When the collateral of DeFi and the risk benchmark belong to the same giant.

Written by: Thejaswini M A

Translated by: Saoirse, Foresight News

In a game, the arena has the highest weight. Teams can win or lose, and the trophy changes hands every year. But if you own the arena and set the rules of the competition, no matter who ultimately wins, every event takes place on your territory and must pay you rent.

This is what BlackRock is currently doing in the crypto field; however, when BlackRock is mentioned, most people only think of ETFs. BlackRock launched a Bitcoin ETF that attracted hundreds of billions of dollars in funds. Media outlets worldwide competed to report that the traditional financial giant was finally making a big move into the crypto industry. This description is not untrue, but the ETF is just bait.

The ETF is merely a trading product. Investors can buy and sell it, and it is no different from other index funds in their brokerage accounts. Even if BlackRock's Bitcoin ETF disappeared tomorrow, the crypto market would continue to operate as usual and would not sustain significant harm. Today, we focus on dissecting the real core: the entire BUIDL positioning strategy.

BUIDL: Seemingly Safe Underlying Collateral Hiding Centralized Shackles

BUIDL is a tokenized money market fund launched by BlackRock, with underlying assets consisting of short-term U.S. Treasury securities and cash. The assets are split into on-chain tokens, allowing holders to earn direct returns. This product is set to launch in 2024, with an initial scale of about $2.5 billion. At first glance, this is not a large scale, but it is evolving into a force not to be underestimated.

BUIDL holds Treasury bonds as its underlying asset, which is a top-tier safe asset. The risk does not lie in the underlying asset itself, but in the permission rules regarding the inflow and outflow of these assets: BUIDL is a permissioned asset, and only wallets reviewed by BlackRock and its partner Securitize can hold and transfer it; the whitelist permissions are completely controlled by BlackRock. Investors can only redeem within specified time frames according to terms set by BlackRock. Whether BlackRock’s compliance department actively flags addresses or regulatory agencies pressure them, BlackRock has the authority to freeze wallets and suspend redemptions.

Ordinary crypto tokens can be freely transferred at any time without intervention; however, BUIDL is subject to the risk of liquidity shut down by a single entity. This is the root of the risk, and all products built on BUIDL will shoulder this hidden danger.

Currently, BUIDL is gradually becoming the collateral upon which on-chain finance is built. This article seeks to discuss this silent takeover of underlying sovereignty.

Infiltration: Stablecoins and Exchange Margins Sequentially Integrate BUIDL

First, let's look at Ethena and USDe. USDe is currently the third-largest synthetic dollar stablecoin by market cap. Ethena simultaneously issues another dollar token, USDtb, over 90% of whose reserve assets are in BUIDL. Whenever the market fluctuates sharply and the USDe mechanism is under pressure, USDtb serves as the cushion for risk. In other words, BlackRock's Treasury assets are now at the base of the leading dollar assets in the crypto market.

A few weeks ago, the layout took a step further. Ethena began issuing various stablecoins under white label to third-party companies, with BUIDL as the core reserve asset, spanning the entire product line.

Objectively clarifying the dependencies: during stable market periods, USDe rarely utilizes BUIDL. USDe primarily relies on crypto assets combined with short futures to build reserves, with only about 7% of funds allocated to conventional stablecoins (including USDtb). USDe has a circulation scale of up to $6 billion, but only reserves $65 to $80 million in its own reserves to cover losses. When the carry trade profit disappears, this meager buffer is insufficient to manage risks, and Ethena must significantly transfer funds into this treasury fund for shelter.

In times of crisis, BlackRock's assets become the ultimate load-bearing cornerstone. The most dangerous scenario is discovering that the control of the underlying support assets lies in someone else's hands when the market crashes.

Since April, institutional clients of OKX can use BUIDL as margin for trading, used to secure positions. The tokens are custodized by Standard Chartered, and idle margins can continuously earn Treasury yields. It is the first time that a traditional large bank has participated in such crypto business. Idle margins become interest-earning assets, and this asset is the BUIDL issued by BlackRock.

Aladdin Goes Live with USDe: Controlling All Market Risk Data and Pricing Power

A few weeks ago, BlackRock integrated USDe into the Aladdin system.

Aladdin is BlackRock's self-developed risk management platform used to monitor various investment portfolios and simulate potential risks. Do not mistakenly think that BlackRock's integration of USDe is supporting the crypto industry. The real goal is to leverage this system to capture data, risk exposure structures, and operational logic within the on-chain financial system, all compiled into BlackRock's own data hub.

