Secret of BlackRock's tokenized US bond fund
Tokenized Real-World Assets need to be used as collateral margin to unlock liquidity
Larry Fink, the CEO of BlackRock, created a tokenized US bond fund on Ethereum but everyone seems to be missing the big thing happening behind the scenes…
Real-World Asset (RWA) influencers are telling you about the “success” of tokenization, but the real magic of BlackRock’s tokenized bond fund is in the ecosystem of crypto derivatives exchanges.
First, a short background on Blackrock’s tokenized bond fund.
In March 2024, Larry Fink created its first tokenized fund issued on a public blockchain, the BlackRock USD Institutional Digital Liquidity Fund (“BUIDL”).
BUIDL provides a stable value of $1 per token and pays daily dividends directly to investors' wallets.
You might ask me: “Anton, what’s the big deal here?? We already have many tokenized funds and nobody is using that garbage!”.
Secret to the success of BlackRock’s BUIDL token is that crypto exchanges have started to accept BUIDL tokens as COLLATERAL for margin trading.
Traders can purchase tokenized US bond funds - and get yield from them - but also use those tokens on derivatives exchanges as collateral for margin trading.
This is how it works:
professional and institutional investors buy BUIDL tokens which give them an asset with a stable 1:1 value to $ and yield coming from coupon of US government bonds,
investors transfer such tokens to crypto derivatives exchanges or brokers, where they can pledge them as collateral for their margin trading.
This was not possible before with tokenized RWAs!
Previously, the only “use-case” of tokenized RWAs was to buy such tokens and then just hold them in your wallet to earn yield…
Now, the “velocity” of tokenized RWAs has increased since such tokens can be reused in the crypto exchange ecosystem as collateral for margin trading, which increases the liquidity of RWA tokens.
What I described with BUIDL tokens should be familiar to everyone who worked in Traditional Finance…
When you work in a big hedge fund, you never have any cash!
All of the capital in the hedge fund is fully invested in safe assets - US bonds or money market funds - and then you pledge those safe assets with your prime broker as collateral to do trading.
Prime brokers accept highly liquid and safe assets as collateral in margin trading since in case of liquidation the broker can sell such assets - what better than US government bonds, since those are the most liquid on the planet!
Tokenized RWAs are FINALLY finding their use-case - collateral for margin trading with crypto derivatives exchanges.
Tag your favorite crypto exchange in the comments and let’s spread the word about Blackrock’s tokenized US bond funds and how they can be used!
#blackrock #larryfink #rwa #tokenization #realworldassets