Tiger Research: From Zero to $2.6 Billion – It’s Not Wall Street That’s Buying Up BlackRock’s BUIDL

This report was 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).

Key Takeaways

• The significance of BUIDL on-chain is not that BlackRock issued a token, but that Ethena, Ondo, Frax, and Spark have used BUIDL as a building block for their dollar-denominated products, transforming an institutional fund into a foundational asset within the DeFi supply chain.
• Protocols chose BUIDL not for its yield, but because it simultaneously met three conditions: clear legal claims, on-chain composability, and existing regulatory compliance. No other asset could provide all three at the time.
• The supply chain does not stop at the first layer. As BUIDL is processed into USDtb and further into ecosystem-specific dollar products, demand for the underlying asset grows with each new ecosystem that emerges.
• BUIDL reveals a new distribution channel for tokenized assets. Its customers are not sourced through traditional sales channels, but through DeFi protocols — a customer segment that doesn't exist in traditional finance. Without recognizing this channel, the next BUIDL will not emerge.

1. From Institutional Product to Protocol Infrastructure

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

However, the first movers were DeFi protocols, not traditional institutions. Their purchases were not purely for yield, but were based on the following three reasons:

1. Legal Clarity: Issued under Rule 506(c), investor rights are protected by U.S. securities laws. Protocols can clearly define asset attributes and redemption processes in legal terms.
2. Lower Compliance Costs: After the GENIUS Act, reserve design has become highly complex. BUIDL already meets institutional-grade collateral standards. The compliance burden is transferred, eliminating the need to build from scratch. This advantage becomes more pronounced as regulations tighten.
3. On-Chain Composability: Usable as protocol reserves, exchange collateral, or the underlying layer for ecosystem-specific dollar products.

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

2. How DeFi Protocols Use BUIDL

The key point is not that protocols hold BUIDL, but the specific role BUIDL plays within the architecture of each protocol.

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 a Delta-neutral strategy)

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

Risk appears when funding rates turn negative. In a bear market, short demand may exceed long demand, causing shorts to pay funding. For Ethena, revenue becomes a cost. If this persists, the insurance fund will be depleted, putting pressure on USDe's dollar peg.

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

2.2. Ondo (OUSG): BUIDL as an Intermediate Input

OUSG (Ondo U.S. Treasury Fund) is a tokenized fund bringing institutional-grade Treasury exposure on-chain. Direct access to institutional money market funds like BlackRock BUIDL or Franklin Templeton FOBXX typically requires multi-million dollar minimums and qualified investor status. OUSG lowers this barrier, acting as an on-chain intermediary to make these assets accessible to DeFi users.

BUIDL is a core component of OUSG's reserve composition, alongside Franklin Templeton's FOBXX and WisdomTree's WTGXX. OUSG repackages institutional assets, otherwise inaccessible to retail investors, into an on-chain intermediate product.

2.3. Frax (frxUSD): Minting and Redemption Reserve

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

Existing stablecoins typically hold their reserves as cash or Treasuries in off-chain bank accounts. Frax replaces this with BUIDL (an on-chain tokenized Treasury). The mechanism is a direct 1:1 exchange: deposit BUIDL to mint frxUSD, return frxUSD to redeem BUIDL.

End-users do not interact with this structure directly. They use frxUSD as a stablecoin for payments or in DeFi, while BUIDL operates in the background, supporting every mint and redemption.

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

Spark's "Tokenized Grand Prix (TGP)" allocated $500 million of its $1 billion quota to BUIDL, with the remainder distributed to Superstate's USTB and Centrifuge's JTRSY. Instead of choosing a single reserve asset, Spark constructed a portfolio.

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

In the four cases above, BUIDL plays different roles: reserve asset, intermediate input, minting and redemption backbone, and portfolio component. However, a common pattern emerges: in every instance, BUIDL is not the final product. Protocols buy BUIDL to feed their own systems, and this demand structure is already operating at scale.

3. The Reprocessing of BUIDL: A Compound Demand Structure

As mentioned, protocols have already adopted BUIDL directly as a reserve asset. But the chain doesn't stop there. Products built on BUIDL are becoming reserves for new products, enabling an expanding layer of derivative structures.

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

Each new ecosystem entering this structure adds a "customer," not a "competitor." In on-chain finance, adoption speed is also a key differentiator. Building an equivalent derivative structure in traditional finance would require months of regulatory review, legal contract signing, and custodial arrangements. On-chain, this process is significantly compressed. Within the regulatory framework, there is virtually no limit to the range of eligible underlying assets.

In summary, BUIDL is unlocking compound demand by anchoring an expanding set of on-chain structures to secure real-world asset foundations.

4. What Comes After BUIDL?

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

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

For teams designing the next tokenized asset, the question is how to penetrate this market. Most take one of two paths: either assume tokenization itself generates demand, or replicate traditional finance distribution models 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 later. BUIDL found a customer segment that doesn't exist in traditional finance.

These customers buy the asset and build their own products on top, which in turn become foundation for the next protocol. They are not customers acquired through sales, but customers attracted through "design." Without identifying this customer segment, the next BUIDL will not materialize.