Author
Securitize Markets, LLC, as placement agent for BlackRock USD Institutional Digital Liquidity Fund Ltd. (“BUIDL”)
Summary
This proposal seeks to introduce BUIDL - the BlackRock USD Institutional Digital Liquidity Fund Ltd. - as an on-chain, backing asset for Frax USD with exposure to U.S. dollar yield.
BUIDL is a tokenized U.S. Treasury product designed to provide decentralized organizations and other institutional investors a blockchain-based investment solution that can be used alongside other investments as a reserve backing of stable assets.
Benefits of holding BUIDL as a reserve backing asset may include:
- Yield generation
- Multiple options to transfer
- Minimized counterparty risk via industry leaders - Securitize, BlackRock, and Bank of New York Mellon
Background and Motivation
After its launch in March 2024, BUIDL became the first tokenized fund of its kind to reach over half a billion dollars in AUM (and it did so in less than 4 months). As the first fund to reach this milestone, BUIDL is paving the way in enabling players across the industry to more effectively back some of their reserves and diversify their treasuries.
Tokenized RWAs provide an excellent bridge between traditional finance and decentralized organizations by bringing institutional-grade investments onto the blockchain. In the past 9 months alone, we’ve seen major players including DAOs and decentralized protocols put out large, public RFPs to explore how they can most effectively bolster their treasuries or back their stablecoins with RWAs. These early explorations mark a significant evolution in how decentralized players manage their financial resources and consider cross-industry asset strategies. Additionally, it also helps to set the stage for others to explore strategies like asset diversification, yield optimization, and portfolio risk management.
As a high quality, tokenized RWA, BUIDL is becoming a component of reserve assets for stable-value tokens industry-wide. In addition to providing Frax USD utility, relative safety, and convenience, Frax USD can significantly reduce counterparty risk for its reserves by working with BlackRock - the largest asset manager in the world managing $849B in cash-related products (as of 9/30/2024).
BlackRock Bio:
BlackRock Financial Management, Inc. is the investment manager of the Fund and has a long history of successfully managing money for institutional clients, including corporate or public pension plans, and manages $11.5 trillion in assets globally. Today, BlackRock is one of the largest cash management providers in the world with, as of 9/30/2024, $849 billion in global liquidity assets across multiple currencies. With one of the most experienced teams in the industry, BlackRock is able to offer clients an investment approach that has been tested through time and a variety of solutions designed to meet the needs of today’s cash investor. With 50 years of Cash management expertise (including through predecessor firms), BlackRock has demonstrated a commitment to innovation and growth.
Securitize Bio:
As a pioneer and leader in tokenizing real-world assets, Securitize is at the forefront of the financial sector’s evolution, bringing the world on-chain through tokenized funds in partnership with reputable asset managers, including BlackRock, Hamilton Lane, KKR, and others. Securitize is the exclusive tokenization platform for the Fund and serves as BUIDL’s transfer agent and placement agent through its registered broker-dealer, Securitize Markets.
With its fully licensed and regulated status as an SEC-registered broker-dealer and digital transfer agent, alongside being a member of FINRA and operating a SEC-regulated Alternative Trading System (ATS), Securitize offers traditional finance institutions a comprehensive solution for end- to-end tokenization. The platform delivers streamlined operations and enhanced liquidity within a secure and transparent regulatory framework.
As of July 2024, Securitize has facilitated over $1B worth of investments in tokenized securities through its platform, with 100+ tokenized securities issuances and 500K+ investor accounts. To date, Securitize has raised more than $170M from a mix of traditional financial and blockchain industry leaders.
Proposal Details
General Overview:
BUIDL will invest 100% of its total assets in cash, U.S. Treasury bills, notes and other obligations issued or guaranteed as to principal and interest by the U.S. Treasury, and repurchase agreements secured by such obligations or cash, allowing investors to gain exposure to one of the most liquid assets. Holders benefit from a fund seeking a stable value of $1 per token and may earn any yield that is paid through daily accrued dividends issued directly to investors’ wallets as new tokens each month.
As an ERC-20 token, BUIDL can be custodied by any provider that operates on the Ethereum public blockchain. BUIDL is also available natively on Polygon, Avalanche, Optimism, Arbitrum, and Aptos.
The current AUM of BUIDL across all integrated chains can be found via Dune (dashboard link at the end) or RWA.xyz. As of 12/12/2024, cumulative AUM across chains is $561,536,881. Additionally, as of 12/12/2024, BUIDL has processed 620 transactions with $1.38B in total volume.
