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BlackRock’s RWA Vision: Pioneering the Future of Tokenized Assets and Securities

Jul. 01, 2024. 6 min. read. Interactions

BlackRock's bold crypto play: Asset manager bets big on tokenizing real-world assets, from bonds to real estate, aiming to unlock $5-10 trillion market by 2030.

Credit: Tesfu Assefa

BlackRock, the world’s largest asset manager with over $10 trillion in assets under management, first stirred the crypto pot in August 2022 when it announced that it would use Coinbase to service its Aladdin clients. In late 2023, it came to the rescue when the SEC besieged the crypto industry by announcing its iShares spot Bitcoin ETF application. That sent BTC on a rocket ride from $25,000 to nearly $75,000 this year, as I predicted last year.

The ETF approvals in January 2024 finally made the world’s biggest cryptocurrency an accessible mainstream investment that anyone and their grandmother could own without fear of security or regulatory risks. 

Almost immediately after the SEC greenlit Bitcoin spot ETFs, BlackRock execs began to endorse Ethereum and unveiled plans for an ETH spot ETF, which has now also come to fruition and will start trading imminently (2 July) if analysts are to be believed. 

The ETFs are all roads however that legitimize blockchain and smart contract technology to lead to BlackRock’s Grand Plan: 

Tokenizing the world’s assets, or real world assets (RWA). Why trade Monday to Friday in US office hours only, if you could allow the whole globe to trade the US stock market and treasuries anywhere, anytime? 

BlackRock goes all out on RWAs

To that effect, BlackRock already announced in April 2024 that it would be launching a new RWA fund called the BlackRock USD Institutional Digital Liquidity Fund (BUIDL) that will invest in tokenized treasuries and repos. Coinbase, yet again, will play an important role as a key infrastructure provider. 

The TradFi behemoth doubled down on RWAs by investing $47 million into Securitize, an RWA tokenization firm. With a significant portion of its portfolio dedicated to real estate assets, approximately $39 billion, the potential impact of tokenizing property investment is immense. 

Larry Fink, CEO of BlackRock (and of Bitcoin as well? just kidding maxis, put down the pitchforks) sees the big picture very clearly:

I believe the next generation for markets, the next generation for securities will be tokenization of securities, and if we could have a distributed ledger that we know every beneficial owner, every beneficial seller, we all have our code of who’s buying, who’s selling – instantaneous settlement – think about it! It changes the whole ecosystem!

What exactly are Real World Assets (RWAs), and why is this significant for BlackRock?

Credit: Tesfu Assefa

What are RWAs?

As we discussed in a previous article, Real World Assets (RWAs) is a very hot new crypto narrative about converting ownership rights of various tangible and intangible assets into digital tokens using blockchain technology. These assets can be bonds, equity, and real estate, or even cultural assets like art and collectibles. 

Tokenizing RWAs offers several compelling benefits:

  1. Enhanced liquidity: Traditional assets, particularly real estate and fine art, are often illiquid. Tokenization allows these assets to be broken down into smaller, tradable units, increasing their liquidity.
  2. Transparency: Blockchain technology provides a transparent and immutable ledger, ensuring that ownership and transaction histories are easily verifiable.
  3. Access to investment opportunities: By lowering the barriers to entry, tokenization makes it possible for a broader range of investors to participate in markets that were previously inaccessible.

BlackRock USD Institutional Digital Liquidity Fund (BUIDL Fund)

The launch of the BUIDL fund in March 2024 on the Ethereum blockchain represents BlackRock’s first tokenized offering, and is a crucial component of its broader strategy. The BUIDL fund attracted $245 million in its first week of operations, showing massive investor interest and confidence in tokenized assets.

The fund is represented by the BUIDL token, which is fully backed by cash, U.S. Treasury bills, and repurchase agreements to ensure its stability and confidence among investors.

Token holders receive daily yield payouts via blockchain rails, providing a seamless and efficient way to distribute earnings. 

