Can the BlackRock blockchain fund BUIDL achieve real-time settlement? Why is it a significant step for industry development?

Blockchain researcher RyanCiz.eth has provided an explanation on the "real-time settlement" vision behind Blackrock's recent launch of the tokenized fund BUIDL. He has also outlined the challenges that traditional financial institutions face in achieving DeFi-native real-time settlement and emphasized that the significance of BUIDL's launch lies more in industry development than in tangible value.

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Introduction to BUIDL Fund

The full name of BUIDL is Blackrock USD Institutional Digital Liquidity Fund, which provides investors with a channel to participate in traditional investments through Web3 cryptocurrency. BUIDL is Blackrock's first attempt at tokenization in the field.

The investment process for investors is roughly as follows: The fund accepts deposits in USDC and USD, and investors can subscribe to RWA investments through the BUIDL on-chain contract, receiving BUIDL tokens as certificates equivalent to USD, and automatically receiving investment returns in the form of tokens to the BUIDL token holding address, which can only circulate in whitelisted addresses.

Blackrock launches tokenized fund BUIDL on Ethereum, strategically investing in Securitize

Investment Targets and Investor Qualifications

The fund's investment targets are U.S. Treasuries and repurchase agreements in traditional trading markets, with a portion of cash reserved for liquidity.

The product is currently only open to qualified investors, with a minimum subscription amount of five million USD. Very few Web3 institutions are able to participate. There has been no evidence of USDC subscriptions on-chain, and buyers are primarily traditional institutions.

Blockchain Industry Partners

On-chain interaction and tokenization are managed by partner Securitize. Securitize Markets holds an ATS alternative trading system license in the U.S. and is a securities dealer regulated by the U.S. Financial Industry Regulatory Authority; Securitize LLC is also a Transfer Agent registered with the SEC, with its system built on the blockchain.

For Blackrock to enter the Web3 field as a fund management company, it needs to find institutions like these to assist with tokenization. Other institutions include BNY Mellon Bank for traditional asset custody and BitGo for ecosystem partnerships, supporting custody and asset distribution operations for such assets.

What Problem BUIDL Aims to Solve: Enhancing Financial Efficiency

Complexity in Traditional Financial Clearing and Settlement Processes

RyanCiz.eth believes that compared to previous RWA assets, BUIDL's highlight is the ability for more real-time subscription and redemption, which traditional institutions like Blackrock are eager to achieve.

However, in traditional channels, due to the lack of uniformity in institutional ledgers, clearing and settlement are required at various stages, involving various external institutions and internal processes. With longer chains, T+2, T+3, or even T+5 settlement periods are common.

Reality is BUIDL Still Unable to Achieve Real-Time Settlement Easily

Therefore, Blackrock hopes to enhance existing financial efficiency through tokenized funds.

While Blackrock claims that BUIDL subscriptions and redemptions can be done in real-time, the friction of clearing and settlement will still be encountered due to the involvement of traditional fiat systems. There are many bottlenecks and prerequisites in the process. RyanCiz.eth has outlined the current situation and unresolved issues in these traditional channels:

• Securitize currently supports USDC and USD subscriptions and redemptions. If users choose to subscribe using USDC, they still need to convert through Circle. Currently, only Circle has a Customer bank. Unless Securitize and Blackrock both have accounts at that bank, or there is an instant interbank transfer network, real-time subscription cannot be achieved.
• If users choose to subscribe using USD, they need to first deposit it on the Securitize platform. If it's not the same bank, there will be time differences and friction with interbank transfers. If the bank transfer between Securitize and Blackrock is in the same bank, it can be done in real-time.
• Real-time subscription is based on Blackrock's ability to instantaneously create new fund shares. However, investing USD to purchase underlying assets takes time, similar to stETH, which dilutes the overall APR.
• If a large redemption exceeds the cash held in the fund, it would require selling underlying assets, taking more time. However, as the largest asset management company, Blackrock has ample liquidity to provide.

From the above, BUIDL is merely tokenizing fund shares; all other processes are essentially offline. Achieving real-time settlement still depends on Blackrock's ability through Securitize to instantaneously create new shares, with the coordination between the two parties. Redemption depends on Blackrock's liquidity arrangements.

The entire structure is essentially traditional institutions achieving real-time functions through various pre-funded mechanisms, system automation integrations, through extensive negotiations and collaborations, barely achieving real-time. Compared to DeFi, although BUIDL has a larger scale, achieving real-time functionality requires significant effort and a decade of work to reach the wave of Web3.

BUIDL Focuses on Industry Development, Not Scale

RyanCiz.eth stated that previously, BTC spot ETFs actually sold Web3 assets to the Web2 market in a Web2 format, while the BUIDL Fund now sells Web2 assets to both the Web2 and Web3 markets through a Web3 format.

These products need to consider both Web2 and Web3 systems. Therefore, in fact, both have similar regulatory adaptation processes. Both require continuous refinement of compliance and technical processes. Although currently only professional investors can participate, the difficult parts of constructing processes and frameworks have already been completed, undoubtedly benefiting industry development.

Regardless of the complexity in between, this is a very good attempt, a significant step in the fusion of Web2 and Web3. The actual scale it can achieve is not important; the key lies in the participants pushing the entire infrastructure forward, further exploring the ability to integrate traditional routes and emerging infrastructure.

Blackrock's tokenized fund BUIDL receives funding from Tornado Cash