A new on‑ramp for tokenized funds aims to end slow redemptions — and reshape who pays for liquidity

Multiliquid launches to speed up payouts in the tokenized‑fund market

Multiliquid has unveiled a protocol aimed at solving a persistent headache for tokenized funds: slow, costly redemptions. The startup says its system will let fund token holders convert their positions into stablecoins quickly, even when the underlying fund assets are illiquid or settle slowly. For investors and issuers in a market that industry players put at roughly $20 billion today, that promise matters — faster cash flows change how managers price liquidity, how market makers hedge, and how institutional players think about using tokenized fund shares.

This isn’t just a developer demo. The pitch is practical: bridge on‑chain token redemptions to off‑chain liquidity, route payments through stablecoin pools, and pay liquidity providers a fee. For investors, the core question is whether Multiliquid will actually reduce the days or weeks of cash drag that can erode net asset values and force wide secondary spreads. If it works as promised, funds get a smoother redemption window and traders get a more reliable secondary market. If not, the system could add new counterparty and smart‑contract risks without much benefit.

Why tokenized funds can be slow and why that matters now

Tokenized funds wrap shares of traditional and digital assets into tradeable tokens on blockchains. That makes ownership easy to transfer, but it doesn’t change how the underlying assets settle — especially for private credit, real estate, and some alternative strategies. When an investor asks to redeem, the fund still needs to sell or transfer those assets, which can take days or longer.

That mismatch — instant token transfers vs. slow asset settlement — creates three familiar problems. First, funds either hold extra cash to pay out quickly (reducing returns) or force redemptions to wait. Second, secondary‑market prices for fund tokens can trade at discounts when buyers worry they’ll have to wait for cash. Third, managers face operational stress and expensive short‑term borrowing if multiple investors redeem together.

Demand for tokenized funds has been rising among institutions that want programmable ownership, faster settlement for simple assets, and broader access to alternative strategies. That growing interest makes a liquidity fix more urgent: as more big money flows in, the pain of slow redemptions will scale with it.

How Multiliquid routes redemptions into stablecoin liquidity

Multiliquid’s model is straightforward in concept and blended in execution. When a token holder requests a redemption, the protocol triggers an on‑chain instruction that flags the fund’s obligation. Instead of waiting for off‑chain settlement, Multiliquid routes the claim to a pool of liquidity providers who front the payout in stablecoins. The fund then repays that pool on the normal settlement timetable.

Technically, the flow mixes smart contracts and off‑chain legal agreements. Smart contracts lock the fund token and mint a claim that a liquidity provider accepts. The provider delivers stablecoins to the redeemer on‑chain. Off‑chain, the fund has a standing facility or a promissory arrangement that reimburses the provider when the underlying assets are sold or settled. Fees split across the redeemer, the fund, and the liquidity provider, and the protocol enforces deadlines and penalties via the contract and legal backstops.

Stablecoins are the natural medium because they’re already used for on‑chain settlement, but the design depends on broad stablecoin liquidity. Liquidity providers — which can be market‑making firms, hedge funds, or dedicated pools — take the liquidity risk during the gap. They earn fees and possibly a priority claim on proceeds, but they also absorb the credit and settlement risk until the fund repays.

Market effects: quicker cash, tighter spreads — but new players win

If Multiliquid gains traction, several clear shifts could follow. Issuers and managers would face less pressure to hold large cash buffers, potentially improving long‑run returns. Secondary markets for fund tokens would likely tighten: buyers would pay less of a discount if they know liquidity can be delivered quickly in stablecoin form. That should boost tradability and attract more institutional flow into tokenized wrappers.

At the same time, liquidity providers stand to capture new, recurring yield streams from fees and financing spreads. That can create a small new market of on‑chain lending tied to fund flows. But the effective cost of liquidity will likely be passed on — either in higher fees for redeemers or modestly lower net yields for fund holders if managers subsidize the facility.

Overall, the change looks positive for holders of tokenized funds who value tradability and for traders seeking narrower spreads. It’s a mixed outcome for managers: better redemption mechanics but new operational and disclosure demands.

Regulatory and operational risks that could curb adoption

Multiliquid’s approach bundles a handful of hard risks. Smart‑contract bugs or oracle failures could freeze redemptions or misallocate stablecoins. Counterparty risk is front and center: liquidity providers face credit exposure to funds, and those exposures must be enforceable across jurisdictions. That enforcement will hinge on clear legal agreements and reputable custody — not just code.

Regulation is another big question. Authorities may treat parts of the facility as lending, payment services, or broker activity, each with different compliance demands for custody, capital, AML/KYC, and investor protections. For funds holding regulated securities, securities law and custodian rules could constrain how and when on‑chain claims are created and transferred. Those constraints could slow institutional adoption or force conservative design choices that reduce speed.

What investors should watch next: metrics, catalysts and trade signals

For investors and traders, this launch creates a short list of things to watch. First, monitor measurable redemption lag — the average calendar time from a request to cash in hand — before and after Multiliquid integrations. Second, watch stablecoin pool depth and turnover: sparse pools mean sporadic or expensive liquidity. Third, track fee levels and who pays them; rising fee capture by liquidity providers is a signal that relief is real but costly.

Near‑term catalysts include pilot launches with major fund issuers and governance votes that authorize funds to use third‑party liquidity facilities. Watch the first high‑volume redemption events routed through the protocol; if those clear smoothly, expect secondary spreads on linked tokens to tighten. Conversely, any headline failures, legal challenges, or major smart‑contract incidents would be a clear sell signal.

Bottom line: Multiliquid offers a practical fix that would make tokenized funds more useful and tradable, but it swaps settlement friction for credit and legal complexity. For investors, this looks like a useful innovation — especially if regulatory and operational gaps are closed — but it’s one where rewards come with clearly elevated risks.

Sources

• cointelegraph.com
• cointelegraph.com
• cointelegraph.com