BlackRock recently filed a registration statement about plans for the issuance of DLT shares in its $143 billion Treasury Trust Fund (TTF). The shares will only be available via Bank of New York Mellon (BNY), which will use blockchain to mirror the share ownership on-chain. Institutional investors are the primary target with a minimum investment of $3 million, which is the same across the whole fund.
While BlackRock has leaned into tokenization with its BUIDL tokenized treasury fund issued on permissionless blockchains via Securitize, the target market (for now) is primarily crypto institutions. Stablecoin and tokenized money market fund (MMF) issuers are the primary BUIDL token holders.
By contrast, BNY Mellon primarily services mainstream traditional finance (TradFI) institutions as the world’s largest global custodian and a major tri-party agent. However, it also provides custody and cash management solutions for stablecoin issuer Circle, which is also now in the tokenized money market fund business following the acquisition of Hashnote.
Balancing transparency and confidentiality
BNY Mellon’s focus on traditional financial institutions may shape its blockchain approach differently than BlackRock’s BUIDL initiative. While there’s a trend to move towards public permissionless blockchains, a drawback of the Ethereum mainnet is that all transactions are visible for the likes of BUIDL. Privacy solutions are available on permissionessless blockchains, but considered as immature in the TradFi sector. One advantage of a more private solution, such as what BNY may be offering, is that an institution’s transactions are not publicly visible. At the same time, the recipient of the tokenized fund can verify the underlying assets using a new tool recently launched by BNY.
MMFs as tokenized collateral
A high profile institutional application is the use of tokenized collateral for margin and other purposes. Conventional collateral has several drawbacks, including slow settlement times and friction in moving assets because collateral is usually siloed with specific custodians. Tokenized collateral transfers can settle instantly.
The Commodity Futures Trading Commission (CFTC) recently announced pilots for tokenized collateral. BNY’s digital assets leader Caroline Butler sits on the digital assets subcommittee of the CFTC’s Global Markets Advisory Committee (GMAC). Hence, it’s possible this may as much a BNY initiative as a BlackRock one. It was notable that the registration statement mentioned that BlackRock Advisors might also buy DLT shares. BlackRock is also a participant in JP Morgan’s Tokenized Collateral Network.
Several other industry tokenized collateral initiatives are currently on the cards. The CME recently announced plans to trial tokenization. Plus, Euroclear announced a pilot using the Canton Network.
Earlier this month the DTCC unveiled a tokenized collateral management platform and last week ran a demonstration showing how blockchain-based collateral could move across continents and 24/7. Currently, a subsidiary in one jurisdiction might be short of collateral and another elsewhere might have too much. This can be costly because of the need to borrow to cover the shortfall.
In a future where tokenized collateral enables a global pool of assets, that won’t be necessary.
