Wall Street’s $8.3B Tokenization Push Transforms Banks Into Crypto Infrastructure Leaders
Introduction: The Quiet Revolution in Banking Infrastructure
Wall Street’s largest financial institutions are no longer merely observing the digital asset space from the sidelines—they are actively rebuilding its underlying infrastructure. Under the banner of tokenization and custody, firms like Goldman Sachs, BNY Mellon, Citi, and BlackRock are shifting their focus from defensive digital asset strategies to foundational changes in how financial assets are issued, managed, and settled. What began as cautious exploration has evolved into a tangible movement: integrating fund administration, cash management, and settlement processes onto blockchain-based systems that more closely resemble BNY Mellon’s LiquidityDirect platform than a typical cryptocurrency exchange.
In just a few months, tokenized U.S. Treasuries have grown into an $8.3 billion asset class, while the broader real-world asset (RWA) tokenization market now spans an estimated $24–30 billion. But beyond these numbers lies a deeper contest: who will custody the next $100 billion in digital securities, and how will these assets interface with traditional banking systems? This article explores how Wall Street’s embrace of tokenization is reshaping both crypto infrastructure and the future of institutional finance.
Tokenized Treasuries: The $8.3 Billion Foundation
The rapid ascent of tokenized U.S. Treasury products marks a pivotal moment in the convergence of traditional finance and blockchain technology. Since late summer, institutions such as Goldman Sachs and BNY Mellon have brought tokenized money market funds to market, offering digital representations of short-term government and corporate debt instruments. These products are among the safest and most liquid vehicles available in traditional finance, providing institutional investors with a means to park cash while earning modest yields with minimal risk.
By tokenizing these instruments, banks transform conventional holdings into programmable digital units that can be transferred instantly and settled around the clock. For corporate treasurers and large institutions, the appeal lies not in speculative gains but in operational efficiency: the ability to move cash faster, pledge digital assets as collateral, and bypass traditional banking cut-off times. This shift represents a fundamental reengineering of legacy settlement processes—one that reduces friction and enhances liquidity management for institutional participants.
Goldman Sachs & BNY Mellon: Leading with Money Market Funds
Goldman Sachs and BNY Mellon have emerged as early leaders in the tokenization space by focusing on money market funds—a conservative yet systemically significant starting point. Money market funds are characterized by their high liquidity and low volatility, holding short-term government securities and high-grade corporate debt. Tokenizing these funds enables participants to transfer ownership in real-time, without being constrained by traditional market hours or intermediary delays.
Both institutions have launched platforms that allow clients to interact with tokenized fund shares within closed, permissioned environments. BNY Mellon’s LiquidityDirect platform, for example, provides a digital interface for managing cash and liquidity through tokenized instruments. Similarly, Goldman’s Digital Asset Platform (GS DAP) facilitates the issuance and movement of digital assets among known participants. These systems prioritize security and compliance while introducing blockchain’s settlement benefits to institutional workflows.
Citi’s Custody Play: Joining Switzerland’s SDX Exchange
While Goldman and BNY Mellon have focused on money market products, Citi has taken a parallel path through private markets. By partnering with Switzerland’s SIX Digital Exchange (SDX), Citi now serves as a tokenization agent and custodian for regulated digital securities. This role involves providing back-end infrastructure for issuers experimenting with tokenized bonds or equity shares.
The structure resembles traditional custody services but incorporates atomic settlement—a process where payment and asset transfer occur simultaneously without intermediaries. This reduces counterparty risk and operational delays, making it particularly attractive for private market transactions. Citi’s involvement with SDX signals a growing interest among global banks in providing blockchain-based custody and issuance services within regulated financial markets.
BlackRock’s BUIDL Fund: Scaling Tokenized Treasury Products
BlackRock’s entry into tokenization through its BUIDL fund underscores the potential for scaling digital asset offerings within mainstream finance. The fund holds tokenized U.S. Treasury bills and represents them as programmable tokens on a blockchain. Since its launch, the fund’s assets have grown more than eightfold over an 18-month period, reflecting strong institutional demand.
