Author: Jessy, Golden Finance
The crypto world, which wanted to be independent of traditional finance from the beginning, has gradually become a part of mainstream finance. And those traditional financial institutions that initially despised cryptocurrencies have also begun to lay out the crypto industry and have received relatively generous rewards.
The crypto world is no longer independent of the traditional financial system, it has become a part of the world's financial system. Just like the finance of various countries has long become an interconnected whole. After more than ten years of development, the crypto world is also deeply affected by the economic cycle. Especially after the passage of the US Bitcoin spot ETF, the macroeconomic conditions of the United States and the US policy decisions on cryptocurrencies have increasingly affected the crypto world.
In this article, Golden Finance summarizes the involvement of traditional financial giants in the crypto field in the United States. Asset management companies that issue ETFs generally began to provide cryptocurrency services to their customers two years ago. In addition to the ETF business, they are generally still studying the business of tokenized assets. Almost all Wall Street banking giants have participated in the investment of crypto and blockchain startups. Take the financial giant JPMorgan Chase as an example. It has long started using blockchain technology in its internal business and has launched internally circulated tokens for settlement of major customers.
In the past two years, RWA has become a high ground that these financial giants are vying for, especially businesses like the US Treasury bond chain are popular. The connection between traditional finance and encryption is becoming closer and closer.
The actions of traditional financial institutions can basically be divided into four lines. The first is to use blockchain technology to innovate traditional finance. Blockchain technology improves efficiency, ensures security and reduces costs for traditional finance; the second line is that traditional financial institutions directly integrate virtual currency assets and launch traditional financial products related to virtual assets. The third line is that traditional financial institutions directly invest in, participate in, or establish blockchain projects. The fourth line is to put traditional financial products on the chain.
BlackRock
In the crypto world, the US asset management giant BlackRock is best known for issuing spot ETFs for Bitcoin and Ethereum. But BlackRock's efforts in the crypto world are not just that. After winning the battle of virtual currency spot ETFs, its next step is to tokenize traditional assets.
On March 20, 2024, it cooperated with the US tokenization platform Securitize to issue the tokenized fund BUIDL (BlackRock USD Institutional Digital Liquidity Fund). Securitize is responsible for the on-chain logic of BUIDL. BUIDL is an investment tool that holds US Treasury bonds, cash and repurchase agreements. It is an ERC-20 token issued on Ethereum.
The BUIDL fund is a newly established SPV entity by BlackRock in BVI. The entity has applied to the SEC for the securities exemption of Reg D in accordance with the provisions of the US Securities Act and the Investment Company Act, and is only open to qualified investors. The fund currently has 18 holders, and Ondo Finance holds more than 33% of the fund.
Bitcoin spot ETF is to introduce crypto assets into traditional finance, while this move is to introduce traditional assets into the crypto world, and want to sell traditional financial assets to crypto users through encryption.
In terms of specific user experience, it is roughly as follows: if you invest $1,000 in BlackRock's BUIDL fund, the fund will promise to provide a stable value of $1 per token while helping you manage your finances and get investment returns. BUIDL sounds like a stablecoin, but it is actually a "security."
Traditional publicly issued funds, such as money market funds, involve the operations of multiple institutions, resulting in inefficiency and high costs due to independent databases. The tokenized fund BUIDL issued by BlackRock this time has a greater advantage over traditional funds: as a token issued on a public blockchain, the tokenized fund eliminates the need for centralized registration and reduces costs by providing real-time, traceable transaction records. Real-time atomic settlement and secondary market transactions are achieved, which improves capital utilization and provides higher returns. In addition, tokenized funds also support a variety of applications such as staking and lending through smart contracts.
The most attractive point of this tokenized fund for traditional financial investors is that it claims to have achieved real-time subscription and redemption.
However, at present, the product is not completely on-chain, but only the fund shares are tokenized, and the other processes are actually off-chain. The entire structure is basically a real-time that traditional institutions can barely achieve through various advance fund reserves, system automation docking and other solutions, through a lot of consultation and collaboration.
For this on-chain fund, BlackRock cooperated with Circle to establish a smart contract-controlled USDC liquidity pool to achieve 24/7365 real-time exchange of BUIDL: USDC = 1:1. RWA's US debt project, ONDO Finance, also added BUIDL, which accounts for more than 33% of the total BUIDL, to its tokenized fund product OUSG in March.
The above is undoubtedly a very good attempt and a big step in the integration of Web2 and Web3, integrating RWA into Defi.
In addition to this year's attempts at tokenized funds, BlackRock previously used JPMorgan's Onyx blockchain and the Tokenized Collateral Network (TCN) to convert shares of one of its money market funds into digital tokens. These tokens were then transferred to Barclays Bank as collateral for over-the-counter derivatives transactions between the two institutions.
In the exploration of the tokenization of traditional financial assets, BlackRock is a pioneer standing at the bow.
