- BlackRock announced its first tokenized fund on Ethereum last week.
- Bernstein says the asset manager's decision to use Ethereum gives legitimacy to the smart contract blockchain.
- The fund acts as the first major test case for institutional investors, receiving instant, 24/7 execution.
Following BlackRock's wildly successful foray into Bitcoin exchange-traded funds, the world's largest asset manager announced a tokenized fund on the Ethereum blockchain.
BlackRock's decision to offer investors a tokenized money market fund on Ethereum is “the next evolution of financial markets, similar to the ETF wave of the last two decades,” Bernstein analysts say.
Here's why:
Interoperability
BlackRock's US dollar Institutional Digital Liquidity fund, called BUIDL, is not the first attempt to tokenize a money market fund, but it will likely be the largest.
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Franklin Templeton launched its own fund on the chain in April 2023. BlackRock manages around $9 trillion more than Templeton.
The launch of the BlackRock fund is significant as it brings together companies from both the traditional world, including BNY Mellon, and the crypto world, including Coinbase and Fireblocks.
“This would facilitate interoperability between both sides and encourage more traditional institutional clients to adopt on-chain funds without major friction,” Bernstein said.
Reduced costs
BlackRock's first foray into tokenized funds is an important test case for institutional investors to experience instant settlement, Bernstein analysts said.
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BlackRock's fund will “act as the first major test case for institutional investors to experience the instant settlement benefits of blockchain around the clock with increased transparency and improved capital efficiency while reducing operating costs,” Bernstein said.
Public blockchain = greater freedom of design
BlackRock stands out from firms like JPMorgan, which has opted for its own private chain called Onyx.
Choosing Ethereum as a public blockchain compared to choosing a private blockchain “allows for greater scope for interoperability and programmability,” Bernstein said.
“The redemption of tokenized funds could be done on-chain with stablecoins, e.g. E.g. USDC, integration.”
New asset classes, including bonds, could lead to interoperability between on-chain asset classes.
The fund giant's decision to use a public blockchain “gives legitimacy to public smart contract chains like Ethereum that were previously viewed as just retail casinos,” Bernstein said. “Plumbing facilities built for retail speculation are beginning to drive institutional utility.”
“New growth category”
BUIDL invests in US Treasury bills, cash and repurchase agreements and offers a stable value of $1 per token.
Earnings are paid out daily to investors who can invest through Securitize Markets.
“On-chain funds could be a new growth category for asset managers,” Bernstein said.
“Crypto asset management could evolve from simple crypto accumulation via ETF products to building on-chain multi-asset products with their own distribution and unit economics.”
“Asset managers could see this as a commercial revenue and cost savings opportunity, rather than just a currency revolution through non-governmental money.”
Creators of the crypto market
- Bitcoin gained 1.3% in the last 24 hours and was trading at around $70,000.
- Ethereum traded above $3,500 on Tuesday, up 0.8% from the previous day.
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