DigiFT sets out rules for tokenised vault distribution

DigiFT has published guidance on what asset managers need before using tokenised vaults as a distribution channel. The findings draw on a discussion at Vault Summit Singapore with KGI Financial executive Wayne Hsu.

Asset managers are interested in whether vaults can connect their products with on-chain investors and strategies, but only if questions around governance, investor suitability and redemption terms are resolved. For institutions assessing whether a vault fits an existing distribution model, technical integration alone is not enough.

The discussion, moderated by Henry Zhang, founder and group chief executive officer of DigiFT, outlined four main issues for firms building vault products for institutional issuers: the purpose of the distribution channel, accountability for investment rules, investor access requirements, and the relationship between withdrawal terms and the liquidity of the underlying assets.

Distribution case

A new channel must meet a clear investor need before an asset manager will consider using it. In practice, that could mean giving on-chain investors access to markets or strategies that are not easily available through existing platforms.

Vault providers therefore need to do more than show that a product works on-chain. They also need to explain why an issuer should make its products available through that route and which investors it is intended to serve.

Governance questions

A second issue is governance. Vaults can encode limits on leverage, concentration or rebalancing, making parts of a strategy easier to monitor, but institutions still need clarity on decision-making and responsibility.

Asset managers will want to know who sets investment limits, who can change them and who is responsible if a strategy moves away from its mandate. The ability to inspect code does not answer those questions on its own.

For builders, that means programmable controls need to sit within a governance structure that institutions can understand, including clear limits on human intervention.

Investor access

Investor suitability is also a key concern. Wider technical access does not remove the need to assess whether a product fits an investor's mandate or requirements.

For institutional investors, that assessment may include mandate restrictions, capital treatment and accounting requirements. Those factors can affect whether an allocation is possible and how investors subscribe to and hold the product.

These issues need to be addressed early if issuers are to judge whether a vault can support their distribution aims. Access design, in effect, becomes part of the distribution proposition rather than a separate compliance exercise.

Liquidity terms

The final issue is liquidity. The ability to transfer a token on-chain should not be confused with the ability to redeem the underlying investment or sell it when needed.

DigiFT drew a distinction between transfers, secondary sales and redemptions, noting that each depends on different arrangements. Where underlying portfolios operate within market hours or set redemption windows, withdrawal terms in a vault need to reflect those limits.

Asset managers will expect a clear explanation of how withdrawals are funded, what relies on market liquidity and what circumstances could delay settlement. Those points are likely to matter when investors decide whether a product meets their liquidity needs.

The publication adds to a wider industry debate over how tokenised fund structures can appeal to established financial institutions. Interest in on-chain distribution has grown as asset managers explore new ways to reach investors, but adoption remains tied to questions of oversight, product structure and operational fit.

In DigiFT's account of the discussion, vault builders seeking institutional participation need to make assessment easier for issuers by identifying investor demand, defining responsibilities and setting out liquidity arrangements. Those are among the factors an asset manager must weigh before committing products, resources and institutional reputation to a new channel.