tested various forms of tokenised money, including bank-issued tokenised deposits and central bank digital currencies. While tokenised deposits may ultimately play an important role in institutional markets, stablecoins currently benefit from greater market adoption, interoperability and availability across public blockchain networks. Stablecoins are therefore increasingly being viewed as foundational infrastructure for facilitating true delivery-versus-payment (DvP) in tokenised markets.

Most on-chain use cases of fund tokenisation focus on the asset leg, which encompasses digital representations of fund interests or underlying fund assets.

Today, in many cases, the settlement leg still relies on traditional fiat money payment rails operating off-chain and on intermediated clearing systems which demand delayed reconciliation processes. This naturally creates a disconnect between ownership transfer and cash settlement, undermining one of the core promises of tokenisation: atomic, real-time execution.

In the absence of native digital settlement assets, tokenisation risks becoming solely a digitised wrapper, rather than bringing out the transformational shift in financial markets infrastructure which it promises. Stablecoins address this gap directly by introducing an on-chain cash equivalent.

When integrated into tokenised ecosystems, stablecoins enable:

• Atomic DvP: simultaneous exchange of assets and cash with no counterparty risk;
• Near-instant settlement: removing T+2/T+3 cycles;
• Programmable transaction logic: embedding conditions within smart contracts; and
• Reduced reliance on intermediaries: streamlining custodial and clearing layers

In essence, stablecoins transform settlement from a separate process into a native feature of the transaction itself.

Jersey, Guernsey and the Isle of Man combine regulatory credibility with deep expertise in sophisticated fund structures. Collectively, they offer trusted fund regimes, proportionate regulation, mature professional services ecosystems and a pragmatic approach to digital asset integration.

In Guernsey, the Guernsey Financial Services Commission’s (GFSC) Digital Finance Initiative (DFI) promotes digital financial innovation in blockchain, tokenisation and stablecoins through collaboration and stakeholder engagement. Under the DFI, the GFSC has launched a Sandbox and Concierge service, a structured pathway for fund managers to launch new digital products and services under tailored licensing conditions with insight from the GFSC.

Jersey has taken a pragmatic approach by incorporating digital assets within its existing regulatory framework, rather than creating separate legislation. In addition, tokenisation is one of the five strategic imperatives for competitiveness and growth outlined in the Government of Jersey’s Time to Win action plan published in March 2026.

The Isle of Man Financial Services Authority’s approach to regulation is technology neutral, it looks to the substance of the activity being undertaken rather than the form. As such, like Jersey, the Isle of Man’s existing regulatory framework captures certain activities relating to tokens.

For fund managers exploring tokenisation in the Crown Dependencies, these characteristics support controlled innovation within environments already well understood by global institutional investors.

For tokenised funds, the presence of a robust settlement mechanism is particularly critical. Tokenised fund units can be transferred peer-to-peer, but without on-chain cash, subscriptions and redemptions remain operationally complex.

Stablecoins can enable immediate capital deployment, real-time NAV-based subscriptions and secondary market liquidity with embedded settlement. In fractionalised real estate structures, stablecoins have the potential to unlock faster closing processes, automated rental income distribution and transparent cash flow tracking.

Historically, stablecoins have raised concerns around reserve backing and transparency, counterparty risk and regulatory oversight, however, the global regulatory landscape is evolving rapidly.

Fuelled by investor demand and increased regulatory clarity from the GENIUS Act, US dollar-denominated stablecoins continue to dominate the market, accounting for the overwhelming majority of global stablecoin circulation. However, other jurisdictions are responding with their own regulatory frameworks to attract issuers and support the growth of digital asset ecosystems.

Last month, the Bank of England published its policy statement and draft rules for systemic stablecoin issuers. The proposals provide greater regulatory clarity for firms considering stablecoin issuance. Meanwhile, the expiry of transitional arrangements on 1 July 2026 further cemented the EU's Markets in Crypto-Assets (MiCA) regime which provides for a comprehensive regulatory framework for stablecoin issuers across the EU.

The Crown Dependencies have demonstrated a willingness to engage with stablecoin-related business models such as Moneybrain in Jersey and continued interest from projects exploring stablecoin-related opportunities in Guernsey and Isle of Man.

Tokenisation without efficient settlement is only half the solution. Stablecoins may help complete the architecture and introduce new considerations for fund service providers such as issuer strength, custody, valuation and compliance while reshaping fund operations. If tokenisation is the engine driving the next generation of capital markets infrastructure, stablecoins may prove to be the fuel that allows it to operate at scale. The jurisdictions that successfully combine tokenised assets with regulated digital money will be best positioned to capture the opportunities presented by this shift.

KPMG in the Crown Dependencies helps clients navigate the legal, regulatory and operational aspects of fund tokenisation, turning digital ambitions into practical, compliant solutions.

To learn more about implementing tokenisation within the Crown Dependencies, contact Allie Muzangwa, Admire Muranganwa or Edward Houghton.