Tiger Research: From $0 to $2.6 billion, it’s not Wall Street that is buying up BlackRock BUIDL

This report is written by Tiger Research. 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 on-chain significance of BUIDL is not that BlackRock issued a token, but that Ethena, Ondo, Frax, and Spark use BUIDL as a building block for their dollar products, transforming an institutional fund into a foundational asset in the DeFi supply chain.

• The choice of BUIDL by protocols is not for yield, but because it meets three conditions: clear legal claims, on-chain composability, and existing compliance. No other asset can provide all three simultaneously.

• The supply chain does not stop at the first layer. As BUIDL is processed into USDtb and further transformed into dollar products for specific ecosystems, the demand for the underlying asset grows with the emergence of each new ecosystem.

• BUIDL reveals a brand new tokenized asset distribution channel. Its customers are not discovered through traditional sales channels, but through DeFi protocols—this customer group does not exist in traditional finance. Without recognizing this channel, the next BUIDL will not emerge.

From Institutional Products to Protocol Infrastructure

BUIDL was initially designed for institutions: providing exposure to cash and U.S. Treasury bonds, limited to qualified investors, with a minimum subscription of $5 million.

However, the first movers were DeFi protocols, not traditional institutions. They purchased not merely for yield, but for three reasons:

1. Legal clarity: Issued under Rule 506(c), investor rights are protected under U.S. securities law. Protocols can clearly articulate asset attributes and redemption processes in legal terms.

2. Lower compliance costs: After the GENIUS Act, reserve design became very complex. BUIDL already meets institutional-grade collateral standards. The compliance burden is transferred, eliminating the need to build from scratch. This advantage becomes increasingly apparent as regulations tighten.

3. On-chain composability: Can be used as protocol reserves, exchange collateral, or underlying for ecosystem dollar products.

Since no other asset could meet all three points at that time, BUIDL became the default foundational asset.

How DeFi Protocols Use BUIDL

The key is not the fact that protocols hold BUIDL, but the specific roles that BUIDL plays within various protocol architectures.

2.1. Ethena (USDtb): Funding Rate Buffer

Ethena's flagship product is the synthetic dollar USDe and its staked version sUSDe.

The sources of yield for USDe include:

• Staking rewards from collateral assets

• Funding rates from perpetual contracts (via delta-neutral strategies)

The second source of yield—the funding rate—comes from delta-neutral strategies. USDe holds short futures positions equal to the size of the collateral to offset price risk. When long demand dominates, longs pay funding fees to shorts. Ethena, as the short side, directly collects this income.

Risks arise when funding rates turn negative. In a bear market, short demand may exceed long demand, causing the short side to pay funding fees. For Ethena, income turns into costs. If this situation persists, the insurance fund will deplete, and the dollar peg of USDe will come under pressure.

Ethena needs an asset that can absorb this pressure. USDtb fills this role, with BUIDL and USDC as its core reserves. Its purpose is not to enhance yield, but to serve as a defensive buffer, ensuring Ethena maintains structural stability during periods of negative funding rates.

2.2. Ondo (OUSG): BUIDL as Intermediate Input

OUSG (Ondo U.S. Treasury Fund) is a tokenized fund that brings institutional-level U.S. Treasury exposure on-chain. Direct access to institutional money market funds like BlackRock's BUIDL or Franklin Templeton's FOBXX typically requires a threshold of millions of dollars and qualified investor status. OUSG lowers this threshold, acting as an on-chain intermediary, making these assets available to DeFi users.

BUIDL is a core component of OUSG's reserves, alongside Franklin Templeton's FOBXX and WisdomTree's WTGXX. OUSG repackages institutional assets that retail investors cannot access directly into an on-chain intermediate product.

2.3. Frax (frxUSD): Minting and Redemption Reserves

frxUSD is a new type of dollar stablecoin designed by the Frax Protocol, aiming to maintain a stable value of $1 like USDC or USDT. Its uniqueness lies in its reserve structure.

Existing stablecoins typically hold their reserves in cash or U.S. Treasuries in offline bank accounts. Frax replaces this with BUIDL (a tokenized Treasury bond on-chain). Its mechanism is a direct 1:1 exchange: deposit BUIDL to mint frxUSD, 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 each minting and redemption.

2.4. Spark's Tokenized Grand Prize (TGP) Allocation and the Common Thread with BUIDL

Spark's "Tokenized Grand Prize (TGP)" allocates $500 million of its $1 billion quota to BUIDL, with the remainder allocated to Superstate's USTB and Centrifuge's JTRSY. Spark did not choose a single reserve asset but built a portfolio.

Traditional asset management firms also mix Treasuries, money market funds, and credit instruments in the same way. The difference is that this portfolio operates on-chain, redeployed through DeFi tracks as collateral and liquidity.

In the four cases mentioned above, BUIDL plays different roles: reserve asset, intermediate input, minting and redemption support, and portfolio component. But there is a common pattern: in any case, BUIDL is not the final product. Protocols purchase BUIDL to fill their own systems, and this demand structure is already operating on a large scale.

Reprocessing BUIDL: Composite Demand Structure

As mentioned earlier, various protocols have directly adopted BUIDL as a reserve asset. But the chain does not stop there. Products built on BUIDL are becoming reserves for new products, thus achieving an expansion layer of derivative structures.

MegaETH's USDm is the clearest example. USDm is an ecosystem-specific stablecoin developed in collaboration with Ethena. Its reserve is USDtb, and the reserve of USDtb is BUIDL. As the internal demand for USDm within MegaETH grows, the demand for BUIDL also rises.

Each new ecosystem entering this structure adds "customers" rather than "competitors." In on-chain finance, the speed of adoption is also an important differentiating factor. Building an equivalent derivative structure in traditional finance requires months of regulatory review, legal contract signing, and custodial arrangements. In contrast, this process is significantly compressed on-chain. Within the regulatory framework, the scope of qualified underlying assets is virtually unlimited.

In summary, BUIDL is unlocking composite demand by anchoring an ever-expanding on-chain structure to a secure real-world asset base.

What Comes After BUIDL?

BlackRock built an institutional fund; Ethena, Ondo, Frax, and Spark adopted it as a foundational asset; MegaETH layered ecosystem-specific dollars on top of it. All of this happened in less than two years since BUIDL's launch in March 2024.

This speed is driven not only by BlackRock's brand. Legal clarity, on-chain composability, and regulatory compliance: BUIDL was the only asset at the time that could provide all three simultaneously. This first-mover advantage is significant and generates a compounding effect as more DeFi protocols integrate BUIDL into their reserves.

For teams designing the next tokenized asset, the question is how to enter this market. Most take one of two paths: either assume that tokenization itself will generate demand, or replicate traditional finance's distribution model through sales teams, broker networks, and existing channels.

BUIDL took a third path. DeFi protocols, including Ethena, Ondo, Frax, and Spark, were the first adopters. Exchanges and institutions like Deribit, Binance, and OKX followed suit. BUIDL found a customer segment that does not exist in traditional finance.

These customers purchase assets and build their own products on top of them, which in turn become the foundation for the next protocol. They are not customers acquired through sales but customers attracted through "design." Without recognizing this customer group, the next BUIDL will not emerge.