BlackRock and Tokenization: New Horizons in Traditional Finance

BlackRock is advancing tokenization and exploring whether tokenized fund shares can serve as collateral in traditional finance. Since its launch in 2024, the tokenized money market fund BUIDL has grown to approximately $2.3 billion. Such funds are already used as collateral in digital asset markets, said Dan Meili, who heads BlackRock's cash business in the Asia-Pacific region. The next step is to connect this to Wall Street's financing and margin system, where traditional money market funds already support trading positions.

Tokenization changes the "rails" on which ownership rights move, not what the fund holds. Token shares could be transferred between approved investors without prior cash redemption—potentially allowing institutions to keep money in the fund while transferring rights or pledging the position. However, 24/7 transfers do not mean 24/7 redemptions: ownership can move within the network, while redemption remains subject to fund terms and operational agreements.

For application in traditional finance, banks need to accept instruments as collateral, infrastructure must support them, and regulation must ensure legal certainty. The IMF has cited fragmented platforms, legal uncertainty, and connectivity challenges to existing infrastructure as sector issues. The International Swaps and Derivatives Association (ISDA) pointed to custodial and segregation schemes, capital and margin regimes, cross-border recognition, and legal certainty as issues requiring industry standards. The head of the association, Scott O'Malia, called this necessary for tokenized assets to enter traditional finance.

Early users of BUIDL mainly came from the crypto market, including stablecoin holders seeking yield, according to Nikhil Sharma, BlackRock's director of digital assets. Transitioning to conventional markets will require a different network of counterparties and operational agreements.

The immediate focus is on the adoption layer: recognition by banks, infrastructure compatibility, and rules for custody, margin, and cross-border regimes. Until these elements are in place, tokenized fund shares remain a working collateral tool in digital asset markets and an offering for traditional finance.