BlackRock's USD Institutional Digital Liquidity Fund has emerged as the dominant force in tokenized treasury funds on the blockchain, overtaking Franklin Templeton's offering to claim the top spot. With just six weeks under its belt, BlackRock's product, BUIDL, boasts a market capitalization of $375 million, outpacing Franklin's 12-month-old OnChain U.S. Government Money Fund (BENJI), which stands at $368 million in market capitalization, according to data from Dune Analytics.
BUIDL's recent ascent was further solidified by a successful fundraising round last week, where it amassed $70 million, including a significant $50 million contribution in OUSG tokens from Ondo Finance, a real-world asset tokenization company. Meanwhile, BENJI witnessed a slight decline in assets under management, experiencing a decrease of approximately 3.7% during the same period. Currently, over $1.2 billion worth of U.S. Treasuries are tokenized on various blockchains, including Ethereum, Polygon, and Solana.
The growing trend of blockchain-based tokenization of real-world assets has gained considerable traction, with BlackRock CEO Larry Fink suggesting that capital markets could benefit from transitioning to on-chain operations. While U.S. Treasuries have been the initial focus, tokenization extends to a wide range of assets, including stocks and real estate. Despite this, investor demand for such tokenized products remains relatively subdued, primarily due to concerns surrounding thin liquidity, according to Tom Wan, a research strategist at 21.co.
Wan highlights the challenge faced by issuers in demonstrating the advantages of tokenizing on-chain assets with low demand, creating a "chicken and egg problem." However, he remains optimistic about the potential for increased demand, particularly considering the existing interest in U.S. Treasuries within the $140 billion stablecoin market. As demand grows, Wan anticipates a smoother process of finding end investors to facilitate conversions.
The tokenized government securities market currently represents a small fraction, accounting for 1.4% of total tokenized assets on-chain, a significant uptick from 0.1% at the beginning of 2023. Wan predicts that this market segment's dominance will continue to rise, potentially reaching 10% in the future. Looking ahead, Wan suggests that mid- to late-stage private equity firms hold significant promise in the tokenization space, and he expects other ETF issuers to follow the lead set by BlackRock and Franklin Templeton by tokenizing real-world assets on-chain.