Through this, BlackRock can ascertain the leverage levels across the market and accurately predict at which price level a significant forced liquidation will be triggered. Once a sell-off begins, BlackRock will have a clear understanding of how the dominoes will fall in sequence. Even if crypto project founders consider themselves to be operating independent protocols, they inevitably must use BlackRock's proprietary models to measure risks.

The second-largest stablecoin by market cap, USDC, which is approximately $78 billion, has the vast majority of its cash reserves entrusted to BlackRock-managed funds.

The complete risk chain has already formed: traders hold USDe, USDe's risk buffer relies on USDtb, and the majority of USDtb's underlying assets are BUIDL; traders also use USDe for collateralized lending, initiating a new round of speculation. The collateral is hidden in the underlying foundational assets, with various leveraged lending structures layered on top. All market participants assume the underlying assets can be redeemed stably and freely. Once the access channel for the underlying assets is closed, everyone will encounter a liquidity crisis simultaneously.

History Repeats: BlackRock’s Mature Strategy to Achieve Monopoly Through Underlying Infrastructure

While Ethena's cooperation has gained the most exposure, many other exchanges have also gradually accepted various tokenized Treasuries as collateral, including both BlackRock’s BUIDL and competitors like Franklin Templeton. At this stage, BUIDL is the largest target in the race. Funds naturally gather towards the most liquid assets, with a continuous inflow of funds into leading products, reinforcing the Matthew effect.

BlackRock has long replicated this strategy successfully. Index funds were once bland and considered "watered-down products" in investments. BlackRock swept the global market with its iShares index funds. Today, the three major index giants, BlackRock, Vanguard, and State Street, rank among the largest shareholders of nearly 90% of S&P 500 component companies. They do not need to stand at the forefront; they only need to root themselves in the foundation, waiting for a massive influx of funds.

Operationally, Aladdin has repeated the same story. This risk control system covers asset scales exceeding $20 trillion, accounting for about one-tenth of global financial total assets. Many financial institutions that compete with BlackRock still pay to use this system for risk control. This means that competitors rely on BlackRock’s algorithms to assess their safety thresholds, allowing BlackRock to gain insight into all of the market's cards.

The 2008 financial crisis and the 2020 COVID bond crisis fully exposed potential conflicts of interest: the U.S. government entrusted BlackRock twice to dispose of crisis assets and execute bailout plans, with considerable bailout funds ultimately flowing into BlackRock's own products. Issuing underlying collateral while operating asset pricing and risk control systems – this is precisely the structure BlackRock aims to establish in the crypto industry today.

Ultimate Vision: Becoming the Underlying Operating System of the Crypto World

If various token dollars continue to use BUIDL as their underlying reserve in the future, and DeFi continually deposits funds here, with market risks uniformly assessed and priced by Aladdin, BlackRock will become the underlying operating system of the crypto world.

Why is this far more important than ETFs? ETFs and collateral have fundamentally different implications. ETFs merely represent investment demand: investors buy when optimistic and sell when pessimistic, and trading behavior does not impact the foundation of the entire system. Collateral, on the other hand, is entirely different. Once various stablecoins and lending protocols choose BUIDL as their underlying support, withdrawing will become extraordinarily difficult. Withdrawing the underlying collateral means dismantling all upper-level positions built on that asset, which can easily trigger systemic collapse. Therefore, the market will passively maintain the status quo, fearing to change the foundational bedrock. ETFs can be liquidated at any time, but no one dares recklessly dismantle the foundation while the entire system is operating normally.

We are still in the early stages. The $2.5 billion scale of BUIDL is negligible compared to the over $300 billion stablecoin market, most of which is occupied by Tether and Circle. Based on current data, BlackRock is not yet a foundational player in the market.

Realistic Balancing of Perspectives

Optimistic view: The crypto industry has experienced several collapses in history, the root cause being the inter-collateralization of low-quality tokens. Building synthetic dollars on U.S. Treasuries managed by globally recognized institutions can lower risks and enhance industry credibility.

Warning view: First, the standards of judgment should not only look at asset scale but also consider the tier of the assets. Compared to large-scale assets that no one relies on, small-scale underlying assets with dozens of deeply connected upper-level products are more influential. Boston Consulting Group predicts that the tokenized physical asset market will reach $16 trillion by 2030, and BUIDL is seizing the foundational position. Second, this is a power exchange: exchanging for asset stability comes at the cost of relinquishing control of the foundation. Stable income is intuitively visible, but the risks of conceding power are hard to perceive in the short term. And BUIDL, from beginning to end, is a permissioned asset that follows BlackRock’s rules, relies on whitelist access, and has centralized redemption control.