BlackRock’s iShares Core S&P 500 ETF (CSPX) is now an Ethereum-standard token on a DeFi altcoin project.
BlackRock ETF tokenized on DeFi altcoin project
The BlackRock ETF has been tokenized on the DeFi altcoin project Uniswap. The token in question has the same process as USDc or USDt. But it is issued with stocks and by an organization that claims to be fully regulated in Europe. “Thanks to Backed Finance, permissionless tokenized securities are here,” says Sébastien Derivaux, Asset-Liability Manager at MakerDao. Backed Finance was launched in early 2021 with an initial round of technologies from Gnosis, Semantic Ventures, and Stratos.
The token is legally classified as a certificate. For every bCSPX, they buy one share of CSPX and hold it in a regulated depository. The broker and custodian are Maerki Baumann & Co, according to their terms, and the token is Backed Finance. “Assets in global capital markets can benefit greatly from tokenization,” says Backed Co-Founder Adam Levi. He also makes the following statement:
Crypto markets operate 24/7, clearing can take less than five minutes, and asset transfers are seamless. Backed is committed to realizing these benefits in a secure and transparent way. In addition, Chainlink Proof of Reserve is an essential tool to help provide unmatched transparency to our customers.
The token part comes from Blockchain. That’s why this aspect of Proof of Reserve is native and this ETF looks very familiar on the Ethereum Blockchain.
There is a simple swap from tokenized dollars to a tokenized ETF on Uniswap. This provides a familiar view of what it really is to bridge two different markets. “Users will be able to integrate new assets into their DeFi strategy,” Backed said. Lend Google tokens on Compound, use Apple as collateral for Maker’s DAI, incorporate ETFs into a Yearn strategy and create new Tesla-based DeFi derivatives, among countless other options.”
What are the advantages and disadvantages?
Still, the altcoin token is not seeing much use. Partly perhaps because much of this broader integration has not been fully realized. Without such integration, investors may wonder why it’s in token form instead of buying it as shares through a broker like other stocks. Easier access may be one reason. Additionally, if you have ETH, purchasing this ETF will be just a click away without the need to sign up with a broker.
By the way, you have to go through KYC to print or use the token. But apart from that, it’s available for free on secondary markets like Uniswap. However, only 100 were printed, with the boot obviously very difficult. This is partly due to the fact that DeFi dapps are regulated in Europe, cryptocoin.comThis may be due to concerns that the US Securities and Exchange Commission (SEC) might take a different view.
Still, a smart contract is decentralized. Also, there are many DeFi dapps at the moment and some of them are not US-based so the SEC doesn’t care. So the problem may be more demand. This is partly because Backed is not fully known, Maybe it is based on word of mouth which is probably no longer a viable strategy as the crypto market has expanded significantly.
And a more fundamental issue could be that it is quite easy to raise funds in the crypto space. But it used to be much more difficult and this may have created a kind of mental firewall where crypto funds are left for crypto in the crypto space. A value proposition like USDc is open since you want a relatively stable unit of account in crypto finance. But to illustrate with an example, we did not test bCSPX because we do not want to convert our ETH to the S&P500 index as it may underperform ETH.
Are use cases accepted?
You can bring dollars into the system for this tokenized ETF, the ETF itself is very popular because it has $55 billion in assets under management. But the value proposition here seems to be mostly hedging strategies for traders, or borrowing from a tokenized ETF through collateralization that itself could potentially be part of a broader trading strategy.
Additionally, it will be interesting to see the buying of more crypto-related stocks like COIN or MSTR. It is quite difficult to access the bonds even through brokers. Therefore, they may attract even more interest, perhaps even to compete with tokenized dollars or be used as a substitute. Especially if you can’t access the stock market because you’re not in the US or Europe, this could make the project interesting with potential use cases.
Also, while it is not very easy to borrow money from brokerage firms through stocks, directly through DeFi. As this is a very new project and mostly operating during the bear period, demand may increase. However, Backed may need to provide some sort of incentive to boot properly, perhaps through some throughput strategy like other DeFi platforms. It may not be very easy to do this in a regulated way, but Switzerland is very compliant and otherwise very difficult to compete. However, it is among the large number of stock tokenization attempts. This looks like the most professional ever. However, we will see if it will establish trust in this very difficult area.
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