After the tremendous success of its spot Bitcoin ETF, which now registers over $10 billion in assets under management (AUM), BlackRock continues its foray into the world of blockchain. This time the giant of investment is tapping into the strengths of Ethereum, the second biggest blockchain, now extensively used for tokenizing real-world assets. 

Last week, BlackRock announced the launch of the BlackRock USD Institutional Digital Liquidity Fund, or "BUIDL," marking its first venture into tokenized funds issued on a public blockchain. Other than the amusing cultural reference – the TradFi (traditional finance) behemoth using crypto slang looks like a sign of the times – the move is seen as an ambitious step in embracing crypto tools. 

Following in the steps of other notorious TradFi players, BlackRock confirms the importance of RWA tokenization as a major trend in crypto, helping to smooth out the rough edges and develop its ecosystem.  

About BUIDL 

The fund was launched in partnership with BNY Mellon, registered as its custodian and administrator, and Securitize, a tokenization platform in which BlackRock made a strategic investment. 

According to the press release, BUIDL seeks to offer a stable value of $1 per token, paying daily accrued dividends directly to investors' wallets as new tokens each month. The Fund invests 100% of its total assets in cash, U.S. Treasury bills, and repurchase agreements, allowing investors to earn yield while holding the tokens on the blockchain.  

Such a conservative choice could be part of a strategy for introducing traditional investors to the blockchain without all the hype that some (many?) are still wary of. The key difference for the clients would be the 24/7/365 trading and transfer capabilities, which could mean a lot for those accustomed to rigid trading hours and opening days. Some of the key differences for the fund manager would be blockchain’s instantaneous and transparent settlement. 

The fund is open to pre-approved investors ready to deposit a minimum of $5 million initial investment. 

The tokenization era 

BlackRock is not the first TradFi company to issue securities on the blockchain.  

Franklin Templeton, a US asset manager with $1.5 trillion of AUM, launched its Franklin OnChain U.S. Government Money Fund (FOBXX) in April 2021, opening it to the public last year. It was a success, boosting the fund’s assets from $100 million to $324 million today. The fund originally issued tokens on the Stellar blockchain, further expanding to Polygon, and now also considering Aptos, Arbitrum, and Avalanche. 

Citi, an American investment bank, is keen on tokenization as well. Last year, it predicted that the tokenized securities market could reach $4 trillion by the end of the decade. It is currently exploring private equity tokenization mechanics on Avalanche. 

Société Générale, a French bank, is known for having issued “green bonds” on Ethereum. The blockchain was intended to increase “ESG transparency”, but overall, this move was perceived rather as part of the ongoing blockchain experimentation. Indeed, its tokens were fully subscribed by SG’s two top-tier institutional investors through a private placement. 

The BUIDL fund, while not revolutionary, introduces a commercial dimension and adds BlackRock’s credibility to blockchain-based securities.  

Furthermore, the launch of BUIDL helps develop a whole ecosystem around it. Besides BNY Mellon and Securitize, other initial participants include Anchorage Digital Bank, crypto custodians BitGo and Fireblocks, and crypto exchange Coinbase. This allows fund participants to choose how to hold their tokens and solidifies the links between TradFi and crypto. 

RWAs are among the most hyped narratives of this bull run, and while their potential is significant, the practical execution and acceptance by the larger financial space remain to be seen. 

Some critics say that tokenizing a fund brings unnecessary complexity for the issuer, others speak of legal uncertainty and possible compliance issues.    

It’s too early to say that BlackRock is diving headfirst into the crypto world: for the moment the BUIDL fund is a mere $100 million proof-of-concept, a tiny screw in the $9 trillion investment machine. However, it is an important step in establishing the new norms for the financial industry and introducing blockchain possibilities to its clients. It also brings the Wall Street weight and additional transaction flow to the blockchains the funds are tokenized on. So far, BlackRock’s champion is Ethereum, and with Larry Fink’s ambitions to issue a spot ETH ETF, the firm seems to have made its choice.