Ethereum
Could this new trillion-dollar market opportunity cause Ethereum to skyrocket?
Keep an eye on the new asset tokenization trend on Wall Street. If it takes off, it could unlock enormous value for Ethereum.
black rock (BLACK 0.91%), the company that led the campaign for the first cash ETF for Bitcoinis back, this time with a brand new investment product aimed at Ethereum (ETH 1.71%). If all goes as planned, this new product could revolutionize the way Wall Street does business.
This is of course a lot to ask, but I think Ethereum could be ready to take full advantage of this potential new trillion-dollar market opportunity. With that in mind, let’s take a closer look at what this new product is, why it launched on Ethereum, and how it could transform the world of finance.
What is a tokenized asset fund?
The new product, called BlackRock USD Institutional Digital Liquidity Fund (BUIDL), is a tokenized asset fund and is part of a long-term trend on Wall Street called asset tokenization. Although the term “asset tokenization” may seem a little intimidating, it simply refers to the process of transforming a real financial asset into a blockchain-based digital asset.
In this case, BlackRock “tokenizes” nearly $100 million in cash, Treasuries, and pensions. When institutional investors purchase the fund, they receive a cryptographic token on the Ethereum blockchain which has several unique properties. For example, it behaves a bit like a stable coin, except that it also has the potential to pay a daily return. Stablecoins, which are typically pegged 1:1 to the US dollar, are not supposed to be able to do this! The reason BlackRock’s crypto token can do this is a result of the efficiencies made possible by blockchain technology.
That’s why this product – even though it might be a little difficult to fully understand – could be so revolutionary. In theory, blockchain-based digital assets should be superior to traditional real-world assets. And so, by extension, they should be more attractive to investors. According to BlackRock, the new tokenized assets fund has several key advantages for institutional investors in terms of transparency, liquidity and settlement time.
In the long term, a number of very smart people believe that asset tokenization could be a huge trend, potentially reaching several billion dollars. Citi Group, for example, recently called asset tokenization a $4 trillion market opportunity. And the Boston Consulting Group was even more optimistic, calling it a potential $16 trillion opportunity.
Why Ethereum?
So you can see where I’m going with this, right? Any blockchain that leads this new multi-trillion dollar trend could see a huge surge in valuation, once investors realize what’s happening and how big it could be.
Image source: Getty Images.
That’s why it’s so important that BlackRock chose Ethereum for its first-ever tokenized asset fund. The Wall Street giant could have chosen any other blockchain, but it chose Ethereum. And this is clearly because Ethereum is the 800 pound gorilla of the world. decentralized finance (DeFi) world. According to the Total Value Locked (TVL) metric, which measures the scale of DeFi activity on a particular blockchain, Ethereum currently accounts for 57% of all DeFi activity in the blockchain world.
Of course, it’s fair to react and say: Hey, it’s just a product. So what? Well, the broader context is that BlackRock is the world’s largest asset manager, with nearly $10,000 billion in assets under management. Additionally, Larry Fink, CEO of BlackRock, has publicly stated that asset tokenization is an absolute megatrend for Wall Street. As soon as the new Bitcoin ETFs launch, he told CNBC that asset tokenization will follow. So there is clearly more to come.
Potential impact on valuation
If you agree that asset tokenization is the future of finance, and if you believe Ethereum will remain the DeFi leader, then it makes sense that Ethereum could increase in value as this trend gains momentum . But by how much?
One approach could be to track the TVL metric for Ethereum over time, to see if it evolves as expected. As more tokenized asset funds are launched and Ethereum becomes more involved in the asset tokenization trend, this should start to show in the numbers. Currently, Ethereum has a TVL of $52 billion and a market cap of $425 billion. Basically, every $1 billion gain in TVL equates to an additional $8 billion in market cap.
Of course, it is not clear that Ethereum will manage to get ahead of this trend. After all, blockchains are decentralized by nature. There is no CEO at company headquarters running the numbers, demanding that Ethereum jump headfirst into this market opportunity.
Instead, it’s much more about the thousands of Ethereum developers around the world regularly making new improvements to the Ethereum blockchain, which, in turn, makes the blockchain more attractive to companies like BlackRock when they launch new products. So while you should definitely keep your expectations in check for Ethereum, this could very well be a trend worth keeping an eye on.