BlackRock, the world’s largest asset manager, is reportedly assessing the potential of tokenizing its exchange-traded funds (ETFs) on the blockchain, prompted by the strong performance of its spot Bitcoin ETFs. According to sources familiar with the negotiations, the company is contemplating the tokenization of funds that provide exposure to real-world assets (RWA). However, this ambitious venture will have to contend with various regulatory challenges.
ETFs have gained immense popularity, surpassing the number of publicly listed stocks, as highlighted by data from Morningstar. The tokenization of ETFs could revolutionize trading by allowing transactions to occur beyond standard market hours and enabling their use as collateral in decentralized finance (DeFi) applications.
BlackRock’s interest in tokenization is rooted in its existing accomplishments. The firm already oversees the largest tokenized money market fund globally—the BlackRock USD Institutional Digital Liquidity Fund (BUIDL)—which boasts $2.2 billion in assets distributed across blockchains such as Ethereum, Avalanche, Aptos, and Polygon. JPMorgan has emphasized that tokenization represents a “significant leap” for the $7 trillion money market fund sector, pointing to an initiative by Goldman Sachs and Bank of New York Mellon that BlackRock plans to join at its inception. Clients of BNY will have the opportunity to access money market funds where share ownership is directly registered on Goldman Sachs’ private blockchain.
The emergence of tokenized money market funds is occurring in tandem with various pressures on traditional financial systems, notably due to the rising popularity of stablecoins and the shift of liquidity towards blockchain-based markets. Reports have indicated that the US banking industry is particularly cautious about yield-bearing stablecoins, which are perceived as a potential disruption to conventional banking models. Notably, such tokens were omitted from the US GENIUS Act, recognized as the first comprehensive legislation regarding stablecoins.
JPMorgan strategist Teresa Ho indicated that the appeal of tokenized money market funds is expected to grow, attracting more capital while enhancing their function as collateral. This could potentially help maintain “cash as an asset” amidst the increasing influence of stablecoins. She explained that instead of utilizing cash or Treasuries, investors could leverage money market shares without forfeiting interest, highlighting the versatility of these funds.
However, analysts maintain that the growth of stablecoins under the GENIUS Act will ultimately bolster the case for tokenization, as it will provide clearer regulatory frameworks and improved entry points into blockchain markets. This development signals a crucial shift in the investment landscape, one that may reshape how traditional finance interacts with emerging technologies.
