BlackRock Plans Tokenized ETFs to Bridge Traditional Assets and DeFi

BlackRock explores tokenized ETFs to digitize traditional assets, aiming to bridge DeFi and traditional finance, pending regulatory approval.

BlackRock, the world’s largest asset manager, is exploring the tokenization of exchange-traded funds (ETFs) to bring traditional financial assets onto blockchain networks. According to Bloomberg, the company intends to develop on-chain versions of real-world funds, such as stocks and other securities. However, this move is dependent on future regulatory approval.

BlackRock Plans Digital ETFs to Bridge Crypto and Traditional Finance

BlackRock is searching for ways to make ETFs available as blockchain tokens. These people did not want their names mentioned because the plans are still secret. Still, the company is actively working on solutions that could allow the digitization of fund ownership and to improve the use of these financial products.

Tokenization is the process of constructing digital versions of traditional assets by implementing blockchain technology. In this case, tokenized ETFs could have advantages such as 24/7 trading, access to international markets, and being able to use the ETF shares as collateral in crypto-based financial systems. These features are not readily available in the traditional markets of today.

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Moreover, tokenization could result in faster settlement times and fractional ownership. Investors could purchase smaller amounts of ETFs and transfer them more easily, including outside of normal trading hours. This change has the potential to transform the way ETFs are bought, sold, and used by both retail and institutional investors.

The concept of tokenization of funds is not totally new. For example, Franklin Templeton has already sold tokenized share classes of money-market funds. Similarly, Fidelity recently launched a blockchain-based version of its treasury fund, pegged to its Fidelity Digital Interest Token.

In addition to these developments, Nasdaq has also filed with the U.S. Securities and Exchange Commission (SEC) to allow for the trading of tokenized stocks in addition to traditional stocks. These efforts illustrate the increased recognition of the advantages of blockchain in conventional finance by an increasing number of companies.

Tokenized ETFs Could Bridge Wall Street and DeFi

BlackRock currently already offers ETFs focused on blockchain-related technologies. One example is the iShares Blockchain and Tech ETF, which invests in companies working in the crypto and digital asset space. However, those funds are based on company equities and not on blockchain tokens.

As more stablecoins and blockchain-based markets expand, pressure on traditional finance is also mounting. JPMorgan strategist Teresa Ho recently highlighted that tokenized money market funds could be popular for use as collateral, particularly as they have a stable value and enhance liquidity.

As such, BlackRock’s exploration of tokenized ETFs is part of a broader movement throughout the financial industry. As blockchain technology becomes more accepted, clearer regulations may help large institutions offer tokenized financial products on a broader scale.

In conclusion, BlackRock’s interest in ETF tokenization is a sign of how traditional assets might be managed and traded in the future. If successful, this step could help connect traditional finance and decentralized finance (DeFi) in meaningful ways, providing more flexibility and innovation to investors whatsoever the world over.