Joseph Chalom, head of strategic ecosystem partnerships at BlackRock, said the industry is “wildly underestimating” the impact of tokenization on changing financial markets.

He spoke on a panel at the SALT Wyoming Blockchain Symposium on 20 August on Institutional Adoption of Crypto: Inside the Growth of Bitcoin ETFs and Tokenized Funds. He also cautioned that patience is needed, as it will take time to change decades of highly inefficient plumbing.

In May this year BlackRock led a $47m funding round in Securitize, the platform for tokenizing real-world assets. The strategic investment also included funding from alternatives manager Hamilton Lane, ParaFi Capital, and Tradeweb Markets, the electronic trading platform.

Chalom highlighted the benefits of tokenization including programmability, atomic settlement, reducing friction in cross-border transactions, interoperability and potentially greater liquidity. He thinks the biggest impediment to tokenization has been the need to coalesce around an asset class, and it seems that most liquid money market funds have become the place to start.

BlackRock issued its first tokenized fund, the BlackRock USD Institutional Digital Liquidity Fund (BUIDL), on the Ethereum blockchain in May this year. The fund is available to investors by subscribing to the fund with Securitize and reached $500m in a record time of less than four months.

Carlos Domingo, co-founder & chief executive of Securitize, spoke on the panel about launching the firm back in 2017, when there was the same excitement around tokenization as there is today, but tokenization did not take off. Since then Securitize has been  building its technical infrastructure, and obtaining regulatory approvals so that real world assets can be put on-chain. Securitize is seeing a second wave of tokenization and this time it is real, and not just about pilots and experiments, according to Domingo.

“BlackRock’s fund is already half a billion dollars in size, so it’s not a joke,” he added. “If you had asked me a few years ago, I would have told you this is not going to happen and it is impossible.”

Another traditional asset manager, Franklin Templeton, also launched a tokenized money market fund back in 2021. One share of the $420m Franklin OnChain U.S. Government Money Fund is represented by a BENJI token. Franklin Templeton said the tokenized fund is the only US-registered mutual fund to use a public blockchain to process transactions and record share ownership. The fund has become available to the Avalanche network, a smart contracts platform, that enables Web3 developers to easily launch custom blockchain solutions.

This is a significant milestone for all parties. The march of tokenization continues. https://t.co/zHQRBaCaHJ

— David Easthope (@deasthope) August 22, 2024

Avalanche said in a statement that the tokenized U.S. money market fund market has grown to $1.81bn and that institutions have increasingly been exploring the combination of blockchain, smart contract and tokenization technology as a means of upgrading financial services infrastructure and institutional workflows.

Roger Bayston, head of digital assets at Franklin Templeton, said in a statement: “Bringing the Benji platform to the Avalanche network further expands access to our first-of-its-kind tokenized money market fund. We look forward to working with Avalanche’s vibrant developer community to bring new blockchain-enabled innovations into the market.”

Chalom highlighted that interoperability of blockchains is critical to aggregate liquidity, as fragmentation reduces the benefits of digital assets. Digital identity is also critical, because otherwise every wallet will need to be approved off-chain.

“Until there is a solution for digital identity that is accepted by regulators, it is going to be a massive speed bump to what we hope is a much more efficient capital market,” he added.

Crypto ETFs

While tokenization allows real world assets to be put on-chain, the US Securities and Exchange Commission approved spot bitcoin and ether exchange-traded funds this year, which allows crypto to be offered to traditional finance in a familiar wrapper.

Amy Oldenburg, head of emerging markets equity at Morgan Stanley Investment Management and manager of  digital asset initiatives within the division, said on the panel that when the SEC approved spot bitcoin ETFs in January the bank’s wealth management platform had to meet client demand and review the product.

Morgan Stanley’s wealth advisors can now pitch bitcoin and ether ETFs to some of their clients.

“The ETFs can only be solicited, which is a very small part of the business,” she said. “It is the first step and I think everyone is optimistic that will expand as we continue to see the space evolve and get more comfortable with the infrastructure.”

2/ Bitcoin ETFs are the fastest-growing ETFs of all-time. They've pulled in $17.5 billion in net flows since launching in January. This is on pace to smash the previous ETF record, held by the Nasdaq-100 QQQs, which gathered ~$5 billion in their first year. It's not even close.

— Matt Hougan (@Matt_Hougan) August 21, 2024

7/ Eye-catching, right? Bitcoin ETFs are by far the leaders in terms of institutional adoption. That's true whether you measure by number of institutions or AUM.

— Matt Hougan (@Matt_Hougan) August 21, 2024

🚨#BREAKING: @BLACKROCK'S ETHER ETF NEARS $1 BILLION IN NET INFLOWS, CEMENTING ITS LEADERSHIP IN THE @ETHEREUM-FOCUSED ETF MARKET, PER @MORNINGSTARINC DATAhttps://t.co/50FK4uuaVr

— Blockchain Daily (@blckchaindaily) August 21, 2024

Chalom said: “What we’re super excited about is that all the ETF issuers have been successful and ETFs have functioned the way they should.”

For example, on Monday August 5 when volatility spiked and other asset classes drew down between 15% and  20%, BlackRock’s bitcoin ETF had zero outflows. He also highlighted that SEC filings indicate institutional ownership of the bitcoin ETF as of June 30.

“Now we are seeing wealth management adoption, and I think we’re at the very early innings of institutional adoption,” Chalom added.

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