BlackRock’s BUIDL tokenized money-market fund has reached roughly $2.3 billion since debuting in 2024, as the asset manager investigates whether tokenized fund shares can play a larger role as collateral in traditional financial markets. The initiative could extend blockchain-based assets beyond crypto trading and into Wall Street’s established financing operations.

Dan Maley, who leads BlackRock’s cash business in Asia Pacific, said the firm’s tokenized funds are already being used as collateral in digital-asset markets. BlackRock is now examining how these products could enter conventional financial systems, where money-market funds are routinely used to back trading positions and meet margin obligations.

Tokenization enables fund ownership to be recorded and transferred digitally without changing the underlying investments. Tokenized shares could move between approved investors without requiring an immediate cash redemption, allowing institutions to transfer ownership or pledge their holdings while keeping their capital invested.

Traditional money-market funds already support trading through initial and variation margin arrangements. If tokenized shares become eligible for similar uses, institutions could transfer or pledge fund interests without first converting them into cash. This could make collateral management more efficient and reduce delays when financial firms need to move assets between transactions.

However, the ability to transfer tokens around the clock does not automatically provide continuous access to cash redemptions. Blockchain transfers may occur at any time, but withdrawals remain subject to the fund’s redemption terms and operational requirements.

Institutional Adoption Depends on Legal Clarity

Bringing tokenized funds into mainstream financial markets will require banks and other institutions to accept them as eligible collateral. Existing financial infrastructure must also be able to process these assets, while regulators need to clarify their legal status and treatment.

The International Monetary Fund has identified fragmented platforms, legal uncertainty and integration difficulties as major challenges facing tokenized finance. These obstacles affect whether assets can function across different institutions and financial networks, rather than simply move between blockchain addresses.

The International Swaps and Derivatives Association has also highlighted the need for clearer standards covering custody, asset segregation, capital requirements, margin treatment, cross-border recognition and legal enforceability. Its chief executive, Scott O’Malia, has pointed to these issues as important requirements for expanding tokenized assets into traditional finance.

For institutional collateral transactions, tokenized shares must retain clear legal rights as they move between counterparties, jurisdictions and existing financial systems. Recording a transfer on a blockchain addresses only part of the process; firms also need established procedures for accepting, valuing, holding and returning collateral.

BUIDL Offers a Foundation for Wider Tokenized Finance

BUIDL’s approximately $2.3 billion in assets gives BlackRock an established platform for developing additional tokenized-fund applications. While the fund’s scale could attract greater institutional interest, its use as collateral in conventional markets will ultimately depend on acceptance by banks, brokers and other financial counterparties.

Early customers have mainly come from crypto markets, including stablecoin holders looking for yield, according to Nikhil Sharma, a director on BlackRock’s digital-assets team. Expanding into traditional finance will require a broader network of institutional participants and operating arrangements compatible with existing market practices.

The effort reflects a wider shift in how financial institutions view tokenization. Rather than simply creating digital representations of stocks, bonds and money-market funds, firms are exploring whether the technology can improve the movement, transfer and use of financial assets.

For BlackRock, tokenized funds could eventually support collateral transactions across both digital-asset and traditional markets. Achieving that expansion will depend on stronger institutional acceptance, compatible infrastructure and clear regulations governing custody, margin requirements and cross-border activity.

Until those conditions are established, tokenized fund shares remain a practical collateral option in digital-asset markets, while their broader adoption across conventional finance remains a work in progress.