Asset Eligibility:
The Fund will invest 100% of its total assets, in both the primary and secondary markets, in cash, U.S. Treasury bills, notes, repurchase agreements, or other obligations that mature in 95 days or less from the settlement of the purchase of such securities. The Fund may invest in variable and floating rate instruments, and transact in securities on a when-issued, delayed delivery or forward commitment basis.
The Fund will only purchase securities that present minimal credit risk as determined by the
Investment Manager. The Fund may also invest in one or more government money market funds managed by the Investment Manager or an affiliate thereof that invest in the same types of securities in which the Fund may invest directly. For purposes of satisfying the Fund’s strategy of investing 100% of its total assets in cash and the other types of securities described above, investments in such Underlying BlackRock Funds will be considered as if they are invested in cash and such securities. No hedging or derivatives are permitted in the underlying portfolio.
Detailed holdings are provided to holders upon request.
Yield Considerations:
All proceeds of the product, less the unitary fee, is distributed to shareholders. Dividends accrue daily for each holder of record at 3 PM ET and are generally distributed through an issuance of additional BUIDL tokens directly to the investor’s primary wallet address on the first business day of the following month.
If an investor redeems their entire BUIDL position intra-month, yield is distributed in USD to the
investor’s primary bank account on file with the Transfer Agent, or to the investor’s account with a USDC conversion provider. The USD distribution generally occurs at 4 PM ET on the first business day of the following month.
It is expected that the current fund yield will closely track the overnight repo rate minus the fund annual fee of the relevant share class (detailed below). As of 12/12/2024, the current yield after all fees for the ETH share class is approximately 4.10%.
Fee Considerations:
Generally, shareholders will pay a “Unitary Fee” on their investment in the Fund. Unlike many other tokenized treasury products, the BUIDL unitary fee encompasses all investor fees and fund expenses.
The fees and approximate net yield by blockchain are as follows:
| Column 1 | Column 2 | Column 3 | |
|---|---|---|---|
| Blockchain | Unitary Fee (calculated as % per year of NAV of shares held) | Net Yield as of 12/12/2024 | |
| Ethereum | 50 bps | ~4.10% | |
| Aptos Network | 20 bps | ~4.40% | |
| Arbitrum | 50 bps | ~4.10% | |
| Avalanche | 20 bps | ~4.40% | |
| Optimism | 50 bps | ~4.10% | |
| Polygon PoS | 20 bps | ~4.40% |
Other notes:
- There is no additional fee for primary market USD subscription or redemption. (1)
- USDC conversion provider(s) may assess a fee to both subscriptions and redemptions, payable by the investor.
- Secondary market transfers or sales may incur gas fees and are subject to potential price fluctuations, including premiums or discounts, which can be unpredictable.
Permissioning:
Securitize leverages its DS protocol to program asset specific compliance rules into the asset
contract to enforce a permissioned environment. The DS protocol is the most widely used and long-standing protocol in the industry to issue compliant tokenized securities on public blockchains. The TA maintains an on-chain “whitelist” of fully onboarded, KYCd and authorized investor wallets able to perform allowable transfers between other whitelisted wallets and/or investors. All investors, whether transacting in the primary or secondary market, must be whitelisted by the TA before receiving or transferring BUIDL tokens.
Shares in the Fund are only being offered to and will only be issued to “professional investors” within the meaning of The Securities and Investment Business Act, 2010 (SIBA). Individual US investors are not accepted as investors of the Fund at this time.
Each investor seeking to invest in the shares must be, among other things:
- an “accredited investor” as defined under Regulation D; AND either:
- A: “qualified purchaser” or a “knowledgeable employee,” in each case as defined under applicable U.S. federal securities laws; OR
- B: Non-U.S. person that is outside the United States at the time the investor acquires the Shares.
Subscription and Redemption Overview:
BUIDL allows for several methods of subscription and redemption:
- On the primary market, subscriptions to and redemptions from BUIDL are available via USD, (and if investors are clients of Zero Hash, via USDC conversion facilitated by Zero Hash).
- BUIDL is available to be nearly instantly liquidated to USDC via the Circle liquidity smart contract. (2)
- Whitelisted investors may also acquire or transfer BUIDL tokens through peer to peer transfers on the secondary market 24/7/265, subject to the availability from whitelisted ecosystem participants. (3)
Subscription Timing:
| Column 1 | Column 2 |
|---|---|
| USD | Same day if USD funds are received before 2:30 pm ET on business days; next business day otherwise |
| USDC (4) | Issued on the business day in which USD funds are received to BNY upon USDC conversion by 2:30 PM EST |
| Secondary (3) | Near Instant, 24/7 via whitelisted peer to peer transfer |
Redemption Timing:
| Column 1 | Column 2 |
|---|---|
| USD | Same day wire processing if received before 3:00 pm ET on business days; next business day otherwise |
| USDC (4) | Intra-day via conversion partner |
| Secondary (3) | Near Instant, 24/7 redemptions via Circle liquidity vehicle for Ethereum share class only; Near Instant, 24/7 via whitelisted peer to peer transfer |
All subscription and redemption processes have operated as designed since inception, without any interruptions across a total dollar volume of $1.38B.
