Original Author: Will Awang
Original source: Web3 Law
Two months later, on March 21, 2024, Blackrock and Securitize launched the first tokenized fund, the BlackRock USD Institutional Digital Liquidity Fund, on the public blockchain, Ethereum, since Blackrock successfully promoted the launch of the BTC Spot ETF and introduced crypto assets to traditional finance this year , backhand to introduce traditional finance into the crypto market.
The launch of the BUIDL Fund marks a significant milestone in the tokenization of RWA assets. Blackrock, the world's largest asset manager, is offering a glimpse into the future of blockchain technology transforming the financial system through its BUIDL fund, enabling seamless connectivity between crypto and real-world assets.
In our article last year, we analyzed the importance of tokenized funds in bridging TradFi and DeFi, and that funds are the best vehicle for RWA assets due to (1) their own regulation and (2) their relatively standardized digital expression. Reference article: RWA 10,000-word research report: The value, exploration and practice of fund tokenization.
So this article will take an in-depth look at Blackrock's tokenized fund BUIDL, see how it works, and how to graft DeFi through USDC to open the door to the crypto world of traditional finance.
1. How the BUIDL Fund works
If you put $1,000 into the stablecoin USDC, USDC issuer Circle will invest the funds in assets such as Treasury bonds, but the resulting proceeds will be taken by Circle. And if you put $1,000 into Blackrock's BUIDL fund, the fund can help you manage your money while committing to a stable value of $1 per token.
This is BUIDL, which looks like a stablecoin, but it's actually a "security".
Let's talk about the "security" attribute of BUIDL first, and then talk about the possibility of it becoming a liquid stablecoin.
A. Fund Entities
The BUIDL Fund is Blackrock's new SPV entity in the BVI that has applied to the SEC for a securities exemption from Reg D under the U.S. Securities Act and the Investment Company Act, and is only open to accredited investors.
B. Tokenization and On-Chain Logic
Securitize LLC, as the tokenization platform of the BUIDL fund, is responsible for the on-chain logic of the fund and converts the on-chain logic of the fund into the document data required by the regulator to meet the regulatory requirements.
At the same time, Securitize LLC acts as the transfer agent of the fund, manages the shares of the tokenized fund, and reports on fund subscriptions, redemptions, and distributions;
Securitize Markets (which holds a US Alternative Trading System license and is registered as a Broker Dealer with FINRA) will act as a fund distribution agent to provide the product to accredited investors;
投资者灵活的加密资产托管选项：Anchorage Digital Bank, BitGo, Coinbase, Fireblocks。
C. Operation of the underlying assets
BlackRock Financial, as the fund administrator, is responsible for the fund's investments;
Bank of New York Mellon as custodian and fund administrator of the Fund's underlying assets;
PwC has been appointed as the auditor of the Fund.
D. Funds Management
100% of the BUIDL fund's total assets will be invested in "like" US dollar cash assets (such as cash, short-term US Treasuries, and overnight repo agreements), allowing each BUIDL token to maintain a stable value of $1.
BUIDL tokens distribute interest on a monthly basis (Paid Monthly) in the form of rebase, that is, the daily accrued dividends are "airdropped" directly to the investor's wallet account in the form of new tokens.
E. 24/7/365 instant subscription / redemption
Securitize provides investors with 24/7/365 Issuance & Redemption Process for fiat USD, which is a point that many traditional financial institutions are very eager to achieve.
（SS&C, Tokenization of Funds - Mapping a Way Forward）
The operation process of traditional funds is inefficient in comparison, and many participants have their own ledgers (such as securities ledgers and bank ledgers), so there is often a delay of T+3+5+N days in the subscription/redemption process.
In contrast, the ability of funds to achieve real-time settlement of a unified ledger on the chain after tokenization greatly reduces transaction costs and improves capital efficiency, which is a milestone innovation for the financial industry.
Other benefits include:
All fund participants can access and view the data on the blockchain, so there is no need for multi-party reporting and reconciliation, which greatly simplifies the registration needs of multiple fund participants.
In addition, the subscription and redemption links of the fund can be directly settled and entered into the investor's account (e-wallet), and the transaction has the finality of settlement, thus eliminating the risk of the market and the counterparty;
In addition, the more efficient atomic settlement based on the blockchain can also achieve real-time pricing and real-time settlement around the clock.
2. Who is the BUIDL token suitable for "security"?
2.1 Licensed ERC-20 Tokens
Although the BUIDL token is an ERC-20 token issued on Ethereum, due to its "security" nature, KYC/AML/CTF compliance requirements, and the minimum investment limit of $5 million, the BUIDL token can only be circulated among verified "whitelisted" investors, and is a permissioned ERC-20 token.
According to Steakhouse's research report, we can also see that most of the projects of US bond RWAs have chosen to issue permissioned tokens on public blockchains for regulatory compliance reasons.
（Overview of BUIDL, BlackRock USD Institutional Digital Liquidity Fund, Ltd）
2.2 Who is the BUIDL token for?
The strong compliant "securities" nature of the BUIDL fund, combined with the characteristics of a licensed ERC-20 token, can ensure sufficient security of assets:
(1) Security of the underlying assets: there is only one counterparty risk (Blackrock), bankruptcy isolation of SPV and compliance custody of the underlying assets at the bank level.