Franklin Templeton
Franklin Templeton has served clients in more than 160 countries and regions so far, with assets under management of $1.5 trillion. The company is a representative of traditional financial institutions that put U.S. Treasury bonds on the chain, and is also one of the issuers of the U.S. Bitcoin Spot ETF and Ethereum Spot ETF.
Franklin OnChain U.S. Government Money Fund (FOBXX) has currently launched three blockchains-Stellar, Polygon, and Arbitrum. The fund was established on April 6, 2021. The fund invests 99.5% of its total assets in U.S. government securities, cash, and repurchase agreements fully collateralized by U.S. government securities or cash. As of July 31, FOBXX's total net assets reached $420 million, with a net expense ratio of 0.20%, making it the third largest on-chain product linked to U.S. Treasuries.
Investing in FOBXX requires a dedicated on-chain wallet for trading (created by the fund's transfer agent when opening an account). Only this wallet has the right to purchase, redeem and hold fund shares, and the private key associated with the investor's wallet is held by the fund's transfer agent.
Currently, Franklin Templeton only uses blockchain technology to process transactions and record share ownership. Other processes still rely on human roles, and are not fully automated on the chain like crypto-native DeFi products.
As early as 2018, it began to get involved in the field of digital assets. In 2021, it established a blockchain venture fund that can raise up to $20 million, three years earlier than BlackRock's similar fund.
Franklin Templeton has previously launched private funds for wealthy investors and offers a range of independently managed accounts for crypto tokens through Eaglebrook Advisors.
Before this, it has also conducted crypto business outside the United States. Franklin Templeton has established a joint venture in the United Arab Emirates to explore the development of a "yield coin" similar to a stablecoin but capable of paying interest.
This year, there are also reports that Franklin Templeton is planning to launch a new cryptocurrency fund that will invest in virtual currencies other than Bitcoin and Ethereum. The new fund will be aimed at institutional investors and will appear in the form of a private equity fund, circumventing the regulatory obstacles faced by ETFs.
JPMorgan Chase
One of the largest financial services institutions in the United States. Its most important attempt in the crypto world is to tokenize deposits.
In 2016, it launched its internal private chain Quorum, which is its licensed Ethereum code branch, and was later sold to ConsenSys for an undisclosed amount in 2020.
In 2019, it launched the dollar-pegged stablecoin JPM Coin for internal use, which can be understood as JPMorgan Chase's own private digital dollar version. Based on the token and the private chain Quorum, JPMorgan Chase has created a system that allows wholesale customers to transfer dollars between their JPMorgan Chase accounts around the world.
JPMorgan Chase is also one of the first major US banks to offer Bitcoin and other cryptocurrency funds to its wealth management clients.
Asset tokenization has also been a focus of JPMorgan Chase in recent years, such as experiments on deposit tokens.
In 2019, while launching JPM Coin, JPMorgan Chase also created a blockchain called Onyx. Onyx is a private (permissioned) blockchain designed for wholesale business, aiming to provide a wide range of practical services for fintech startups, financial institutions, banks and high net worth individuals. It has built a versatile financial ecosystem covering a variety of functions, including tokenization platform, payment channel, clearing and settlement of wholesale transactions, and providing custody services to users. The asset transaction scale that has been processed so far is one trillion US dollars.
Under this system, Onyx has established a blockchain-based account system in which deposits exist in the form of "deposit tokens". Deposit tokens represent deposit claims against commercial banks and have the advantages of more convenient and instant settlement.
In addition, within the Onyx system, there are several more important services: Liink is a blockchain-based business-to-business (B2B) platform that allows banks and financial institutions to perform cross-border transactions and share information in a peer-to-peer manner, so that they can organize financial roadmaps, share insights, and develop actionable plans for their businesses.
Onyx Digital Assets is Onyx's asset tokenization platform, allowing customers to create token versions of their products, effectively introducing various applications to the blockchain. The platform provides a strong infrastructure and extensive resources to turn tokenized projects into reality and supports Web3 application development throughout the development process. Customers can also use a range of financial applications on the platform to better manage their financial assets, such as using their assets as collateral for intraday financing or as collateral margin without worrying about market volatility.
However, the above services are currently only available to internal institutional customers, and the main demand scenarios are still cross-border payments and automated trade, which are difficult problems.
As for services such as global deposit tokens, according to JPMorgan Chase, they are currently awaiting final approval from US regulators.
Summary:
For traditional financial institutions, the future direction is already clear. Larry Fink, CEO of BlackRock, once said: The next generation of markets, the next generation of securities, are tokenized securities.
In the face of this trend, institutions need to enter the market earlier and seize the market.
At present, blockchain actually only plays a partial technical role in this track, such as making the process transparent. There are still many professional roles such as case selection, law, and management that cannot be replaced by smart contracts.
As for what everyone imagines, can these RWA products be traded by users like buying virtual currencies such as Bitcoin? The answer is actually no. Currently, to purchase asset tokenization projects launched by these traditional financial institutions, you still need to open an account offline or do KYC, and then operate on the chain.
In other words, if you are in China and want to buy these products launched by traditional financial giants, it will take some time.
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