The Evolution of Cryptocurrency: From Declaration of Independence to Integration into the Traditional Financial System
Once upon a time, with the birth of Bitcoin, the cryptocurrency world was envisioned as a new decentralized financial world independent of the traditional financial system, with the intention of completely changing the underlying logic of finance. However, after more than a decade of development, cryptocurrency has not only failed to completely separate from traditional finance, but has gradually become an important part of the mainstream financial system. Traditional financial institutions that were initially skeptical of cryptocurrency have now deeply deployed in the crypto industry and have begun to profit from it.
Cryptocurrency integration into the traditional financial system
Today's crypto world is no longer an isolated existence, but has become a part of the global financial system. Just as the financial markets of various countries are becoming more closely linked in the process of globalization, the cryptocurrency market is also showing obvious correlation under the influence of macroeconomic cycles. Especially after the approval of the Bitcoin spot ETF in the United States, the macroeconomic situation in the United States and its policy supervision of cryptocurrencies have become one of the key factors determining the trend of the crypto market.
Golden Finance summarizes the layout of traditional financial giants in the crypto field. Many asset management companies that issue cryptocurrency ETFs began to provide related services to their customers as early as two years ago. At present, in addition to the ETF business, these companies are also actively studying the business model of tokenized assets. Almost all major banks on Wall Street are also involved in investment activities in crypto and blockchain startups. Take JPMorgan Chase as an example. This financial giant has long used blockchain technology extensively in its internal business and launched internal tokens for settlement of major customers and other scenarios.
The rise of RWA: a bridge between traditional finance and the crypto world
In the past two years, the tokenization of real-world assets (RWA) has become a new frontier that financial institutions are vying to occupy. In particular, innovative businesses such as the on-chain U.S. Treasury bonds have received widespread attention from the market. This trend shows that the connection between traditional finance and the crypto world is becoming increasingly close.
The layout of traditional financial institutions can be summarized into four main lines:
Blockchain technology revolutionizes traditional finance: Through the application of blockchain technology, traditional financial institutions have improved efficiency, enhanced security and reduced operating costs.
Integration of virtual currency assets: Traditional financial institutions are gradually incorporating virtual currency assets into their product lines and launching related financial products such as cryptocurrency ETFs.
Direct participation in blockchain projects: Some traditional financial institutions promote the development of the industry by investing in, directly participating in, or establishing blockchain projects.
Putting traditional financial products on the chain: Putting traditional financial assets on the chain through tokenization and other forms to achieve the digitization and decentralization of financial products.
BlackRock: A Pioneer in Crypto
In the crypto space, the US asset management giant BlackRock is best known for launching Bitcoin and Ethereum spot ETFs. However, BlackRock's layout in the crypto world goes far beyond that. After successfully launching virtual currency spot ETFs, BlackRock's next goal is to promote the tokenization of traditional assets.
On March 20, 2024, BlackRock partnered with the US tokenization platform Securitize to issue the tokenized fund BUIDL (BlackRock USD Institutional Digital Liquidity Fund). Securitize is responsible for the on-chain logic of BUIDL. This is an investment tool that holds US Treasury bonds, cash, and repurchase agreements, and is issued on Ethereum in the form of ERC-20 tokens.
The BUIDL fund is a newly established SPV entity by BlackRock in the British Virgin Islands (BVI). According to the provisions of the US Securities Act and the Investment Company Act, the entity has applied to the US Securities and Exchange Commission (SEC) for the Reg D securities exemption and is only open to qualified investors. As of now, the fund has 18 holders, of which Ondo Finance holds more than 40% of the shares.
The launch of the Bitcoin spot ETF is to introduce crypto assets into the traditional financial market, while BUIDL is to introduce traditional financial assets into the crypto world. This move shows BlackRock's strategy of selling traditional financial assets to crypto users through crypto channels.
In terms of user experience, if an investor invests $1,000 in BlackRock's BUIDL fund, the fund promises to provide a stable value of $1 per token while helping investors earn returns through financial services. Although BUIDL sounds similar to a stablecoin, it is actually a "security."
Compared with traditional public funds such as money market funds, tokenized funds BUIDL have significant advantages. As a token issued on a public blockchain, it eliminates the need for centralized registration, reducing costs by providing a real-time, traceable record of transactions. This not only enables real-time atomic settlement and secondary market trading, but also improves capital utilization and provides higher returns. In addition, the tokenized fund also supports a variety of applications such as staking and lending through smart contracts.
The most attractive point of BUIDL Fund to traditional financial investors is that it claims to achieve real-time subscription and redemption. However, the product is not fully on-chain at present, and only the tokenization of fund shares has been achieved, while other processes still rely on off-chain operations. The entire structure is still achieved through the capital reserves of traditional financial institutions, system automation docking and other solutions.
To support the on-chain fund, BlackRock worked with Circle to establish a USDC liquidity pool controlled by a smart contract, enabling a 1:1 real-time exchange of BUIDL and USDC. Ondo Finance, the leader of the RWA U.S. Treasury project, also allocated more than 33% of its tokenized fund product OUSG to BUIDL in March 2024.