BlackRock’s partnership with Coinbase is notable because it represents a collaboration between a traditional financial institution and a cryptocurrency exchange. Cross-industry collaboration between crypto and TradFi is crucial for growing and developing the RWA market, bringing together the traditional financial world and the emerging world of digital assets.

Secondly, BlackRock’s involvement is likely to get RWAs adopted into the mainstream quicker. With its vast network of institutional clients and its reputation as a trusted asset manager, BlackRock has the potential to bring significant capital and credibility to the RWA market, helping to drive growth and attract new investors.

BlackRock’s Partnerships and Ecosystem

BlackRock’s strategy is to create a robust ecosystem through strategic partnerships, ensuring the seamless operation and security of its tokenized assets. Partners include:

  • Securitize: As the transfer agent and tokenization platform for the BUIDL fund, Securitize plays a pivotal role in managing the token issuance and lifecycle. BlackRock’s investment in Securitize, coupled with Joseph Chalom’s appointment to Securitize’s board, underscores its commitment to this partnership.
  • BNY Mellon: Serving as the custodian of the BUIDL fund’s assets, BNY Mellon ensures the safekeeping and proper management of the underlying assets.
  • Other Key Participants: The fund’s ecosystem includes prominent names like Anchorage Digital Bank, BitGo, and Fireblocks, each contributing to the security and functionality of the tokenized assets.
  • Circle’s Smart Contract Feature: This feature enables BUIDL holders to exchange shares for the USDC stablecoin, adding another layer of flexibility and liquidity.
  • Ondo Finance’s OUSG Token: By moving $95 million of assets to BlackRock’s BUIDL fund, Ondo Finance’s OUSG token achieves instant settlement, showcasing the efficiency of tokenized assets.

Future of Tokenized MMFs and RWAs

The future of tokenized Money Market Funds (MMFs) and other securities is not confined to centralized platforms. BlackRock envisions a broader distribution across various trading platforms and decentralized finance (DeFi) protocols. 

This decentralized approach can unlock numerous opportunities:

  • Collateral for lending: Tokenized MMFs can serve as collateral in smart contract loans, providing additional security for borrowers and lenders.
  • Liquidity pool deposits: These tokens can be deposited into the liquidity pools of automated market makers, enhancing market efficiency and liquidity.

What is the ERC-3643 Token Standard?

Compliance with existing regulations is key to the success of tokenized assets. The ERC-3643 token standard is designed to address this requirement by embedding compliance at the token level.

ERC-3643 ensures that tokens adhere to regulatory requirements, providing a level of assurance that is crucial for institutional investors.The standard is being spearheaded by a non-profit community, and has been presented to regulators worldwide. It’s steadily gaining recognition for its ability to uphold security laws while facilitating innovation.

Cogito Moves Into RWA Space

Cogito, Mindplex’s partner in the SingularityNET ecosystem, is making waves in the RWA market with its innovative approach. The platform recently obtained a tokenized fund license from CIMA, allowing it to offer fully regulated RWA investment products. 

Cogito’s unique offerings include TFUND (tokenized treasury bonds), GFUND (tokenized green bonds), and XFUND (an AI-managed basket of tech stocks), catering to various investor preferences. 

By leveraging AI to manage investments and providing crypto and fiat on-ramps, Cogito is making RWAs accessible to a wide range of investors, driving adoption and growth in the market.

Conclusion

No matter what you think about their powerful financial and political influence in our world, BlackRock’s involvement in crypto has so far helped to champion the sector to new regulatory and market highs. Its vision for the RWA market is a forward-thinking strategy that promises to revolutionize the investment landscape and bring crypto and TradFi closer together than ever before. 

By tokenizing a significant portion of its assets, BlackRock is enhancing liquidity and transparency, and also opening access to traditionally exclusive investment opportunities. The successful launch of the BUIDL fund and the strong assembly of partners will give it a precedence that other traditional firms will find irresistible. 

BlackRock, as usual, can never be counted out.

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About the writer

Werner

47.59293 MPXR

Werner Vermaak, who is based in Cape Town, South Africa, has been a crypto editor and writer since 2017. He previously lived in Asia for 15 years and is passionate about the power of Web3.

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