The SEC has given the green light for fund tokenization, and Cathie Wood plans to move ARK fund shares onto the blockchain

Author: Jae, PANews

On September 8, Andy, the founder of The Rollup, revealed that a large fund has received the SEC's "green light" to allow its fund shares to be tokenized and put on-chain.

Coincidentally, the SEC's latest regulatory documents show that ARK is applying to modify its exemption order. If approved, it will become the first large U.S. asset management institution to launch tokenized securities based on a case-by-case exemption.

This move reflects the subtle evolution of digital asset regulation in the United States: the SEC's universal "innovation exemption" framework for tokenized securities is still "struggling to be born," while on the other hand, it leaves room for leading institutions to pilot through case-by-case exemptions. Previously, asset management institutions entering the RWA field mostly issued on-chain tokenized assets; now, they are starting to directly convert the fund shares they manage into tokenized securities that can be registered and transferred on-chain.

The integration of traditional capital markets and on-chain markets is approaching a new critical point.

ARK Applies for Case-by-Case Exemption to Move Fund Shares On-Chain

This market trend is not without basis. According to an official document released by the SEC on August 24, ARK Venture Fund and ARK Investment Management have formally applied to modify their previous exemption order.

As early as last year, ARK had obtained relevant exemptions from the SEC, allowing it to adopt a multi-class fund share structure, but at that time, the design did not include listing shares on exchanges or plans to form a secondary trading market.

The main upgrade of this application is the addition of two major share categories: one is the "Exchange Class" that can be listed on national securities exchanges; the other is the "Tokenized Class," which uses distributed ledger technology (DLT) to record ownership, and this is a key focus of the application.

According to the design in the application document, tokenized shares can be traded through regulated alternative trading systems (ATS) and can also circulate through other quotation mechanisms, allowing peer-to-peer transfers between compliant wallets.

However, the premise for free circulation is strict compliance: the fund and its transfer agent must complete KYC/AML (Know Your Customer/Anti-Money Laundering) audits for wallets holding tokenized shares, and only wallets approved by the whitelist are allowed to hold the relevant assets.

In fact, this design is building a "regulated on-chain securities market": integrating the legal rights, transfer registration, and compliance review of traditional funds with the account system and settlement capabilities of blockchain.

It should be clarified that tokenized shares are essentially still traditional fund shares, falling under the category of securities. The blockchain mainly serves as the infrastructure for recording and transferring ownership. The SEC has previously stated: tokenization itself does not change the legal attributes of securities.

Theoretically, these on-chain fund shares can be integrated with stablecoins, lending protocols, and other on-chain financial products in the future, creating financial combinations that are difficult to achieve in traditional markets.

However, risks also exist: traditional funds redeem based on daily net asset value (NAV), while tokenized shares may deviate from the fund's NAV when traded in the secondary market. ARK also stated in the application document that the transaction prices in exchanges, ATS, or peer-to-peer transactions may differ from the fund's net value.

It is important to emphasize that ARK's case-by-case exemption application is still under regulatory review and is not the same mechanism as the universal innovation exemption being planned by the SEC. SEC documents indicate that stakeholders can request a hearing before September 18. If the SEC does not hold a hearing, it typically announces the application results or next steps shortly thereafter.

From Investing in Tokenization Service Providers to ARK Taking Action

If the application is approved and ARK successfully paves the way, the entire traditional asset management industry will gain a standardized reference route.

ARK Venture Fund is an interval fund under Cathie Wood, established in 2022. It advocates for "democratizing venture capital," with a minimum investment threshold of only $500 for ordinary investors, focusing on the most significant unlisted unicorns in the global technology sector, including OpenAI, Anthropic, Figure AI, the startup chip company Tenstorrent, and pre-IPO SpaceX.

However, constrained by the traditional interval fund structure, investors cannot freely transfer or exit on a daily basis and must rely on the fixed 5% repurchase quota opened by the fund each quarter to realize their investments, leading to a significant disconnect between the asset realization cycle and the high turnover demand of tech equity. ARK's application may be aimed at addressing this pain point.

More importantly, ARK has long been a deep participant in tokenization infrastructure. Last year, ARK Venture Fund invested approximately $10 million in the RWA infrastructure platform Securitize, which currently provides tokenization services for leading asset management institutions such as BlackRock, Apollo, and Hamilton Lane.

From investing in tokenization service providers to applying for tokenizing fund shares, ARK's actions represent a consistent extension of the industrial chain: from laying out on-chain infrastructure to personally engaging in product pilots.

This is also why ARK's application has attracted attention. It signifies that the participation of traditional asset management institutions in on-chain activities is transitioning from the 1.0 phase of "issuing on-chain assets" to the 2.0 phase of "moving fund shares on-chain." In the past, asset management's entry into crypto primarily involved issuing tokenized assets; in the future, they can turn the funds they manage into on-chain transferable and combinable assets.

The Three Steps of Asset Management Going On-Chain: The Real Watershed is Yet to Come

Since the beginning of this year, SEC Chairman Paul Atkins has repeatedly stated the need to establish a more suitable regulatory framework for blockchain transactions.

In March, he mentioned that the SEC is considering launching an innovation exemption to promote limited trading of certain tokenized securities, with clear time and scope restrictions set for the exemption, aiming to accumulate experience in practice before forming long-term rules. In April, he further stated that the innovation exemption mechanism is close to being launched.

However, this process has not materialized as the market expected. The related arrangements originally planned for announcement have been delayed due to the SEC canceling the scheduled meeting on August 14.

Brett Redfearn, president of Securitize, pointed out that a significant reason for the delay is regulatory concerns that the related policies may affect the progress of the Congressional "Clarity Act." The innovation exemption is likely to wait for relevant legislation to make progress before being implemented, with a time window possibly around early October.

However, from a longer-term evolutionary perspective, the on-chain migration of the U.S. traditional asset management industry presents a "three-step" phase.

The first phase is the product validation period. Tokenized fund products represented by BlackRock's BUIDL and Franklin Templeton's BENJI have proven that under the current securities regulatory framework, fund products can complete tokenization transformation, and on-chain shares have legal basis and practical feasibility.

The second phase is the case pilot period. ARK's application is the latest development in this line. The SEC allows asset management institutions like ARK to explore broader on-chain share trading through case-by-case exemptions, testing practical issues such as secondary market circulation, peer-to-peer transfers, and compliance boundaries, accumulating experience for universal rules.

The third phase is the framework implementation period. If the innovation exemption is officially launched in the future, more tokenized securities will enter the on-chain market within restricted scopes, and leading asset management institutions such as Fidelity, WisdomTree, and BlackRock are likely to follow up and expand their tokenized fund product lines.

Of course, all situations face variables: whether ARK's application can be approved, whether Congressional legislation can advance, and when the innovation exemption will be implemented, each step carries uncertainty.

Trends are gradually emerging; after assets go on-chain, shares will follow. The true watershed for the industry may only unfold after "shares go on-chain."