This innovation is undoubtedly an important step in the integration of Web2 and Web3, integrating RWA into a typical case of Defi.
Franklin Templeton: A Pioneer in the RWA Field
Franklin Templeton has clients in more than 160 countries and regions around the world, with $1.5 trillion in assets under management. The company is not only one of the issuers of the US Bitcoin Spot ETF and Ethereum Spot ETF, but also a representative of traditional financial institutions that put US Treasury bonds on the blockchain.
Franklin Templeton's OnChain U.S. Government Currency Fund (FOBXX) has launched three major blockchains: Stellar, Polygon, and Arbitrum. Founded on April 6, 2021, the FOBXX fund invests 99.5% of its total assets in U.S. government securities, cash, and repurchase agreements fully collateralized by U.S. government securities or cash. As of July 31, 2024, FOBXX has a total net asset value of US$420 million and a net expense ratio of 0.20%, making it the third largest on-chain product linked to U.S. Treasuries.
Users who invest in FOBXX must have a dedicated on-chain wallet to trade (created by the fund's transfer agent when opening an account). The private key associated with this wallet is held by the fund's transfer agent, and only this wallet has the right to purchase, redeem and hold fund shares.
Franklin Templeton currently only uses blockchain technology to process transactions and record share ownership. Other processes still require manual operation. Compared with crypto-native DeFi products, it has not yet achieved full on-chain automation.
As early as 2018, Franklin Templeton began to get involved in the field of digital assets, and established a blockchain venture fund in 2021 with a fundraising limit of US$20 million, three years earlier than BlackRock's similar fund.
In addition, Franklin Templeton has launched private equity funds for wealthy investors and provides a series of independently managed accounts for crypto tokens through Eaglebrook Advisors. In markets outside the United States, Franklin Templeton is also actively engaged in crypto business, such as establishing a joint venture in the UAE to explore the development of a "yield coin" similar to a stablecoin but capable of paying interest.
In 2024, there was news in the market that Franklin Templeton was planning to launch a new cryptocurrency fund that would invest in virtual currencies other than Bitcoin and Ethereum. It would target institutional investors and circumvent the regulatory barriers faced by ETFs in the form of a private equity fund.
JPMorgan Chase: Pioneer in asset tokenization
As one of the largest financial services institutions in the United States, JPMorgan Chase's exploration in the crypto world is mainly focused on deposit tokenization.
In 2016, JPMorgan launched its internal private blockchain Quorum, a permissioned fork of Ethereum code, which was later sold to ConsenSys for an undisclosed amount in 2020.
In 2019, JPMorgan Chase launched JPM Coin, a stablecoin pegged to the US dollar for internal use, which can be regarded as JPMorgan Chase's own digital dollar version. Based on this token and the private chain Quorum, JPMorgan Chase created a multifunctional financial ecosystem Onyx, covering tokenization platforms, payment channels, clearing and settlement and other businesses.
As of April 2024, JPMorgan Chase has processed transactions worth more than $500 billion using its Onyx blockchain system. In addition to JPMorgan Chase's customers being able to hold and trade JPM Coin through the Onyx system, JPMorgan Chase also plans to open the system to other institutions.
JPMorgan Chase is also exploring the tokenization of other assets, such as real estate, stocks, bonds, etc. In 2023, JPMorgan Chase launched the world's first tokenized fund pool through the Onyx platform, allowing different financial institutions to achieve liquidity sharing and cross-border transactions through the platform.
Jamie Dimon, CEO of JPMorgan Chase, has publicly stated that blockchain and tokenization are key technologies for the future financial industry, which will greatly change the way traditional finance operates. He pointed out that JPMorgan Chase is actively exploring how to use blockchain technology to improve the efficiency, security and transparency of the global financial system.
Summarize:
By analyzing the layout of traditional financial giants such as BlackRock, Franklin Templeton and JPMorgan Chase in the crypto field, it can be seen that cryptocurrency and traditional finance are gradually achieving deep integration. This is not only reflected in the innovation of financial products, but also in technological innovation, business model changes and the reshaping of the global financial ecosystem.
Traditional financial institutions are constantly expanding their business boundaries and improving their market competitiveness by introducing blockchain technology, tokenized assets and virtual currency-related products. This trend shows that cryptocurrency is gradually becoming an important part of the global financial system from a marginalized field, and will play an indispensable role in future financial innovation.
This has not only changed the way financial markets operate, but has also had a profound impact on the global economy. In the future, we have reason to believe that with the further development of technology and the gradual improvement of the regulatory environment, the integration of cryptocurrency and traditional finance will become more in-depth, which will also bring more opportunities and challenges to investors.
The market is unpredictable and opportunities are fleeting. Only by paying close attention to every subtle change and seizing your own opportunities can you remain invincible in the ups and downs of the market. Are you ready today? Let's look forward to the wonderful performance of the market together!
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