The Mortgage Industry Meets Digital Asset Capital Markets

As a seasoned investor with over two decades of experience in traditional finance and a recent convert to the world of cryptocurrencies, I must say that I have been consistently impressed by the rapid growth and innovation taking place within the blockchain ecosystem this year.

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As a crypto investor, I’ve noticed that protocols are making strategic decisions to diversify their treasury holdings by investing in tangible assets. For instance, the Ethereum Layer-2 Arbitrum has deployed $27 million worth of ARB tokens into BlackRock’s BUIDL, Ondo Finance’s USDY, and various offerings from Superstate, OpenEden, Backed Finance, and Mountain Protocol.

Financial intermediaries such as prime brokers, market makers, and custodians are reaping the advantages of specialized liquidity products that offer pass-through returns, unlike traditional stablecoins. For instance, FalconX, a prime broker, accepts BlackRock’s USD Institutional Digital Liquidity Fund (BUIDL) as collateral for trades and swap positions from its clients. This move benefits all parties involved – FalconX, its clients, and Securitize, the tokenized fund issuance platform. The increased appeal of BUIDL among FalconX clients, who might choose to exchange their stablecoin and cash holdings into it, could lead to more capital and participants flowing into the Securitize ecosystem from the digital asset sector. According to reports from April 2024, channeling capital towards tokenization platforms through short-term liquidity funds is crucial for the growth and success of tokenized alternative assets.

As organizations involved in Web 3.0 and asset management start feeling more confident about tokenized liquidity funds, they will gradually increase their risk exposure and create diversified portfolios. It’s time for private investment funds to realize their potential. Single commercial or residential real estate assets have shown to be challenging to sell due to their high-risk nature, lack of uniqueness, and slower pace compared to investment funds focusing on similar asset classes.

Compare this to the $14 trillion residential mortgage market and its Mortgage Servicing Rights (MSR). Over the past four years, residential MSR have seen around $1 trillion in annual trading volume through platforms like Blue Water. Investors who focus on tokens are usually interested in two-sided liquidity, a vibrant market, and high velocity of assets. By introducing an existing two-sided market to the tokenization sector, we can address current issues within the industry. This could be enticing for the nearly $2 billion in liquidity fund capital that is already on blockchain networks. In essence, Blue Water serves as a link between the bustling mortgage industry and the rapidly growing digital asset markets.

Disclosures: Disclosure – Blue Water Financial Technologies (bluewater-fintech.com)

As a researcher, I want to emphasize that the opinions articulated within this analysis are entirely my own. They may not align with the perspectives held by CoinDesk, Inc., its proprietors, or its associates.