Source: Tiger Research
Author: Henry Kim, Ryan Yoon
Compiled and edited by: BitpushNews
BlackRock 's BUIDL has become an indispensable asset in the digital asset space. However, its largest buyers are not traditional institutions, but DeFi (decentralized finance).
Core Summary
The significance of BUIDL on-chain lies not in BlackRock issuing a token, but in Ethena , Ondo , Frax , and Spark using BUIDL as a building block for their dollar products, transforming an institutional fund into a foundational asset in the DeFi supply chain.
The protocol chose BUIDL not for its yield, but because it simultaneously meets three conditions: clear legal claims, on-chain composability, and existing compliance. No other asset can offer all three simultaneously.
The supply chain doesn't stop at the first layer. As BUIDL is processed into USDtb, and further transformed into dollar products within specific ecosystems, the demand for the underlying assets grows with the emergence of each new ecosystem.
BUIDL unveils a completely new channel for distributing tokenized assets. Its customers are not discovered through traditional sales channels, but rather through DeFi protocols—a customer base that doesn't exist in traditional finance. Without recognizing this channel, the next BUIDL will never emerge.
From institutional products to protocol infrastructure
BUIDL was originally designed for institutions: offering exposure to cash and U.S. Treasury bonds, limited to accredited investors, with a minimum subscription amount of $5 million.
However, the first to act were DeFi protocols, not traditional institutions. Their purchases weren't solely for yield, but based on three main reasons:
Legal Clarity: Issued under Rule 506(c), investor rights are protected under U.S. securities laws. The agreement clearly defines the asset attributes and redemption process using legal terminology.
Lower compliance costs: Following the GENIUS Act, reserve design became extremely complex. BUIDL already meets institutional-grade collateral standards. The compliance burden is shifted, eliminating the need to build from scratch. This advantage becomes even more pronounced as regulations tighten.
On-chain composability: Can be used as the underlying layer for protocol reserves, exchange collateral, or ecosystem dollar products.
Since no other asset could simultaneously meet these three requirements at the time, BUIDL became the default underlying asset.
How DeFi protocols use BUIDL
The key point is not the fact that the protocol holds BUIDL, but the specific role that BUIDL plays in the various protocol architectures.
2.1. Ethena (USDtb): Funding Rate Buffer
Ethena's flagship product is the synthetic US dollar USDe and its collateralized version sUSDe.
USDe's revenue sources include:
Pledge rewards for mortgaged assets
Funding rates for perpetual contracts (via Delta-neutral strategy)
The second source of revenue—funding fees—comes from the Delta-neutral strategy. USDe holds short futures positions equal to the size of its collateral to offset price risk. When long demand dominates, the longs pay funding fees to the shorts. Ethena, as the short seller, directly collects this revenue.
The risk arises when funding rates turn negative. In a bear market, short-selling demand may exceed long-selling demand, forcing short sellers to pay funding fees. For Ethena, revenue becomes a cost. If this situation persists, the insurance fund will dry up, putting pressure on USDe's dollar peg.
Ethena needed an asset capable of absorbing this pressure. USDtb filled this role, with its core reserves consisting of BUIDL and USDC. Its purpose is not to increase yields, but rather as a defensive buffer to ensure Ethena maintains overall structural stability during periods of negative funding rates.
2.2. Ondo (OUSG): BUIDL as an intermediate input
OUSG (Ondo US Treasury Fund) is a tokenized fund that brings institutional-grade US Treasury exposure onto the blockchain. Direct access to institutional money market funds like BlackRock BUIDL or Franklin Templeton FOBXX typically requires a multi-million dollar threshold and accredited investor status. OUSG lowers this barrier, acting as an on-chain intermediary to make these assets available to DeFi users.
BUIDL is a core component of the OUSG reserve, alongside Franklin Templeton's FOBXX and WisdomTree's WTGXX. OUSG repackages institutional assets that are not directly accessible to retail investors into an on-chain intermediary product.
2.3. Frax (frxUSD): Minting and Redemption Reserves
frxUSD is a new type of stablecoin designed by Frax Protocol, aiming to maintain a stable value of 1 US dollar, similar to USDC or USDT. Its unique feature lies in its reserve structure.
Existing stablecoins typically hold their reserves in cash or government bonds in offline bank accounts. Frax replaces this with BUIDL (an on-chain tokenized government bond). Its mechanism is a direct 1:1 exchange: deposit BUIDL to mint frxUSD, and return frxUSD to redeem BUIDL.
End users do not interact directly with this structure. They use frxUSD as a stablecoin in payments or DeFi, while BUIDL operates in the background, supporting every minting and redemption.
2.4. Spark's Tokenization Grand Prix (TGP) Allocation and its Common Theme with BUIDL
Spark's Tokenization Grand Prix (TGP) allocated $500 million of its $1 billion prize pool to BUIDL, with the remainder going to Superstate's USTB and Centrifuge's JTRSY. Instead of choosing a single reserve asset, Spark constructed a portfolio.
Traditional asset management firms also mix government bonds, money market funds, and credit instruments in the same way. The difference is that this portfolio runs on-chain and is redeployed as collateral and liquidity through the DeFi track.
In the four cases above, BUIDL plays different roles: a reserve asset, an intermediate input, a support for minting and redemption, and a component of a portfolio. However, one pattern is common: under no circumstances is BUIDL the final product. Protocols purchase BUIDL to populate their own systems, a demand structure already in place at scale.
Reprocessing BUIDL: Composite Demand Structure
As mentioned earlier, all protocols have directly adopted BUIDL as a reserve asset. However, the chain does not stop there. Products built on BUIDL are becoming reserves for new products, thus realizing an extension layer of derivative structures.
MegaETH's USDm is the clearest example. USDm is an ecosystem-specific stablecoin developed by MegaETH in partnership with Ethena. Its reserves are USDtb, and USDtb's reserves are BUIDL. As demand for USDm increases within MegaETH, demand for BUIDL also rises.
Each new ecosystem entering this structure adds "customers" rather than "competitors." In on-chain finance, adoption speed is also a significant differentiator. Building equivalent derivative structures in traditional finance requires months of regulatory review, legal contract signing, and custody arrangements. On-chain, this process is significantly compressed. Within the regulatory framework, the scope of eligible underlying assets is virtually unlimited.
In summary, BUIDL is unlocking complex needs by anchoring its ever-expanding on-chain structure to secure real-world assets.
What comes after BUIDL?
BlackRock built an institutional fund; Ethena, Ondo, Frax, and Spark adopted it as the underlying asset; MegaETH superimposed ecosystem-specific USD on top of it. All of this has happened in less than two years since BUIDL launched in March 2024.
This speed wasn't solely driven by BlackRock's brand. Legal clarity, on-chain composability, and regulatory compliance: BUIDL was the only asset at the time to offer all three simultaneously. This first-mover advantage was enormous and compounded as more DeFi protocols integrated BUIDL into their reserves.
For teams designing the next tokenized asset, the question is how to enter the market. Most take one of two paths: either assuming that tokenization itself will generate demand, or replicating traditional financial distribution models through sales teams, broker networks, and existing channels.
BUIDL took a third path. DeFi protocols including Ethena, Ondo, Frax, and Spark were among the first adopters. Exchanges and institutions such as Deribit, Binance, and OKX followed suit. BUIDL found a customer segment that did not exist in traditional finance.
These clients purchase assets and build their own products on top of them, which then form the basis of the next agreement. They are not customers acquired through sales, but rather attracted through "design." Without identifying this customer segment, the next BUIDL is impossible.
