Sovereign wealth funds (SWFs) are now central to how nations stabilize fiscal balances, diversify assets, and project financial influence. Norway’s oil fund, Singapore’s Temasek, and the Gulf states’ investment vehicles all serve as stabilizers and strategic tools in global markets. The U.S., despite being the world’s largest economy and financial hub, remains without such an institution. Proposals have consistently collapsed under political resistance, fiscal fragmentation, and the absence of regulatory clarity.

At the same time, the landscape of global finance is being reshaped by digital technologies. Blockchain, tokenization, and on-chain governance mechanisms are transforming how institutions allocate capital and disclose information. If the U.S. were to design a sovereign wealth fund today, it could for the first time build one natively digital. This raises a fundamental question: Could blockchain overcome historical barriers and give the U.S. a credible, modern sovereign investor?

What a Blockchain-Enabled SWF Would Look Like

A blockchain-enabled SWF is not about buying Bitcoin or speculating in crypto. Instead, it involves integrating blockchain infrastructure into the fund’s core operations. Assets such as equities and bonds could be tokenized for easier transfer and greater liquidity. Smart contracts could automate compliance and governance tasks. Transactions could be recorded on distributed ledgers, providing real-time auditing and radically higher transparency.

For the U.S., where distrust of government financial management has often undermined fiscal innovation, such transparency could help legitimize sovereign investment. The design of a blockchain-based SWF would therefore be less about holding digital coins and more about reshaping how sovereign assets are governed.

The Study: Simulating a U.S. Blockchain SWF

In a new study, I provide the first empirical simulation of a blockchain-enabled U.S. sovereign wealth fund. The study explores three questions. First, would tokenized asset allocations improve risk-adjusted returns? Second, could on-chain transparency reduce the cost of capital? Third, does regulatory clarity determine whether these benefits hold?

To answer, the analysis builds a synthetic panel of sovereign wealth funds, integrates Ethereum and Bitcoin into institutional portfolios, and applies dynamic econometric models to macro-financial data from 2015 to 2024. While technical details are left to the academic paper, the central point is that the results rest on rigorous methods widely used in sovereign investment research.

Ethereum Works, Bitcoin Does Not

The findings are clear. Ethereum consistently enhances portfolio performance when policy conditions are stable. Its programmable infrastructure and role in tokenization make it a viable building block for institutional portfolios. By contrast, Bitcoin’s volatility and speculative nature render it unsuitable for long-term, risk-managed sovereign investment.

This distinction matters. Public debate often lumps all digital assets together, but not all blockchains are equal. For sovereign investors, Ethereum offers credible benefits tied to diversification and transparency. Bitcoin, by contrast, introduces more risk than reward.

Transparency Alone Is Not Enough

What about the second hypothesis, that blockchain transparency reduces the cost of capital? Here, the results are more limited. On-chain disclosure does not automatically lower borrowing costs. Instead, sovereign credit spreads remain shaped primarily by interest rates, investor sentiment, and broader market conditions. Blockchain transparency can support accountability, but it cannot substitute for credible fiscal policy or macroeconomic stability.

This is an important caution. Technology can improve governance, but it does not eliminate the fundamentals of sovereign credibility.

Regulation Is the Decisive Factor

The third finding is the most striking: Regulatory clarity determines whether blockchain helps or hurts. When policy is clear and predictable, Ethereum integration improves portfolio efficiency. Under high uncertainty, the gains disappear or even turn negative. In other words, blockchain amplifies performance only when the rules of the game are stable. This highlights a paradox. Blockchain is often presented as a way to bypass trust in institutions. In practice, it requires stable institutions to realize its potential. For sovereign wealth funds, technology and regulation are inseparable.

Implications for U.S. Policymakers

The results carry three direct implications for U.S. policymakers. First, regulatory clarity is as essential as technology. Any attempt to design a sovereign wealth fund must begin with coherent oversight of tokenized assets and smart contracts. Second, selectivity matters. Ethereum has institutional value; Bitcoin does not. Policymakers should distinguish between programmable platforms that enable transparency and speculative assets that undermine stability. Third, transparency must be paired with fiscal credibility. Blockchain can reduce information asymmetries, but it cannot by itself lower borrowing costs without sound macroeconomic management.

Global Context and Strategic Stakes

Other nations are already experimenting with blockchain-based sovereign finance. Singapore has piloted tokenized bonds. The European Union has tested distributed ledger settlement. Gulf sovereign funds are exploring digital asset allocations. A U.S. initiative could not only catch up with these peers but also set global standards for sovereign transparency and digital governance. Conversely, continued absence risks leaving the U.S. behind in the financial architecture of the digital age.

Geopolitical risk further complicates the picture. Sovereign wealth funds operate within global uncertainty, from trade disputes to international conflicts. Such shocks can amplify skepticism about novel financial technologies. A blockchain-enabled SWF must therefore be designed with resilience in mind, ensuring it can withstand volatility not only from markets but from geopolitics as well.

Lessons for Institutional Investors

The findings also resonate beyond sovereign finance. Pension funds, endowments, and asset managers face similar trade-offs when exploring tokenization and blockchain governance. The lesson is that success depends less on the technology itself than on aligning it with clear regulatory frameworks. The U.S. debate over a sovereign wealth fund mirrors the broader challenges of integrating blockchain into institutional portfolios.

The Bigger Picture

Ultimately, the study shows that blockchain-enabled finance is not a cure-all. Ethereum offers measurable benefits, Bitcoin does not, and regulatory clarity is the hinge on which everything turns. For the U.S., creating a sovereign wealth fund could serve both as a fiscal instrument and as a statement of digital leadership. But technology cannot replace governance; it must be embedded within it.

The opportunity is significant. By designing a blockchain-enabled sovereign wealth fund, the United States could address historical obstacles to sovereign investment while signaling its leadership in the digital transformation of global finance. Yet the path requires political will, regulatory coherence, and fiscal discipline.

The broader lesson is that in sovereign finance, as in much of modern economics, technology and governance are inseparable. Blockchain does not eliminate the need for trust in institutions, it changes how that trust is structured. A U.S. sovereign wealth fund built on blockchain would not escape fiscal politics, but it could modernize public investment for an era where digital trust and financial credibility are two sides of the same coin.

This post comes to us from Professor Narmin Nahidi at the University of Exeter. It is based on her recent article, “A Blockchain-Enabled U.S. Sovereign Wealth Fund: Funding Constraints, Regulatory Barriers, and Portfolio Implications,” available here.