Institutional trading of digital assets is already big business. Now, it’s set to get even bigger as Binance, the world’s largest cryptocurrency exchange, announced on Friday that it will now accept collateral in the form of a popular token issued by BlackRock. The token, known as BUIDL, trades at $1 and is backed by a reserve of Treasury bills and other safe, short-term assets.
The news of the Binance tie-up is significant because it will likely further increase the popularity of BUIDL, which the world’s largest asset manager launched last year. Since then, its market cap has grown to over $2.5 billion.
BUIDL operates much like a stablecoin, and is often used as collateral for trading crypto derivatives. It is available, though, only to large institutional investors, including private equity firms and hedge funds, that invest at least $5 million into the BlackRock USD Institutional Digital Liquidity Fund.
The token is especially attractive to big investors since, unlike stablecoins like Tether and USDC, it pays out the yield it collects from its reserves. The current yield is roughly around 4%, with BlackRock charging a management fee of 0.2% to 0.5%.
To create the token, BlackRock works with a firm called Securitize that specializes in issuing digital assets. In an interview with Fortune, Securitize CEO Carlos Domingo said BUIDL is attractive to institutional traders because of the yield it pays, but also because it is viewed by exchanges as high value collateral that can allow its holders to borrow more.
Domingo also said that tokenized assets are gaining popularity more broadly because they offer a quick and efficient way to settle trades.
“In capital markets, every transaction involves updating a ledger. Right now, the ledgers are built on software from the 1970s, and the process is siloed,” said Domingo. In contrast, he noted, blockchains are easy to access and can settle trades almost instantly.
As part of its latest push deeper into crypto, BlackRock will also issue a new class of shares of BUIDL on the BNB chain, a blockchain launched by Binance that is today largely decentralized.
Binance’s decision to add BUIDL comes at a time when the exchange giant is increasing ties to the traditional financial sector. In a statement, the company’s Head of VIP & Institutional, Catherine Chen, said adding BUIDL came partly in response to customer requests.
“Integrating BUIDL with our banking triparty partners and our crypto-native custody partner, Ceffu, meets their needs and enables our clients to confidently scale allocation while meeting compliance requirements,” said Chen.
Friday’s BUIDL news comes after other big crypto derivative platforms, including Coinbase-owned Deribit, did the same in recent months.
