BNY Mellon has taken its next major step in blockchain-based finance with the launch of a tokenised collateralised loan obligation (CLO) fund, marking a notable evolution in its digital asset strategy. The move signifies the bank’s intent to bridge traditional credit markets and blockchain infrastructure, reflecting growing institutional confidence in tokenisation.
The new Securitize Tokenized AAA CLO Fund, announced on Wednesday, will offer institutional investors exposure to AAA-rated, floating-rate CLO tranches via the Ethereum network. BNY Mellon will serve as custodian, while portfolio management will be handled by its subsidiary, Insight Investment.
The initiative underscores the bank’s measured, step-by-step approach to bringing conventional financial products on-chain, moving from simple instruments such as money market funds to more complex credit structures.
From Money Markets to CLOs: A Structured Expansion
BNY Mellon’s latest venture builds on its earlier success in tokenised money market funds, launched in collaboration with Goldman Sachs three months ago. That project allowed institutional clients to hold blockchain-based representations of fund shares from leading managers such as BlackRock and Fidelity, hosted on Goldman’s Digital Asset Platform.
The progression to CLOs marks a significant leap in complexity. While money market funds are highly liquid and governed by established regulations, CLOs bundle diverse corporate loans into tranches with varying levels of risk and return. These structures demand rigorous monitoring of loan performance, cash flows, and credit quality, making their tokenisation a substantial technical and operational milestone.
According to Securitize, this is the first-ever tokenised fund focused on AAA-rated CLOs, offering “institutional-grade structured credit on-chain.” The initiative demonstrates that tokenisation can extend beyond straightforward securities to encompass sophisticated fixed-income products, provided risk and compliance standards remain intact.
Institutional Controls and Blockchain Efficiency
For legacy financial institutions like BNY Mellon, the adoption of blockchain must balance innovation with regulatory assurance. Traditional systems must integrate seamlessly with distributed ledgers while preserving the security, transparency, and compliance expected by institutional investors.
BNY’s approach involves maintaining conventional recordkeeping systems alongside blockchain-based tokens, ensuring operational continuity in case of technical disruption. Custody remains governed by existing legal frameworks, offering clients familiar protections.
Crucially, settlement processes occur via permissioned networks rather than fully public blockchains, granting oversight and intervention capabilities when needed. This hybrid model enables banks to leverage blockchain’s core benefits, faster settlements, reduced reconciliation costs, and programmable smart contracts, without sacrificing control or compliance.
While decentralised finance (DeFi) protocols often prioritise open experimentation and rapid deployment, BNY’s controlled institutional model seeks to embed blockchain within existing governance structures. The use of smart contracts allows automation of corporate actions and cash flows, yet ultimate authority remains with regulated custodians.
Competition Heats Up in Tokenised Credit
BNY Mellon’s CLO fund places it in the midst of a rapidly evolving institutional tokenisation race. Goldman Sachs has already signalled plans to spin off its Digital Asset Platform as a broader industry utility. Citigroup has assumed a key role as tokenisation agent and custodian on Switzerland’s SDX exchange, while BlackRock’s tokenised Treasury fund continues to gain traction among crypto-linked investment products.
The tokenised credit market is emerging as a focal point for traditional finance’s blockchain ambitions. Institutions are methodically advancing from liquid, standardised products toward more complex, structured credit instruments, gaining operational expertise along the way.
Carlos Domingo, CEO of Securitize, described the new CLO fund as a step toward “making high-quality credit more accessible.” The firm, which has issued more than $4.5 billion in tokenised assets, recently announced a $1.25 billion merger with Cantor Equity Partners II, underscoring confidence in the expanding tokenised asset market.
Outlook: Institutional Tokenisation Poised for Trillions
The global opportunity for real-world asset (RWA) tokenisation continues to expand. A joint report by Boston Consulting Group and Ripple estimates the sector could surge from roughly $35 billion today to $18.9 trillion by 2033.
Still, hurdles remain. Cross-border regulatory inconsistencies, network congestion, and key management security present operational challenges. For this reason, leading banks like BNY Mellon are pursuing targeted, risk-mitigated deployments, focusing on areas where blockchain clearly enhances efficiency and transparency.
By advancing from money markets to CLOs, BNY Mellon is signalling both confidence and caution, embracing blockchain’s transformative potential while maintaining the institutional rigour expected by regulators and investors alike.
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