By Damien Black
Boston-based State Street is moving ever deeper into tokenisation and will now support ‘digital native’ funds alongside its established TradFi investments. The move is significant – the $5.6 trillion asset manager was once seen as a tech laggard. Well, not any more.
In fact, State Street boasted on 28 April that it would be an “early adopter” of the tokenized fund service, available on its newly minted Digital Asset Platform (DAP). “This allows State Street to support the full lifecycle of tokenized fund issuance, administration and custody,” it said, “while allowing digital and traditional fund structures to operate together under consistent governance, risk management, and a single client interface.” The new DAP fund service will be available in Luxembourg by the end of the year. The jurisdiction was selected as the launch platform because of its digital-friendly policy framework. It hasn’t released hard dollar figures for DAP move at the time of writing, but State Street says it already provides “fund administration” services for around $22 billion in digital assets overall.
DeFi and TradFi under one umbrella
State Street hopes the move will allow it to manage DeFi and TradFi assets within a single unified framework. Angus Fletcher, its global head of digital asset solutions, said: “Investment Services is focused on delivering a production-ready servicing capability, with State Street Investment Management’s planned use of the service providing early validation of how tokenization can be applied within existing fund operating models.” Kim Hochfeld, global head of cash and digital assets at State Street Investment Management, added: “Being an early adopter of tokenization allows us to upgrade our operating model and deliver an innovative client experience while preserving the investment discipline, risk controls, and investor protections that are fundamental to State Street Investment Management.” In other words, State Street believes it can maintain its longstanding reputation for caution and prudence while embracing the new technology and all its benefits.
In the game – but still cautious
Even so, State Street is taking a gamble here. As noted above it has $5.6 trillion assets under management (AUM) – this balloons to a staggering $54.6 trillion for assets under custody. But then with the likes of BlackRock jumping into tokens with its $2.2 billion Uniswap crypto deal[1] , it’s hard to see realistically how State Street could have stayed out of the game. And true to form, State Street has been keeping a close eye on how regulation of tokenization is shaping up. In March the asset giant published a report that noted this year would “likely bring continued focus on how bank capital, liquidity, and exposure limits treat tokenized assets versus their traditional equivalents – with material implications for whether regulated institutions can participate at scale.”
State Street’s focus is on what it calls “operational glue” – the framework set in place around tokenized assets to protect them from things like cyberattacks or being used for money laundering. “As tokenization and digital cash experiments mature, the differentiator becomes the control environment: governance, cyber resilience, AML tooling, and reliable interoperability across rails,” it said.
Token rules – a work in progress
State Street’s take on the 2025 ‘gold rush’ into tokenization essentially appears to be one of work in progress. “Many regulators made the landscape more buildable — without pretending it is finished,” it observed. “For clients and market participants, that shift matters. Clarity lowers operational risk, supports investment in durable infrastructure, and enables more credible hybrid models that bring traditional finance safeguards to tokenized workflows.”
State Street appears most concerned with reconciling this obvious need for safeguards with the kind of innovation that made tokenization possible in the first place. “The 2026 question is whether jurisdictions can keep translating frameworks into consistently supervised regimes — and whether global standards can converge enough to reduce fragmentation without suppressing innovation,” it added.
What do the punters want?
Another report commissioned by State Street and published in October noted that around half of entities surveyed had less than 1% digital asset exposure. However, in spite of that conservative outlook, it noted the “road to tokenization looks promising”. This is because six in ten respondents said they intended to bump their digital exposure to north of 2% in 2026, “signalling a shift toward diversified digital asset strategies”. Perhaps most notably, State Street found that the majority of surveyed companies believed tokenization would in effect become the new normal well within the next decade, with DeFi “a mainstream practice and interoperable with traditional investment operations” within three to nine years. State Street’s cautious but steady foray into tokenization, then, seems but a reflection of what its vast client base expects and wants to see.
Startups... or upstarts?
Another report published by State Street in the past year highlights a key area of importance for the asset manager – that of trust. What the asset giant essentially means by that is credibility. Shiny new tech is all well and good, but to be a reliable source of profit, it must be placed in the proverbial safe pair of hands.
In State Street’s view, banks – which bring decades, if not centuries, of experience in looking after other people’s money to the table – must be the primary guarantors of the trust that will insulate DeFi fromfraud and cybercrime. For the asset giant, the spectre of FTX, which ‘lost’ $10 billion in digital assets before spectacularly folding in 2022, looms large and serves as a cautionary note.
“As a leading [cryptocurrency] exchange, FTX held billions in client assets, but as we learned through its bankruptcy, those funds were commingled and misused (via Alameda Research) with relatively limited oversight,” said State Street. This lack of oversight allowed FTX to play silly buggers with customers’ money to its heart’s content, “with no independent custodian or audit to prevent it”.
The lesson has not been lost on State Street. “The future of institutional digital asset custody is about bringing the best of traditional custody into the digital realm,” it said. “This means exchanges and FinTech upstarts must either elevate their custody practices to meet regulatory standards or cede that role to those who already have the institutional trust.” Yes, you read that right – State Street isn’t talking about startups; the tech bro boys are “upstarts”… Clever word play? Perhaps. But it’s indicative of where the asset veteran stands on the issue of the intersection of DeFi and TradFi.
The more things change...
And in case you’re still wondering where precisely that is, State Street makes it clear enough. Crypto cowboys out, old-school watchdogs in.“Bank-led custody offers a path forward — client assets held with proper segregation, overseen by regulators, backed by capital and insurance, and managed by professionals with deep risk expertise,” State Street said. “Such custodians can drastically reduce the risks of theft, insolvency or malfeasance plaguing the crypto industry.” So be in no doubt. State Street might have joined the tokenization bandwagon, but it won’t be abandoning its prudent outlook any time soon. Once again, this points to what seems to be the inevitable evolution of DeFi – the more it gets co-opted by TradFi giants like State Street and BlackRock, the more it looks like the thing it was intended to replace and supplant in the first place.
Plus ça change.
