How did BlackRock, the world's largest asset management company, get into the RWA track?
BlackRock has been actively participating in the RWA track
- Leading the investment in the tokenized asset issuance platform, Securitize.
In May of this year, Securitize, a platform for tokenizing assets, successfully raised $47M in strategic funding with BlackRock as the lead investor. Joseph Chalom, BlackRock's Head of Global Strategic Partnerships, was drafted to serve as a board member.
To date, Securitize platform has issued a diverse range of 13 tokenized funds, encompassing asset classes such as US government bonds, private equity, venture capital, and cryptocurrencies, with a combined asset value exceeding $600 million.
In a press release by Securitize, BlackRock’s Global Head of Strategic Ecosystem Partnerships Joseph Chalom said that BlackRock sees potential in tokenization to revolutionize the infrastructure of capital markets and that their investment forms part of BlackRock's broader initiative to upgrade its digital asset strategy.
Securitize introduction
Securitize is a front-runner in the tokenization of physical assets, propelling the compliant digitization of financial assets via advanced blockchain technology. The company, along with its subsidiaries, operates as authenticated broker-dealers (part of SIPC), overseeing initial markets and Alternative Trading Systems (ATS). Furthermore, they are registered transfer agents with the SEC, responsible for maintaining the official records of securities ownership changes.
- Issuing tokenized fund BUIDL
For the first time, BlackRock launched a tokenized fund on the Ethereum chain, named BlackRock USD Institutional Digital Liquidity Fund (BUIDL). This fund invests in underlying physical assets such as the US dollar, US government bonds, and repurchase agreements, offering BUIDL tokens valued at one dollar each to qualified subscribers. Additionally, it distributes the real asset income to token holders' addresses monthly.
The minimum investment for the BUIDL fund is five million dollars, and BUIDL tokens can only be subscribed and transferred after undergoing a KYC process. The fund is designed for institutional users, stressing compliance, asset security, and transparency (including both on-chain and physical assets). BUIDL is currently the largest tokenized fund, managing over $380M in assets with nearly 30% monthly growth.
BUIDL operating structure and partners:
- Securitize: Tokenization Platform
- BlackRock: Fund Management (responsible for investment)
- BNY Mellon: Underlying Asset Custody
- Anchorage Digital Bank, BitGo, Coinbase, Fireblocks: Crypto Asset Custody Services
- PwC: Fund Audit
- Circle: Establish BUIDL/USDC trade pool to meet instant settlement demand.
- Ondo: OUSG introduces BUIDL tokens as underlying assets (to achieve OUSG instant settlement).
Status of Tokenized Assets
Fiat-backed stablecoins are the primary category of RWAs, holding a dominant market share of 96%. Six out of the top ten asset tokenization initiatives fall into this category. Notable issuers like Tether and Circle leverage the dollar to mint stablecoins, fulfilling the requirements of cryptocurrency transactions and payments. However, stablecoin holders do not benefit from the underlying asset's returns. This type of asset is highly susceptible to the volatility of the cryptocurrency market.
The tokenization of government bonds, on the other hand, distributes bond income to token holders. This approach brings stable real-world asset returns onto the blockchain, leveraging the blockchain's immediate settlement and high transparency. This model creates a native interest-bearing stablecoin or asset.
At present, government bonds represent the second-largest class of tokenized assets. With an annual growth rate of 155%, they demonstrate considerable potential for future development. Projects such as Securitize, Ondo, and Franklin Templeton, backed by various traditional institutions, are highly compliant, increasing their likelihood of drawing substantial capital from traditional finance.
Government Bond Tokenization
At present, the cumulative market capitalization of tokenized government bonds approximates $1.45B, delivering an average annual return of 4.96%.
Notably, the BUIDL fund overseen by BlackRock successfully amassed over $470M in slightly over two months, exceeding the asset management scale of the Franklin on-chain US government bond fund (FOBXX), launched in 2021.
Further reinforcing the potential of decentralized finance (DeFi) in government bonds, the third-largest fund, OUSG (managed by Ondo), transitioned some of its underlying assets from BlackRock's SHV short-term Treasuries ETF (iShare short-term Treasury ETF) to BUIDL tokens, allowing for continuous round-the-clock subscriptions and redemptions.
What is the development potential of RWA Tokenization?
The four main advantages of asset tokenization:
- Increased Trading Liquidity
- Enhanced Efficiency and Reduced Transaction Costs
- High Transparency of Tokenized Assets
- Expanded Market Scope
Market Growth Forecast
Citigroup estimates that by 2030, the global scale of tokenized assets will reach $3-4T, with a trading volume of $1T. They believe that applications such as Central Bank Digital Currencies (CBDC), Gaming, and Social Media will drive the mass adoption of cryptocurrencies. Asset tokenization is seen as a killer application of the blockchain, with a potential growth space of 80 times.
The returns on real-world assets are not affected by cryptocurrency market fluctuations, providing a more stable source of income for on-chain finance. The investments of traditional institutions like BlackRock and Franklin, along with the efforts of startups like Ondo and Securitize, point towards increasingly mature regulation and asset conversion mechanisms on and off the blockchain. It can be expected that RWA tokenization will be a long-term narrative transcending bull and bear markets.
ref: https://www.citigroup.com/global/insights/citigps/money-tokens-and-games
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