With $13.5 trillion in total assets under management and nearly $100 billion in crypto-linked products such as spot Bitcoin ETFs, BlackRock possesses the distribution reach to make tokenized Treasury products a standard component of institutional portfolios. The firm’s public commitment to tokenization suggests that digital funds may eventually sit alongside exchange-traded funds (ETFs) as core investment offerings.
The Battle for Custody Fees: From Crypto to Traditional Finance
As tokenization gains traction, custody has become a central battleground for financial institutions. During the early 2020s, crypto-native firms like Coinbase and Fidelity focused on compliance and security for digital asset custody. Today, banks are applying those lessons to tokenized cash and securities—and competing for custody fees that range from 0.05% to 0.15% of assets under custody, depending on client size and risk profile.
These percentages align closely with fees charged in traditional fund administration and collateral management, creating new revenue streams for institutions that succeed in this space. Coinbase, for example, currently holds $246 billion in assets under custody, demonstrating the scale of existing digital asset flows. As more tokenized products enter the market, custody providers stand to benefit from both volume growth and recurring fee-based revenue.
From Walled Gardens to Interoperability: The Role of Project Guardian
Most current tokenization platforms operate within walled gardens—closed, permissioned networks such as Goldman’s GS DAP, JPMorgan’s Onyx, or SDX. These systems offer efficiency gains but limited interoperability outside their designated environments. Regulators often prefer this model because it ensures all participants are known and compliant with relevant rules.
However, financial institutions are increasingly exploring ways to connect these permissioned systems to public blockchains through cryptographic proofs that maintain regulatory compliance. Initiatives like Project Guardian—a collaboration between the UK’s Financial Conduct Authority and Singapore’s Monetary Authority—are testing shared standards for cross-custodian transactions. If successful, these efforts could enable bank-to-bank repo transactions using tokenized collateral as early as 2026.
Regulatory Hurdles: MiCA, SAB 121, and the Path Forward
Regulatory frameworks will play a decisive role in determining the pace of tokenization adoption. In Europe, the Markets in Crypto-Assets (MiCA) regulation establishes uniform rules for custodians and crypto-asset service providers (CASPs), including requirements for asset segregation, safeguarding, and reporting. These rules enable banks to passport tokenized funds across the European Economic Area without navigating divergent national regulations.
In the United States, however, regulatory clarity remains elusive. Under Staff Accounting Bulletin 121 (SAB 121), banks holding crypto assets for clients must record those holdings as liabilities on their balance sheets—a requirement that makes large-scale custody economically challenging for systemically important banks (G-SIBs). If future guidance revises or removes this accounting treatment, it could unlock significant balance-sheet capacity for tokenized asset custody.
Conclusion: Tokenization as Financial Plumbing—And Why It Matters
Tokenized money market funds and Treasury products may seem like technical innovations—financial plumbing rather than headline-grabbing disruptors. But as history has shown, plumbing often determines who controls the flow of capital. In the 2010s, blockchain was synonymous with Bitcoin and decentralized speculation; today, it is becoming synonymous with institutional settlement and collateral mobility.
The conservative projection for tokenized Treasuries estimates growth to $6–8 billion if regulatory progress slows or yields decline. A middle-range forecast anticipates $10–15 billion by mid-2026 as more banks integrate money market products. In an optimistic scenario—where tokenized cash accounts linked to ETFs gain traction and repo markets adopt digital collateral—the sector could reach $25–40 billion.
For investors and industry observers, key developments to monitor include:
- Regulatory updates regarding SAB 121 in the U.S.
- Progress under Project Guardian and similar cross-border initiatives
- Expansion of tokenized repo transactions
- New custody entrants from the banking sector
As banks continue building out blockchain-based infrastructure, they are not just adopting crypto technology—they are reshaping it to serve the needs of global finance. In doing so, they are positioning themselves as the next leaders of the digital asset ecosystem.
Mentioned in this article: Goldman Sachs, BNY Mellon, Citi, BlackRock, Coinbase, Fidelity, JPMorgan, SDX, Project Guardian.