Exploring BlackRock’s BUIDL: What’s the Buzz and What Comes Next

BlackRock launched its first tokenized fund issued on a public blockchain, dubbed the BlackRock USD Institutional Digital Liquidity Fund (BUIDL), earlier this year.

The fund is tokenized on the Ethereum blockchain with an ERC-20 token called BUIDL. The token is pegged 1:1 with the U.S. dollar and pays daily accrued dividends directly to investors each month through its partnership with the real-world asset tokenization platform Securitize.

According to BlackRock, the tokenized fund invests 100% of its assets in cash, U.S. Treasury bills, and repurchase agreements. Furthermore, BNY Mellon enables the fund’s interoperability between digital and traditional markets.

Today, we explore how BUIDL works, the regulatory fog around tokenized assets, and what we expect BlackRock will do next.

Table of Contents Table of Contents

1. Key Takeaways
2. BUIDL Becomes World's Largest Tokenized Fund
3. Regulatory Fog Around Tokenized Assets
4. BlackRock Eyes BUIDL for Derivatives Collateral
5. More TradFi Firms to Join The Tokenization Bandwagon
6. The Bottom Line
7. FAQs
8. References

Show Full Guide

Table of Contents

1. Key Takeaways
2. BUIDL Becomes World's Largest Tokenized Fund
3. Regulatory Fog Around Tokenized Assets
Show Full Guide
4. BlackRock Eyes BUIDL for Derivatives Collateral
5. More TradFi Firms to Join The Tokenization Bandwagon
6. The Bottom Line
7. FAQs
8. References

BUIDL Becomes World’s Largest Tokenized Fund

In early July, BlackRock’s BUIDL reached a market cap of $500 million, becoming the largest tokenized treasury fund just four months after its launch. As of October 2024, it sits at a marketcap of $533 million.

The fund reached this milestone after Ondo Finance, a firm specializing in real-world asset tokenization, acquired additional BUIDL as backing for its OUSG token.

Ondo Finance’s OUSG is the largest holder, with $173.7 million in BUIDL, while Mountain Protocol, a stablecoin issuer, also uses BUIDL as collateral for its yield-bearing stablecoin, USDM.

?? Watch the highlights of @milesdeutscher's latest coverage of Ondo's tokenized cash equivalents, Ondo Global Markets, and the recent transition of $OUSG's backing into BUIDL.

Credit: https://t.co/67OYowoP2X pic.twitter.com/bWRx7rVVSh

— Ondo Finance (@OndoFinance) April 10, 2024

As of now, BUIDL holds over $533.5 million in tokenized U.S. Treasurys, according to blockchain data from Etherscan.

U.S. Treasuries are leading the way in RWA tokenization. Many digital asset firms and investors are attracted to these Treasury-backed products as they provide a low-risk option to hold blockchain-based cash and earn a stable yield within the blockchain ecosystem.

The tokenized treasury market, which includes BUIDL, has more than doubled this year, reaching $2.43 billion by June 7, up from $780 million in January, as reported by data provider rwa.xyz. They currently offer an average yield to maturity of 4.94%.

Agne Linge, Head of Growth at WeFi, an on-chain non-custodial neobank, told Techopedia: “BUIDL is a stablecoin-like asset crafted specifically for institutional investors”, adding that it serves a “niche yet strategic purpose in the market.”

Linge added that BUIDL could bring substantial profits for BlackRock. She noted that USDT is reporting over $4 billion in profits for holding US Treasury bonds, Bitcoin, and gold.

“Combine this with the strategic role of BUIDL as a financial instrument for collateral in digital asset trading, and the classic economic principle of supply and demand comes into play.”

The growth in the tokenized treasury market comes as digital asset companies and major financial institutions accelerate efforts to move traditional assets — such as government bonds, private credit, and funds — onto blockchain networks for quicker settlements and improved efficiency.

Regulatory Fog Around Tokenized Assets

While there is legal uncertainty around the status of tokenized assets, they are beginning to find their place within existing commercial laws, according to a report from asset manager State Street.

The report said that recent updates to the Uniform Commercial Code (UCC) have introduced “controllable electronic records” to legally recognize digital assets like tokenized securities. This means that a tokenized asset can represent ownership or rights to a specific asset under established legal frameworks.

Furthermore, it spoke about how the Securities and Exchange Commission (SEC) has taken steps to support digital asset securities. Since 2021, the SEC has allowed broker-dealers to trade security tokens within a “sandbox” framework, meaning they won’t face enforcement actions as long as they follow specific guidelines.

“Some of the conditions to the framework are not easily met, such as the requirement that the broker-dealer limit its business to digital asset securities only, but its existence may prove useful if the creation and trading of security tokens becomes more widespread,” the report said.

Nevertheless, Linge claimed that regulation won’t be an issue for BlackRock. “BlackRock seems to have “carte blanche” when it comes to navigating the financial markets ecosystem,” she said.

“Given the team’s depth of expertise and strategic composition, expectations are high that they will proceed with fully regulated activities, potentially advocating for new regulatory frameworks to support the growth of the digital asset sector.”

Linge said that the primary risk for BUIDL is the financial instruments backing it, meaning U.S. Treasuries. She claimed as long the U.S. economy is not in trouble, there is no risk for the holders of BUIDL.

BlackRock Eyes BUIDL for Derivatives Collateral

BlackRock has recently taken steps to integrate BUIDL as collateral in cryptocurrency derivatives trading. The asset manager is reportedly in talks to integrate BUIDL with major crypto exchanges like Binance, OKX, and Deribit, with brokerage firm Securitize partnering in the endeavor.

Securitize is proud to announce we have partnered with @BlackRock. Together, we’re launching BlackRock USD Institutional Digital Liquidity Fund (BUIDL).

BUIDL will provide investors with the opportunity to earn U.S. dollar yields by subscribing to the fund with Securitize… pic.twitter.com/nDsNehOXJU

— Securitize (@Securitize) March 20, 2024

If successful, this move could position BUIDL as a prominent alternative to widely used stablecoins, such as Tether’s USDT, which currently serves as collateral in the crypto derivatives space.

In September alone, crypto derivatives accounted for over 70% of the total crypto trading volume, amounting to nearly $3 trillion traded on centralized exchanges.

BUIDL is already accepted as collateral by prominent crypto brokers such as FalconX and Hidden Road. Digital asset custody platform Komainu has also announced that eligible clients can use BUIDL for trading via Hidden Road.

The development came after the Commodity Futures Trading Commission (CFTC) subcommittee recently supported a proposal to allow digital assets as collateral in derivatives trading, potentially enabling tokens like BUIDL to bridge traditional and crypto markets even further.

More TradFi Firms to Join The Tokenization Bandwagon

The launch of BlackRock’s BUIDL has ignited a new wave of interest in tokenization and tokenized funds.

For instance, Fidelity International recently used JPMorgan’s Ethereum-based private blockchain network, Onyx Digital Assets, to tokenize shares. Likewise, firms like Franklin Templeton and Maple Finance are expanding their tokenized asset portfolios.

“With BlackRock being arguably the biggest player in the financial markets, other financial institutions in the United States and the West are likely to join the initiatives and collaborate with BlackRock,” Linge said.

However, she speculated that since many financial institutions don’t have a financial stronghold like BlackRock, they might instead join the BUIDL program.

The Bottom Line

BlackRock’s launch of its BUIDL fund, along with the firm’s deeper push into the crypto world, sends a strong message about its belief in the potential of the digital asset space.

It is also an indication of the growing relevance of tokenization in the current financial system, which represents a major shift in how assets are created, managed, and traded.

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