"BlackRock Seeks to Reshape ETFs with Blockchain's 24/7 Potential"

BlackRock, the world’s largest asset manager, is exploring the potential of tokenizing its exchange-traded funds (ETFs) on blockchain technology, inspired by the success of its spot Bitcoin ETFs. According to a report citing unnamed sources, the firm is examining opportunities to apply this innovation to ETFs that track real-world assets (RWA). Tokenization could offer advantages such as extended trading hours and the ability to use ETFs as collateral in decentralized finance (DeFi) applications. However, any implementation would require navigating significant regulatory hurdles.

BlackRock's interest in blockchain technology is not new. The firm already manages the largest tokenized money market fund, the BlackRock USD Institutional Digital Liquidity Fund (BUIDL), with $2.2 billion in assets spread across multiple blockchains including Ethereum, Avalanche, and Polygon. This initiative is part of a broader industry trend, with JPMorgan referring to tokenization as a “significant leap” for the $7 trillion money market fund sector. A collaborative effort involving Goldman Sachs and the Bank of New York Mellon will see BlackRock joining at launch, offering clients access to tokenized money market funds through a private blockchain.

The push toward tokenization is occurring amid increasing pressure on traditional finance from the rapid adoption of stablecoins and the migration of liquidity to blockchain-based markets. The U.S. banking industry has expressed concerns over yield-bearing stablecoins, which could disrupt traditional banking models. These concerns were evident in the U.S. GENIUS Act, the first comprehensive legislation on stablecoins, which notably excluded such tokens. Despite these challenges, analysts believe that clearer regulatory frameworks could strengthen the case for tokenization by improving on-ramps into blockchain markets.

Regulatory uncertainty remains a key factor in the development of tokenized ETFs and related products. The U.S. Securities and Exchange Commission (SEC) has delayed decisions on multiple ETF proposals, including those involving Ethereum staking by BlackRock. The SEC has extended its review period for BlackRock’s iShares Ethereum Trust, setting a new deadline of October 30. This delay is not an isolated incident; the SEC has postponed decisions on numerous crypto-related ETF applications, reflecting a broader trend of regulatory caution. As of late August, the SEC was reviewing at least 92 crypto-linked ETF proposals.

Despite the regulatory holdups, industry participants remain optimistic about the potential of tokenized assets. JPMorgan’s Teresa Ho has highlighted the appeal of tokenized money market funds as a means to preserve the value of cash in the face of growing stablecoin adoption. By allowing investors to post money market fund shares as collateral without forfeiting interest, these funds could enhance their utility and attract more capital. BlackRock’s exploration of tokenized ETFs, alongside its existing initiatives, underscores its commitment to leveraging blockchain technology to enhance efficiency and expand investment opportunities.