BlackRock Pushes Its Digital Coin to Challenge Tether in Crypto Derivatives

(Bloomberg) -- BlackRock Inc. is pushing to have its money-market digital coin more widely used as collateral for crypto derivatives trades

BlackRock Inc. is pushing to have its money-market digital coin more widely used as collateral for crypto derivatives trades, as Wall Street firms push deeper into digital asset markets.

The world’s biggest asset manager and its brokerage partner, Securitize, are in early talks with some of the largest global crypto exchanges about using BlackRock’s new BUIDL token as collateral for derivatives trades, people familiar with the matter said, requesting anonymity to discuss private deliberations. The exchanges include Binance, OKX and Deribit, the people said.

With a minimum investment of $5 million, BlackRock’s token is designed for qualified institutional investors. FalconX and Hidden Road, two of the biggest crypto prime brokers, already allow the use of BUIDL as collateral among their clients, which include hedge funds. On Thursday, custodian Komainu said clients eligible to invest in BUIDL will be able to trade via Hidden Road using the token as collateral.

Having the coin accepted directly on platforms like Deribit and Binance would greatly expand the potential market for BlackRock. The New York-based firm charges a management fee of 0.5% on BUIDL, which has a total circulation of close to $550 million, according to tracker rwa.xyz. Tether Holdings Ltd.’s stablecoin USDT, the most-used token for derivatives collateral on exchanges, has a market value of $120 billion.

Derivatives accounted for more than 70% of total crypto trading volume in September, according to researcher CCData. Some $3 trillion worth of derivatives contracts were traded over centralized exchanges in September, CCData estimates. That’s down about 50% from March, when Bitcoin reached a record.

BlackRock declined to comment. “The BUIDL ecosystem keeps growing, and we see significant potential in traders using the fund as collateral,” Securitize said in a statement, without commenting on talks with exchanges.

“We are reviewing” a number of tokens, including BUIDL, for use as collateral, Deribit CEO Luuk Strijers said in an interview. He added that the derivatives platform will first need to gain regulatory approval and understand technical aspects of the BUIDL token better. Earlier this month, Deribit introduced a yield-bearing stablecoin from Hashnote as a collateral option on the exchange.

Binance and OKX declined to comment.

If successful, BlackRock’s initiative could represent a fresh challenge to Tether and Circle, whose stablecoins are typically used as collateral in crypto derivatives trades. It is also a major test case for Wall Street’s bet that it can leverage know-how in traditional financial instruments to gain ground in digital-asset markets.

BlackRock USD Institutional Digital Liquidity Fund launched in March. It is a tokenized money-market fund where ownership is represented on a blockchain in the form of its native coin, BUI DL. Like other money-market funds and also most stablecoins, BUIDL is designed to have a value of $1, and it invests in instruments like US Treasury bills, cash and repurchase agreements. Unlike stablecoins like Tether’s USDT and Circle’s USDC, however, BUIDL pays interest to holders, a potential boost to its allure for derivatives traders.

The massive profits Tether and Circle are generating from their stablecoins — Tether’s unaudited figures showed a first-half profit of $5.2 billion — has triggered a rush of new entrants into the field. Robinhood and Revolut have considered launching such tokens, Bloomberg News reported last month.

So far, nobody has made serious inroads. PayPal’s roughly year-old stablecoin, PYUSD, has seen its circulation drop by $400 million since peaking in late August.

Blockchain proponents at large banks have long argued that the technology will make it easier for financial institutions to use their shares in money-market funds as collateral because they won’t have to redeem them for cash, as traditional approaches require. That would make the transactions faster and potentially reduce risks during times of market stress.

A year ago, JPMorgan Chase & Co went live with its first collateral settlement for clients using blockchain.

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