Liquidity Vehicles:
As liquidity is of paramount importance - both in terms of primary market redemption and secondary market liquidity options available - BUIDL engages with an ecosystem of partners across 3rd party payment providers, conversion partners, and market makers to enhance liquidity and redemption efficiency.
The ability to meet large redemptions is supported by BlackRock’s Global Cash Team’s expertise and the highly liquid fund composition. BUIDL customers are supported in the secondary market through the breadth of ecosystem partners willing to acquire BUIDL shares in the secondary market.
Primary market redemption is managed by the same portfolio managers that manage the $849
billion in Cash held with BlackRock’s Cash Management group as of 9/30/24. The Cash Management group engages in risk analyses and stress testing to determine portfolio makeup that enables redemption demand to be met.
As noted above, BUIDL has partnered with Circle to provide a potential liquidity option to BUIDL token holders in the Ethereum share class (2). In addition to the Circle liquidity contract, peer to peer transfers on the secondary market are available to provide enhanced liquidity.
Tokenholder Rights:
BUIDL offers investors non-voting, participating Class A Shares, issued in the form of digital tokens on the public blockchains referenced above. These tokens represent ownership in the fund and allow holders to participate in the economic benefits generated by BUIDL, such as receiving dividend distributions.
Key Parties:
- BlackRock Financial Management, Inc. (BFM), an SEC registered investment adviser, is responsible for the Fund’s investment activities.
- Securitize Markets, LLC, SEC-registered Broker Dealer, currently acts as the sole placement agent for the private placement of the BUIDL tokens by providing a distribution and sales channel for the tokens.
- Securitize, LLC, an SEC-registered transfer agent and technology service provider who serves as the Fund’s transfer agent and service provider in creating and disbursing the tokens on the blockchain. The TA onboards investors, maintains the BUIDL white-list, issues/redeems shares, distributes dividends, and facilitates programmatic transfers of BUIDL shares between investors.
- Bank of New York Mellon acts as the administrator for the Fund and custodian for the Fund’s assets. As the administrator, BNYM performs financial, accounting, corporate, administrative, and other services for the Fund. As the Fund Assets Custodian, BNYM performs custodial services for cash and other non-crypto assets of the Fund delivered to it.
- PricewaterhouseCoopers LLP is the independent auditor of the Fund. Each Shareholder will receive a financial report of the Fund for each fiscal year audited by the Fund’s independent auditor.
- The Fund’s board of directors has overall responsibility for the management, operation, and administration of the Fund. Each person’s bio is further detailed in the Private placement memorandum for the Fund, which may be provided upon request.
Summary:
BUIDL brings together an ecosystem of vendors and partners to provide a compelling tokenized US Treasury product available to DeFi. By working with Securitize and BlackRock to use BUIDL as a backing asset for Frax USD, Frax USD will gain exposure to one of the most liquid assets in the world, while still reaping the benefits of yield-bearing, on-chain efficiencies of DeFi.
Supplementary documents:
Voting
- For: Invest in BUIDL as a backing asset for Frax USD
- Against: Do nothing
End notes:
(1) The investor is responsible for any gas fees incurred in accordance with the blockchain protocol on which they transact.
(2) Circle has informed the Fund that it may from time to time purchase Shares from Shareholders in exchange for USDC, a U.S.-dollar denominated stablecoin issued by Circle, in accordance with Circle’s own investment policies exclusively for purposes of prudent treasury management. Circle is not an agent of the Fund and will not have any obligation to purchase any Shares. Accordingly, there can be no assurance that Shareholders will have the
ability to seek to sell Shares for USDC through Circle.
(3) A network of whitelisted network of investors may engage in peer to peer transactions with other whitelisted BUIDL investors. Any peer to peer activity that may occur is not facilitated by the Fund and is subject to arrangements between investors away from the Fund.
(4) Any USDC conversion provider is not an agent or affiliate of the Fund, and the Fund will not in any way be responsible for any actions or failures to act by USDC conversion providers. This service is independent of the Fund and is not guaranteed.
