BlackRock, the world’s largest asset manager, is exploring putting exchange-traded funds (ETFs) onto public blockchains, according to sources cited by Bloomberg.
To date, BlackRock has already entered the tokenization space with its USD Institutional Digital Liquidity Fund (BUIDL), which is backed by short-term U.S. Treasuries, repurchase agreements, and cash.
The proposed tokenized ETFs would go beyond cash or treasury-backed short-term instruments: they are likely to be tied to real-world assets such as equities and bonds, allowing their shares (or units) to be issued and traded “on chain.”
Key Features & Potential Benefits
Putting ETFs on blockchain could bring several advantages:
| Feature | Benefit |
|---|---|
| 24/7 Trading | Traditional ETFs generally trade only during exchange hours. Blockchain-based versions could enable around-the-clock access. |
| Faster Settlement | Trades could settle in minutes rather than in the typical 1–2 business days in existing financial infrastructure. |
| Broader Access | Investors in regions without easy access to certain ETFs might gain exposure through blockchain rails. |
| Efficiency & Transparency | Blockchain can provide clearer audit trails, reduce intermediaries, and potentially lower costs due to reduced friction. |
What BlackRock Has Already Done
BlackRock has already taken meaningful steps into tokenized finance:
- BUIDL fund launch: Its first tokenized real-world asset fund, issued on the Ethereum network and later expanded to other chains (e.g. Aptos, Arbitrum, Avalanche, Optimism, Polygon).
- DLT Shares in Treasury Trust Fund: BlackRock is also preparing a blockchain-based share class (DLT Shares) for its Treasury Trust Fund, in partnership with Bank of New York Mellon, where BNY Mellon will maintain a “mirror record” of share ownership using blockchain technology.
Challenges & Regulatory Considerations
There are several hurdles BlackRock would need to clear before tokenizing traditional ETFs on a large scale:
- Regulatory Approval
Any tokenized ETF will require sign-off from regulators (e.g., SEC in the U.S.), who will need to ensure investor protection, compliance, custody, etc. - Custody and Trust
Who holds the actual underlying assets? How is the blockchain token tied to those assets? Custodians and trustees must ensure that “tokens” truly represent ownership or claim. BlackRock has used partners such as BNY Mellon and Securitize in earlier tokenized products. CoinDesk - Blockchain selection, scalability & interoperability
Using public blockchains raises issues of speed, cost of transactions (gas fees), latency, and cross-chain compatibility. The choice of network(s) will matter. BlackRock’s BUIDL has used multiple chains. - Market structure & liquidity
Traditional ETFs benefit from deep liquidity and structured roles (market makers, authorized participants). Blockchain-based versions will need to replicate or adjust these to maintain tight spreads, low slippage, etc.
Implications & Industry Significance
- Acceleration of TradFi into Web3: A major player like BlackRock tokenizing ETFs signals that traditional finance is increasingly embracing blockchain, likely pushing other asset managers to follow.
- Increased competition & innovation: New products may emerge—tokenized ETFs, fractional ownership models, novel yield strategies.
- Potential cost savings & efficiency gains: Especially for cross-border investment, settlement, and back-office operations.
- New investment and risk models: Investors will need to evaluate new risks—blockchain risk, smart contract security, custody risk, regulatory risk—alongside the usual ETF risks.
What to Watch Next
- Which specific ETFs (equity-based, bond-based, sector-focused, etc.) are first to be tokenized.
- How regulators respond, particularly in the U.S., Europe, and Asia. Will they permit tokenized ETFs under existing laws, or will new frameworks be needed?
- How BlackRock handles custody, audit, asset backing, legal rights of token holders.
- Fee structures: will tokenized ETFs be more or less expensive for investors, especially considering transaction costs on-chain?
- Infrastructure readiness: blockchain networks, custodians, wallets, exchanges, etc.
