Writing: Will Wang, Master of International Business Law in the United States, with ten years of legal practice experience, a serial entrepreneur in the technology industry, and an investment and financing lawyer.
Since Blackrock successfully launched the BTC Spot ETF and introduced crypto assets into traditional finance, two months later on March 21, 2024, Blackrock partnered with Securitize to launch the first tokenized fund "BlackRock USD Institutional Digital Liquidity Fund" on the public blockchain Ethereum, bringing traditional finance into the crypto market.
The launch of the BUIDL fund marks an important milestone in the tokenization process of RWA assets. The world's largest asset management company, Blackrock, through the BUIDL fund, allows people to witness the future of blockchain technology transforming the financial system and seamlessly connecting crypto assets with real-world assets.
Our article last year analyzed the importance of tokenized funds in connecting TradFi and DeFi, and this form of asset, due to (1) its regulation and (2) relatively standardized digital representation, is the best carrier for RWA assets. Reference article: RWA Thousand-word Research Report: Value, Exploration, and Practice of Fund Tokenization.
So, this article will deeply analyze Blackrock's tokenized fund BUIDL, to see how it operates and how it opens the door from traditional finance to the crypto world through USDC bridging DeFi.
I. How does the BUIDL fund operate?
If you invest $1,000 in the stablecoin USDC, the issuer Circle will invest the funds in assets such as government bonds, but the resulting income will be obtained by Circle. However, if you invest $1,000 in Blackrock's BUIDL fund, the fund promises to provide a stable value of $1 per token while helping you manage your finances to earn investment returns.
This is BUIDL, which looks like a stablecoin, but it is actually a "security."
First, let's talk about the "security" attributes of BUIDL, and then talk about its potential to become a liquid stablecoin.
A. Fund Entity
The BUIDL fund is a new SPV entity set up by Blackrock in BVI, which has applied for a Reg D securities exemption from the SEC under the U.S. securities law and the Investment Company Act, and is only open to qualified investors.
B. Tokenization and On-chain Logic
Securitize LLC, as the tokenization platform for the BUIDL fund, is responsible for the on-chain logic of the fund and converts the on-chain logic of the fund into the required regulatory data to meet regulatory requirements;
At the same time, Securitize LLC, as the transfer agent for the fund, manages the shares of the tokenized fund and reports on fund subscriptions, redemptions, and distributions;
Securitize Markets (holding a U.S. Alternative Trading System license and registered as a FINRA Broker Dealer) will act as the fund's sales agent, providing the product to qualified investors;
Flexible custody options for encrypted assets: Anchorage Digital Bank, BitGo, Coinbase, Fireblocks.
C. Operation of Underlying Assets
BlackRock Financial, as the fund manager, is responsible for the fund's investments;
Bank of New York Mellon, as the custodian of the fund's underlying assets and the fund's administrative manager;
PwC has been appointed as the fund's auditor.
D. Fund Management
100% of the total assets of the BUIDL fund will be invested in "dollar-like" cash assets (such as cash, short-term U.S. government bonds, and overnight repurchase agreements), ensuring that each BUIDL token maintains a stable value of $1.
BUIDL tokens will distribute interest on a monthly basis through Rebase, directly "airdropping" the accrued dividends into investors' wallet accounts in the form of new tokens.
E. 24/7/365 Instant Purchase/Redemption
Securitize provides investors with a 24/7/365 fund issuance/redemption process in fiat USD, this instant settlement and real-time redemption feature is highly desired by many traditional financial institutions.
(SS&C, Tokenization of Funds - Mapping a Way Forward)
In contrast, the operation process of traditional funds is inefficient, with multiple parties maintaining their own ledgers (such as securities ledgers and bank ledgers), resulting in T+3+5+N days of delay in the subscription/redemption process.
In contrast, the tokenization of funds on the chain can achieve real-time settlement with a unified ledger, greatly reducing transaction costs and improving fund efficiency, which is a milestone innovation for the financial industry.
Other advantages include:
All fund participants can access and view data on the blockchain, eliminating the need for multiple reports and reconciliations, greatly simplifying the registration requirements for multiple fund participants;
In addition, the subscription and redemption process of the fund can settle directly into investors' accounts (e-wallets), with finality of settlement, thereby eliminating market and counterparty risks;
Furthermore, based on the more efficient atomic settlement on the blockchain, real-time pricing and settlement can also be achieved 24/7.
II. Who is the BUIDL token suitable for?
2.1 Licensed ERC-20 Tokens
Although the BUIDL token is issued on the Ethereum as an ERC-20 token, due to its "security" nature, KYC/AML/CTF compliance requirements, and a minimum investment amount of $5 million, the BUIDL token can only circulate among verified "whitelisted" investors, making it a licensed ERC-20 token.
According to Steakhouse's research report, we can also see that most RWA projects of U.S. bonds, for regulatory compliance considerations, have chosen to issue licensed tokens on public blockchains.
(Overview of BUIDL, BlackRock USD Institutional Digital Liquidity Fund, Ltd)
2.2 Who is the BUIDL token suitable for?
The strong compliance "security" nature of the BUIDL fund, combined with the characteristics of licensed ERC-20 tokens, ensures the sufficient security of the assets:
- Security of underlying assets: Only one counterparty risk (Blackrock) exists; SPV's bankruptcy isolation and bank-level compliant custody of underlying assets.
- Security of on-chain assets: Strict KYC admission for licensed access; SEC-compliant trading market access; cooperation with institutional-grade encrypted asset custodians.
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(Finternet: the Financial System for the Future)
REFERENCE
[1] Securitize, BlackRock Launches Its First Tokenized Fund, BUIDL, on the Ethereum Network
https://securitize.io/learn/press/blackrock-launches-first-tokenized-fund-buidl-on-the-ethereum-network
[2] FT, BlackRock Buidls back better
https://www.ft.com/content/58e3e9a1-ecf2-4a3a-b301-1cd4e6aeb330
[3] SEC, BlackRock Liquidity FundsProspectus
https://www.sec.gov/Archives/edgar/data/97098/000119312521247816/d214273d485apos.htm
[4] SteakhouseFi, Overview of BUIDL, BlackRock USD Institutional DigitalLiquidity Fund, Ltd
https://twitter.com/SteakhouseFi/status/1778433766438097295
[5] ONDO, Introducing Instant, 24/7/365 Subscriptions and Redemptions; Shifting OUSG Funds into BlackRock’s BUIDL
https://blog.ondo.finance/introducing-instant-24-7-365-subscriptions-and-redemptions-shifting-ousg-funds-into-blackrocks-buidl/
[6] Bankless, Blackrock's $10T Bet on Ethereum | BUIDL Fund
https://www.youtube.com/watch?v=hA5UxV2WFXg&t=148s
[7] BIS, Finternet: the financial system for the future
https://www.bis.org/publ/work1178.htm
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