Tokenized funds settle quickly on-chain, but redemptions remain slow. The core reason is the gap between "on-chain confirmation" and the settlement of the underlying assets, which still follows traditional finance settlement cycles. On-chain settlement handles share transfers, while redemption deals with converting underlying assets to cash—as long as the underlying assets operate within the traditional financial system, redemption cannot be as instantaneous as a transfer.
1. First, understand that "fast settlement" and "slow redemptions" are two different things
A tokenized fund's "fast on-chain settlement" refers to share transfers—you transfer fund tokens to another wallet on-chain, and it's done in seconds. This only involves ledger-level record changes, not the fund's underlying assets.
"Slow redemptions" refers to converting shares back to cash—you return the fund tokens to the issuer, who sells the underlying assets (e.g., Treasury bonds, commercial paper), then wires you the cash. As long as the underlying assets operate in the traditional financial system, they must follow traditional settlement cycles.
Tokenization solves the problem of how to put assets on-chain, but barely addresses how holders can redeem. Tokenized government bond redemptions take around T+1, while private credit, real estate, and structured products have redemption windows as long as 60 to 180 days.
2. Why redemptions are slow: underlying assets remain on legacy rails
① Underlying asset settlement cycles haven't changed
On-chain tokens can be transferred in a second, but the underlying assets the tokens represent (U.S. Treasuries, commercial paper, etc.) still need to be settled in traditional financial markets, where settlement cycles are T+1 or T+2.
The Bank for International Settlements (BIS) has highlighted this structural problem: although investors can redeem tokenized fund shares daily, the underlying assets still follow traditional T+1 settlement—a wave of redemptions would expose a liquidity mismatch risk.
② The "funding gap" problem
"Natively tokenized money market funds" (natively tokenized MMFs) are the only design capable of instant redemptions via smart contracts. But even they face a key structural problem: the funding gap.
The fund's primary assets are U.S. Treasuries, which settle T+1 or T+2. If an investor redeems $1 million of fund tokens at 3 p.m. on Friday, they expect to receive stablecoins immediately, but the fund's Treasury holdings can't be sold until the market opens on Monday. To bridge this time gap, fund managers must maintain substantial cash buffers (typically 5–15% of assets) or arrange pre-negotiated credit lines to meet redemption requests.
③ Redemption cycle differences across fund types
| Fund Type | Typical Redemption Cycle | Notes |
|---|---|---|
| Tokenized Treasuries / Money Market Funds | T+1 to T+2 days | Underlying assets most liquid, fastest settlement |
| Tokenized Private Credit | 60–180 days | Underlying assets trade privately, must be disposed of individually |
| Tokenized Real Estate | 60–180 days | Asset disposal takes time, lowest liquidity |
Prerequisite: You are holding or considering investing in a tokenized fund product and care about the redemption timeline.
3. Existing solutions: three instant redemption models
The industry is building instant redemption infrastructure, with three models aimed at letting holders receive stablecoins in seconds while fund issuers complete traditional settlement in the background.
Model 1: Balance sheet model
Grove's Basin is a representative case, funded by Sky's balance sheet. When an eligible holder initiates a redemption, Basin provides stablecoin liquidity upfront while the underlying assets complete traditional settlement in the background. At launch in May 2026, Basin offered up to $1 billion per day of committed liquidity, with BlackRock's BUIDL (~$2.2 billion) and Janus Henderson's JTRSY (~$1.1 billion) as the first onboarded funds.
Model 2: Dedicated vault model
Exemplified by Upshift Clear, each supported asset has its own USDC vault, funded by independent liquidity providers who earn the redemption spread.
Model 3: Shared liquidity layer model
Represented by Symbiotic's Liquid Lane, it uses shared collateral to support multiple assets from different issuers simultaneously, and an open RFQ (request-for-quote) market where market makers bid to provide liquidity. Symbiotic co-founder Misha Putiatin noted: "The RWA market has surpassed $33 billion, yet most assets still cannot be redeemed on demand; institutions understand this, which is why liquidity is priced at a premium."
Risk warning: Even with instant redemption infrastructure, redemptions are still not 100% guaranteed to be instant. Liquidity layers have capacity limits, specific eligible holder restrictions, and under extreme market conditions, liquidity providers may withdraw funds. Many tokenized fund offering documents explicitly state: "redemption payments will be made at the earliest possible time, and in no event shall take more than one calendar month." There is still a window between submitting a redemption request and actually receiving cash.
After this analysis, how do you confirm you understand "why it's slow"?
Before subscribing to any tokenized fund, first open its product documentation or FAQ page and find the redemption terms—if it says "redemption proceeds will arrive T+1" or "redemption cycle 1–7 business days", it means it still relies on traditional settlement rails and redemption cannot be instant. Being able to distinguish between "on-chain share transfer" and "underlying asset settlement" as two separate processes shows you truly understand the structural reasons for "fast settlement, slow redemption."
