According to CoinDesk, the tokenization industry is experiencing increased investor demand, particularly for U.S. Treasury and money market products. This trend is prompting on-chain issuers to diversify their offerings to include higher-risk assets for diversification purposes. Tokenized short-term liquidity funds have gained traction among institutions, Web 3.0 investment firms, blockchain foundations, and other crypto-native organizations. In 2024, six products each surpassed $100 million, with one reaching $500 million in July, collectively exceeding $2 billion inflows.
Protocols are diversifying their treasury holdings into real-world assets. For instance, Ethereum Layer-2 Arbitrum has allocated $27 million in ARB tokens into BlackRock’s BUIDL, Ondo Finance’s USDY, and products from Superstate, OpenEden, Backed Finance, and Mountain Protocol. MakerDAO has launched the Spark Tokenization Grand Prix competition to tokenize and integrate $1 billion in real-world assets. Additionally, Ethena Labs is considering allocating part of its $280 million stablecoin holdings to yield-generating real-world assets.
Prime brokers, market makers, and custodians are benefiting from professionally managed liquidity products that provide pass-through yield, unlike existing stablecoins. FalconX, a prime broker, accepts BlackRock’s USD Institutional Digital Liquidity Fund (BUIDL) as collateral for trading and swap positions, adding immediate value for FalconX, its clients, and Securitize, the tokenized fund issuance platform. More FalconX clients are expected to swap stablecoin and cash holdings into BUIDL for on-chain yield, driving additional capital and participants towards the Securitize ecosystem. Onboarding capital to tokenization platforms through short-term liquidity funds is crucial for the success of tokenized alternative assets.
Web 3.0 organizations and asset managers are beginning to diversify their portfolios after gaining confidence in tokenized liquidity funds. Private investment funds are seen as a potential area for growth. However, singular commercial and residential real estate assets have been challenging to sell due to concentrated risk and lower velocity compared to investment funds targeting the same asset class.
In contrast, the $14 trillion residential mortgage space and associated Mortgage Servicing Rights (MSR) offer significant opportunities. Residential MSR has seen an estimated $1 trillion in annual secondary trading volume over the past four years through venues like Blue Water. Token-focused investors seek two-sided liquidity, an active market, and underlying asset velocity. Introducing an existing two-sided market to the tokenization space could address current industry challenges, attracting nearly $2 billion in on-chain liquidity fund capital. Blue Water is positioned as a bridge between digital asset capital markets and the active mortgage industry.
