As crypto markets recover from their tumultuous collapse, traditional financial firms have begun their long-anticipated venture into the blockchain sector, with the investment giant BlackRock leading the way.
The Larry Fink–run firm, which manages over $10 trillion, helped kick off the latest frenzy by successfully applying to issue spot Bitcoin ETFs, and in March launched its first tokenized fund, BUIDL, which allows investors within crypto ecosystems to earn dividends on the Treasury fund while keeping assets on-chain.
On Wednesday, BlackRock led a $47 million strategic investment into Securitize, its partner on BUIDL, deepening the company’s commitment to crypto. Other investors in the round include investment firm Hamilton Lane, financial technology company Tradeweb Markets, and asset manager ParaFi Capital. As part of the investment, BlackRock’s global head of strategic ecosystem partnerships, Joseph Chalom, will join Securitize’s board of directors.
“At BlackRock, we believe that tokenization has the potential to drive a significant transformation in capital markets infrastructure,” Chalom said in a statement shared with Fortune. “Our investment in Securitize is another step in the evolution of our digital assets strategy.”
In an exclusive interview with Fortune, Securitize cofounder and CEO Carlos Domingo said the investment reflects the growth of tokenization, which has quickly become one of the hottest sectors within crypto. “Being able to become a provider for BlackRock, for a small company like us, has been quite a journey,” he said. “[BlackRock’s participation] signals to the market that this is not a one-off project that we’re doing, but the intention is to be a long-term strategic relationship.”
The tokenized future
The tokenization of so-called real-world assets—such as money-market funds, public stocks, and fiat currencies—means putting them onto a blockchain, such as Ethereum, and allowing investors to buy and sell them without off-ramping back into fiat currency. This has proved popular for DeFi apps, such as lending platforms, where investors don’t want to continually move into and out of cryptocurrencies but still hold stable, dollar-equivalent assets or earn relatively safe yields.
While U.S. regulators and lawmakers still can’t agree on how to supervise some of these products, including fiat-backed stablecoins, tokenized securities represent a safer bet for established firms like BlackRock. And true to its name, Securitize—founded in 2017 by Domingo and Jamie Finn—works with firms to issue existing securities in the form of digital tokens on the blockchain. Morgan Stanley co-led a $48 million round into Securitize in 2021 alongside crypto VC firm Blockchain Capital and holds a board of directors seat.
According to Domingo, Securitize’s compliance-first approach has helped it earn the business of some of the financial world’s largest firms, including BlackRock and Hamilton Lane, as well as investment firm KKR. Along with BlackRock’s BUIDL fund, which now boasts $375 million in investments, Securitize has issued tokenized private credit funds with Hamilton Lane and KKR. In 2022, Securitize also launched an alternative trading system (ATS), a type of regulated exchange that allows investors to buy and sell different securities.
With the new investment, Domingo said the company hopes to expand the terms of its existing licenses, as well as explore launching tokens on new blockchains, such as Aptos. While Securitize holds a broker-dealer license with the self-regulatory agency FINRA, the Securities and Exchange Commission created a new special purpose broker-dealer license in 2021 that would allow firms to custody digital asset securities. The controversial crypto firm Prometheum became the first company to receive the license in 2023 and later announced it would launch custody services for Ether, which it declared to be a security in opposition to the view held by most of the crypto industry.
Domingo said Securitize is exploring a special purpose broker-dealer license, though the firm is not interested in offering custody services, instead working with providers such as Anchorage and BitGo. He added that, unlike Prometheum, Securitize only plans to work with products already established as securities, including on its ATS, especially as Prometheum has yet to launch its custody or trading products. “I’ve been running an actual business with a live product,” Domingo told Fortune. “I just don’t know how they’re planning on solving that problem.”
‘Opens up democratization’
While BlackRock’s BUIDL announcement drove excitement that a TradFi giant was doubling down on crypto, its product is still targeted mainly at crypto-native investors who wanted to hold dollar-equivalent tokenized assets while earning dividends. Many fiat-backed stablecoins offered in the U.S., such as USDC, do not offer yields in order to avoid regulatory scrutiny as potential unregistered securities.
Domingo said that he views two possible use cases for tokenized assets. The first, like BUIDL, brings so-called Web2 products such as money-market funds to Web3 investors. It’s a more limited opportunity. But the second, bringing Web3 products to Web2 investors, could prove to be enormous.
As an example, Domingo cited tokenized private credit funds, such as the products launched with Hamilton Lane and KKR. Private credit funds represents pools of capital lent by investment firms out to private companies, often returning a higher yield than money-market funds, though at a higher risk.
According to Domingo, traditional private credit funds come with the inefficiencies of traditional infrastructure, with high costs associated with the process, such as redemption, distributions, and active management. As a result, many have high minimum investments. Tokenization could eliminate middleman fees and let asset managers up their minimums.
“Tokenization, by allowing this very efficient fractional ownership, and with all this multitude of investors and securities in an efficient way, opens up democratization,” Domingo added.
