Institutional Investors Shift Crypto Focus to Yield & Tokenization

Institutional investors are increasingly focused on generating income from their cryptocurrency holdings, rather than simply speculating on price increases, according to Brett Tejpaul, head of institutional at Coinbase. This shift, dubbed the “second wave” of institutional money entering the digital asset sector, is driving demand for latest products and prompting traditional financial firms to explore blockchain technology for payments and settlements.

Coinbase last week launched a tokenized share class of its Bitcoin Yield Fund on the Base network, in partnership with Apex Group, a fund services provider managing $3.5 trillion in assets. The fund aims to generate returns in the mid-single digits through strategies like selling call options and lending bitcoin, Tejpaul said in an interview with CoinDesk. This move reflects a broader trend of institutions seeking to set their existing bitcoin and ether holdings to work although waiting for long-term price appreciation.

The demand for yield isn’t limited to crypto-native firms. BlackRock, the world’s largest asset manager, recently launched the iShares Staked Ethereum Trust ETF (ETHB), providing investors with exposure to rewards earned from securing the Ethereum network. This signals a growing appetite for yield-bearing crypto strategies within traditional finance, mirroring the structure of “structured products” common in traditional markets.

Alongside the pursuit of yield, institutions are increasingly interested in the potential of blockchain technology to streamline payments and settlements. Approximately half of Coinbase’s conversations with institutions now involve stablecoins and tokenization, Tejpaul noted, a surge in interest spurred by recent regulatory developments in the U.S. Large financial firms are exploring how blockchain systems can reduce costs and accelerate cross-border transactions.

The passage of the GENIUS Act, which provided a framework for stablecoins, and the proposed CLARITY Act, aimed at further defining digital asset regulations, are contributing to increased institutional confidence. Tokenization, the process of representing traditional assets like bonds and funds on a blockchain, allows for faster and more transparent ownership transfer and 24/7 trading. Stablecoins, pegged to fiat currencies, offer a low-cost alternative to traditional payment rails.

BlackRock has already launched a tokenized Treasury fund, while JPMorgan has tested tokenized deposits and blockchain-based payments, and Franklin Templeton has introduced tokenized money market funds. Both traditional financial institutions and crypto-native firms are actively building or integrating stablecoin infrastructure, recognizing its potential as a foundation for the next phase of financial markets.

This “second wave” differs from the initial influx of institutional capital, which primarily came from hedge funds and wealthy investors seeking exposure or arbitrage opportunities. The current wave includes banks and payments firms building products on top of crypto rails. Stablecoins, often backed by short-term government debt, can generate income streams similar to traditional cash management products, while tokenized funds extend this concept to a wider range of assets.

Institutions are also focusing on market structure improvements, with the New York Stock Exchange and Nasdaq planning to offer 24/7 trading to their clients. Blockchain-based systems aim to reduce settlement times and counterparty risk, offering greater transparency and efficiency. “People want to know where their capital is at all times, and they don’t want it to be in transit or be lost in the settlement process,” Tejpaul said.

While adoption is still uneven, with most institutional capital concentrated in major tokens, the direction is clear. Institutions are no longer solely focused on buying crypto; they are evaluating its potential to enhance their portfolios and businesses. Tejpaul stated, “All of a sudden, all the dots are connecting… what was opaque is becoming clear.”