Tiger Research: From 0 to $2.6 Billion, It's Not Wall Street That Bought Up BlackRock's 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).

Executive 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-denominated products, transforming an institutional fund into a foundational asset within the DeFi supply chain.
• Protocols choose BUIDL not for its yield, but because it meets three conditions simultaneously: clear legal claims, on-chain composability, and existing regulatory compliance. No other asset offers all three.
• 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.
• BUIDL reveals a new distribution channel for tokenized assets. Its clients are not discovered through traditional sales channels but through DeFi protocols—a customer segment that does not 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, restricted 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 based on 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 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 more pronounced as regulations tighten.
3. On-chain Composability: Can be used as protocol reserves, exchange collateral, or the underlying asset for ecosystem-specific dollar products.

Since no other asset met all three criteria at the time, BUIDL became the default foundational asset.

2. How DeFi Protocols Use BUIDL

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

2.1. Ethena (USDtb): Funding Rate Buffer

Ethena's flagship products are the synthetic dollar USDe and its staked version sUSDe.

USDe's yield sources include:

• Staking rewards from collateral assets
• Perpetual swap funding rates (via a delta-neutral strategy)

The second yield source, funding rates, comes from the delta-neutral strategy. USDe holds short futures positions equal to the collateral size to offset price risk. When long demand dominates, longs pay funding to shorts. As a short position holder, Ethena directly collects this income.

The risk arises when funding rates turn negative. In a bear market, short demand may exceed long demand, causing shorts to pay funding. For Ethena, income becomes a cost. If this persists, the insurance fund depletes, putting pressure on USDe's dollar peg.

Ethena needed an asset to absorb this pressure. USDtb fills this role, with its core reserves being BUIDL and USDC. Its purpose is not yield enhancement but 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 that brings institutional-grade U.S. Treasury exposure on-chain. Direct access to institutional money market funds like BlackRock BUIDL or Franklin Templeton FOBXX typically requires multi-million dollar thresholds 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 novel dollar stablecoin designed by the Frax Protocol, aiming to maintain a stable value of $1 like USDC or USDT. Its distinction lies in its reserve structure.

Existing stablecoins typically hold their reserves in 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 in payments or DeFi, while BUIDL operates in the background, backing every mint and redemption.

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

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 built 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/redemption backing, and portfolio component. However, a common pattern emerges: in no case is BUIDL the final product. Protocols buy BUIDL to fuel their own systems, and this demand structure is already operating at scale.

3. BUIDL's Reprocessing: A Compound Demand Structure

As mentioned, 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, creating extensions of the derivative structure.

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 increases correspondingly.

Every new ecosystem entering this structure adds a "customer" rather than a "competitor." In on-chain finance, speed of adoption is also a key differentiator. Building an equivalent derivative structure 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 range of eligible underlying assets is virtually limitless.

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

4. What Comes After BUIDL?

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

This speed was driven not just by the BlackRock brand. Legal clarity, on-chain composability, and regulatory compliance: BUIDL was the only asset offering all three at the time. This first-mover advantage is immense, compounding 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 tokenization itself generates demand, or replicate traditional finance's distribution model via 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. BUIDL found a customer segment that does not exist in traditional finance.

These customers buy the asset and build their own products on top, which in turn become the 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 exist.