(2) Security of on-chain assets: Strict KYC access with permission, access to SEC-compliant trading markets, and cooperation with institutional-grade crypto asset custodians.
Regardless of the traditional financial scenario for the time being, under such a strong compliance configuration, BUIDL has built a collateral layer for institutional-level crypto assets (including becoming the vault of any stablecoin issuer, DeFi, L2 and other project parties), which can ensure that the assets are safe enough and earn stable interest.
Assuming that Tether, the issuer of the USDT stablecoin, is able to deploy most of the assets in its vault in the BUIDL fund, it can solve its biggest compliance problem - the underlying assets are not transparent, and if Circle's underlying assets are also managed by Blackrock, this is at least more credible than Tether issuing some audit reports all day long.
Looking at the complex Blackrock U.S. Treasury ETF procurement path that MakerDAO previously spent more than $1 million to build, it can now be realized by simply asking MakerDAO to open an accredited investor account on Securitize, which is safe, convenient and risk-free.
3. USDC liquidity of tokenized funds
3.1 BUIDL liquidity via USDC
As mentioned earlier, due to "securities" restrictions, BUIDL tokens are limited to the circulation between "whitelisted" investors, so it is not enough to achieve 24/7/365 subscription/redemption.
As a result, Blackrock partnered with Circle to build a smart contract-controlled USDC liquidity pool that enables 24/7365 real-time swaps of BUIDL:USDC = 1:1.
（twitter.com/jerallaire/status/1778416442691428778）
Jeremy Allaire, co-founder and CEO of Circle, said on April 11, "The tokenization of real-world assets is a rapidly emerging product category that solves investor pain points. USDC is able to help investors quickly transfer tokenized assets, thereby reducing costs and removing friction. We are excited to offer this feature to BUIDL investors and showcase the core benefits of blockchain trading – speed, transparency, and efficiency. 」
This is a landmark initiative that opens up a new world of DeFi for RWA assets.
3.2 ONDO Finance's BUIDL Liquidity Attempt
On March 27, ONDO Finance, a leading RWA U.S. bond project, added $95 million in BUIDL tokens to its tokenized fund product OUSG, and superimposed the USDC liquidity pool provided by Circle for BUIDL, which solved the biggest pain point of its users - T+2 fund redemption, and realized the 24/7/365 real-time subscription/redemption of Ondo OUSG fund shares.
It also marks the mass adoption of BUIDL by the first DeFi protocol.
（Introducing Instant, 24/7/365 Subscriptions and Redemptions; Shifting OUSG Funds into BlackRock’s BUIDL）
3.3 The Future of BUIDL
After Circle opened the door to DeFi for the BUIDL fund, it undoubtedly provided an important money management option for participants in the crypto market.
In Bankless' interview with the CEO of Securitize, Carlos Domingo said that the BUIDL fund is currently particularly suitable for institutional-level market participants, such as:
(1) Web3 project parties that have received a large amount of huge financing. They all have a large amount of funds stored off-chain, and can achieve seamless on-chain and off-chain connections through BUIDL, which will have a scale of billions of dollars;
(2) Stablecoin issuers. They have their own rigid needs for capital allocation, such as Circle capital allocation is managed by Blackrock, such as the above-mentioned ONDO Finance OUSG fund capital allocation, and Mountain Protocol also intends to allocate BUIDL assets, there will be tens of billions of dollars here;
and (3) the stablecoin itself. The current USDC and USDT stablecoins are non-interest-bearing, and if these non-interest-bearing stablecoins are replaced with interest-bearing stablecoins, and they can be circulated after encapsulation, there is a huge imagination here, and the stablecoin market itself has a scale of hundreds of billions.
For example, we see that ONDO Finance's USDY stablecoin is making such attempts, with layouts in Aptos and Solana, which can ensure that assets are safe enough, while earning stable interest and circulation.
Fourth, the potential brought by RWA tokenization is huge
In an exclusive interview with Bloomberg, Blackrock CEO Larry Fink made it clear that asset tokenization will be the next step for Blackrock: "We believe that tokenization of financial assets will be the next trend, which means that every stock and bond will be recorded on a general ledger. 」
While Franklin Templeton has long since implemented tokenized funds on public blockchains, the Blackrock aircraft carrier has undoubtedly opened the door for traditional finance to a new world of RWA. In particular, after Circle provided BUIDL with a USDC liquidity pool, it undoubtedly opened the door to DeFi composability.
The most realistic thing is that BUIDL has built a collateral layer for institutional-grade crypto assets, which can ensure that the assets are safe enough and earn stable interest. We see that this has been achieved in the case of ONDO Finance, which enables 24/7/365 real-time subscription/redemption of on-chain fund products.
（app.rwa.xyz/treasuries）
最后借用国际清算行 BIS 在近期发布的研报 Finternet: the Financial System for the Future 做结尾：
"While advances in digital technology have changed people's lives in recent decades, a large part of the financial system remains stuck in the past. Many transactions still take days to complete and rely on time-consuming clearing, messaging, and settlement systems and physical paper records. Improving the functioning of the financial system is therefore an important public policy objective.
This blockchain-based Finternet will be the future of the financial system. 」
（Finternet: the Financial System for the Future）