Decrypting DeFi is Decrypt’s DeFi email newsletter. (art: Grant Kempster)
The integration of real-world assets, or RWAs, in the world of DeFi has been one of the hottest narratives in 2023 so far. Interest.
This week, Switzerland-based Backed Finance launched a tokenized version of the BlackRock ETF (CSPX) that includes several big names such as Apple, Microsoft, Amazon, Alphabet and 496 other large US companies.
The token is called bCSPX, and runs on Ethereum as an ERC-20 token. The token is backed 1:1 by shares of those shares, and the shares are held by licensed custodians according to the backend.
And as it runs on Ethereum, this means that it could hypothetically interact with a whole host of DeFi applications, leading to some very innovative ideas, for example, MakerDAO’s decentralized stablecoin DAI using a stock index as collateral.
And it’s not just the S&P 500. Based on the project’s marketing materials, the expectation is to onboard additional public securities under a regulatory framework that takes a page from Switzerland’s Distributed Ledger Technology Act.
There seem to be three types of users in terms of who can get hold of these tokens. The first are professional investors and exchange platforms that want to offer tokens to customers; the second is KYC’d token owners who are also interested in cashing in on the underlying asset (a key feature should be to decouple the token from the price of the underlying asset, like Grayscale’s GBTC offering); And the third is everyone else in the market.
OK, almost everyone. You cannot receive the token in the United States – possibly a decision by Backed Finance to avoid navigating the shaky regulatory waters of the SEC for now.
The United States has put itself in strange company. (Source: Backed Finance)
There’s also another hurdle to overcome.
When the product was initially launched, there was enough liquidity in one Uniswap pool for people to start trading bCSPX. But now, Uniswap’s interface indicates that BakD’s new token is “unsupported” because it “may not work well with smart contracts or we [Uniswap] Due to legal reasons, we are unable to allow the trade.” Tokens that fall under this list, and do not have “Warning” or “Warning” next to them, are “manually curated by Uniswap Labs.”
Admittedly, this may not be the biggest issue. If you are a US citizen living in the United States, you will not need a product like this. You can just go to Fidelity or any other broker and do your maintenance there.
Unfortunately, this means that US traders will no longer enjoy fast swapping between Apple stock and Circle’s USDC. If assets like bCSPX become deeply integrated into other DeFi apps, they too could be left behind.
Still, BlackRock CEO Larry Fink isn’t worried about that. In December, the finance executive announced that “the next generation for markets, the next generation for securities, will be securities tokenization.”
Decrypting DeFi is our DeFi newsletter, led by this essay. Our email subscribers can read the essay before visiting the site. Subscribe here.
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