Aptos Participates in $47 Million Securitize Financing Led by BlackRock: "Another Step in the Evolution of Our Digital Asset Strategy"

As the cryptocurrency market recovers from its chaotic collapse, traditional financial firms have embarked on long-awaited adventures in the blockchain space, with investment giant BlackRock leading the way.

The Larry Fink-managed firm, which has more than $10 trillion in assets under management, sparked the latest craze by successfully applying to issue a spot Bitcoin ETF and in March launched its first tokenized fund, BUIDL, which allows investors within the crypto ecosystem to earn Bitcoin dividends. Treasury funds while keeping assets on the chain.

On Wednesday, BlackRock led a $47 million strategic investment in its BUIDL partner Securitize, deepening the company's commitment to cryptocurrency. Other investors in the round include investment firm Hamilton Lane, fintech company Tradeweb Markets, and asset management firm ParaFi Capital, and as part of the investment, Joseph Chalom, global head of strategic ecosystem partners at BlackRock, will join the board of Securitize.

"At BlackRock, we believe tokenization has the potential to drive significant change in capital markets infrastructure," Chalom said in a statement shared with Fortune. "Our investment in Securitize is another step in the evolution of our digital asset strategy."

In an exclusive interview with Fortune, Securitize co-founder and CEO Carlos Domingo said the investment reflects the growth of tokenization, which has quickly become one of the hottest areas in cryptocurrency. "It's been quite a journey for a small company like ours to be a supplier to BlackRock," he said. "[BlackRock's involvement] signals to the market that this is not a one-off project that we're doing, but is aimed at building a long-term strategic relationship."

The Future of Tokenization

Tokenizing so-called "real-world assets" (such as money market funds, public equities, and fiat currencies) means placing them on a blockchain such as Ether and allowing investors to buy and sell them without having to re-purchase fiat currency. This has proven popular for DeFi applications such as lending platforms, where investors don't want to constantly move in and out of cryptocurrencies, but still hold stable dollar equivalents or earn a relatively safe rate of return.

While U.S. regulators and lawmakers still can't agree on how to regulate some of these products, including fiat-backed stablecoins, tokenized securities are a safer option for established firms like BlackRock. As the name suggests, Securitize was founded by Domingo and Jamie Finn in 2017 to work with firms to issue existing securities in the form of digital tokens on the blockchain. In 2021, Morgan Stanley led a $48 million funding round for Securitize along with cryptocurrency venture capital firm Blockchain Capital, which took a seat on the board.

Domingo says Securitize's compliance-first approach has helped it win business from some of the biggest names in finance, including BlackRock and Hamilton Lane, as well as investment firm KKR.Along with BlackRock's BUIDL fund, which now boasts $375 million in investments, Securitize has also launched a tokenized private credit fund with Together with BlackRock's BUIDL fund, which now has $375 million in investments, Securitize has also launched a tokenized private credit fund with Hamilton Lane and KKR. In 2022, Securitize also launched the Alternative Trading System, a regulated exchange that allows investors to buy and sell different securities.

With the new investment, the company hopes to expand the terms of its existing license and explore issuing tokens on new blockchains such as Aptos, Domingo said. While Securitize holds a broker-dealer license from the self-regulatory agency FINRA, the SEC created a new type of license called the Special Purpose Broker-Dealer License in 2021 that allows firms to custody digital asset securities. Controversial cryptocurrency company Prometheum became the first company to receive this license in 2023, and subsequently announced that it would be launching an ethereum custodian service, claiming that ethereum is a security, contrary to the views of most of the cryptocurrency industry.

Securitize is exploring a special-purpose broker-dealer license, Domingo said, although the company isn't interested in offering custodial services, instead partnering with providers such as Anchorage and BitGo. He added that unlike Prometheum, Securitize only plans to work with products that are already established as securities, including its ATS, especially since Prometheum has yet to launch its custody or trading products. "I've been running an actual business with a real-time product," Domingo told Fortune. "I just don't know how they plan to address that."

"Initiating Democratization"

While BlackRock's BUIDL announcement sparked excitement about the TradFi giant doubling down on cryptocurrencies, its offering is still primarily aimed at cryptocurrency-native investors looking to hold dollar-equivalent tokenized assets while earning dividends. Many of the legally-backed stablecoins offered in the U.S., such as USDC, do not offer yields to avoid regulatory scrutiny as potential unregistered securities.

Domingo said he sees two possible use cases for tokenized assets. The first, like BUIDL, brings so-called Web2 products, such as money market funds, to Web3 investors. This is a much more limited opportunity. But the second goal - bringing Web3 products to Web2 investors - could have a huge impact.

As an example, Domingo cited tokenized private credit funds, such as the products launched with Hamilton Lane and KKR. Private credit funds represent pools of money lent by investment firms to private companies and typically offer higher returns than money market funds, but are also riskier.

According to Domingo, traditional private credit funds suffer from traditional infrastructure inefficiencies, with costly processes such as redemptions, distributions and active management. As a result, many have high investment minimums. Tokenization can eliminate middleman fees and allow asset managers to raise minimums.

Domingo added: "Pass-through opens up democratization by allowing this very effective fractional ownership and attracting a multitude of investors and securities in an efficient way."