Blackrock sees tokenization as the next step

Blackrock, one of the largest asset managers in the world, has struck again with the filing of its tokenized fund. It is one of the latest growing projects in the crypto ecosystem, the tokenization of real-world assets (known by the acronym RWA). Shortly after the launch of the first bitcoin ETFs, Blackrock positioned itself as an institutional leader with its tokenized fund on the Ethereum blockchain.

Tokenization, the future of real-world assets?

Simply put, tokenization is the process of converting financial or real assets into digital assets (called tokens) on the blockchain. These assets can initially be tangible such as real estate, wine, gold or intangible such as shares, bonds, treasury bonds, property rights… This is a step towards modifying property rights .

In a more technical register, we can also talk about digital securitization. Securitization, even if the name seems complex to understand for novices, has existed for several years. In the world of finance, it is quite common to convert debts into marketable securities, for example. This can be a way to reduce the risk for banks. When the bank diversifies its income, it can sell its receivables in return for remuneration. It is a way of increasing liquidity by attracting investors. This is how it can subsequently offer this liquidity again to businesses or households.

The benefits of tokenization

There are several advantages to tokenization. We will name a few of them:

• Liquidity: this increases liquidity and improves the accessibility of certain assets such as gold for example.
• It is a market open 24 hours a day, therefore greater flexibility to transact at any time.
• Transparency: each transaction is recorded on the blockchain, which allows for very good traceability.
• Fractional ownership: one can hold only a fraction of the property, which can make certain assets accessible to smaller portfolios.
• Speed ​​of payment: processing on the blockchain is very competitive when compared to traditional banks. While processing times in Banks can take a few days, it is almost instantaneous on the blockchain.

This technological innovation will give way to very significant development in the coming years. Here is the potential for conversion from the illiquid market to a liquid market:

Blackrock sees tokenization as the next step

After insisting on the release of a spot bitcoin ETF and after having submitted an application for an ETF for Ethereum, Blackrock is already thinking about how to revolutionize traditional finance with tokenization on the Ethereum blockchain. He filed an application with the SEC for a tokenized fund on the in partnership with Securitize (tokenization expert). Blackrock is betting hard on Ethereum. The ERC20 token will be named BUIDL (Blackrock USD institutional liquidity fund). The fund will allow investors who hold a token to earn interest in the US. A large part of the interest distributed will come from liquidity placed in treasury bills (T-bills). These are secure assets whose interest rates are quite attractive.

It’s not just Blackrock that is into money market and bond tokenization. Other companies have launched to offer tokens on certain financial assets. We can take the example of the company ONDO Finance which offers tokenization on treasury bills, the US dollar and bonds. Here is just an idea of ​​what she offers:

This type of modernization of traditional finance will open doors since foreign investors will be able to access this market more easily. I'm talking about ease here, because there aren't as many ETFs on the US money market as in Europe. Therefore, you need to find a brokerage firm that will offer Treasury bonds. This type of alternative could open doors to those who wish to invest more easily in the free risk and take advantage of the returns offered on treasury bonds.

Tokenization, another form of democratization like ETFs?

Currently, you can already buy shares in gold, raw materials or shares in real assets to facilitate accessibility to investors. This is particularly the case with ETFs. They were created to improve investment and provide access to a wider audience. Tokenization is based on the same principle, but made even easier thanks to more advanced technology. It's a bit like the next step in ETFs. For example, tokenization could provide the possibility of trading at any time unlike ETFs. ETFs do not necessarily provide the flexibility to be transferred from one account to another but tokenization allows it. And for verification, we must not forget that the advantage of using the blockchain is that everything is traceable; this reduces the risk of fraud. Therefore, there is an interest in seeing tokenization as a revolution in modern finance and the CEO of Blackrock understands this well.

Treasury bills (T-Bill) have boosted tokenization?

The increase in interest rates during 2022-2023 has led to an increase in yields in the money market. Treasury bonds (maturities less than one year) offer attractive returns for free risk. It was at the same time that the demand for treasury bonds increased. We can see in the graph below a certain momentum towards money market funds:

As the bonds offered a 5% return, investment firm Franklin Templeton took advantage of this boost to begin tokenizing treasury bonds on the blockchain as there was a growing opportunity. It is today the largest issuer of tokenized treasury bonds, followed by the company ONDO Finance.

As the returns offered during the crypto market's bear market were less attractive, this prompted investors to seek both yield and safety. This is where treasury bonds have gained popularity over stablecoins. Subsequently, the opportunity was seized by certain companies to make the transition between traditional finance and the crypto ecosystem.

CONCLUSION

We can conclude that institutional interest and demand increased with the rise in rates on treasury bills, this was a real boost in the tokenization of real-world assets. Blackrock is doing everything it can to bridge the gap between traditional finance and the crypto ecosystem. This is particularly the case with ETFs and tokenization will be the next step. The opportunity is great and Blackrock's position as the largest asset holders in the world will be able to move things forward.