BlackRock will launch a new layer 2 network to solidify its position in the crypto market

BlackRock has shown interest in the most liquid crypto assets, particularly Bitcoin and Ethereum.

The firm may potentially develop its own Layer 2 (L2) network based on its crypto strategy, aiming to increase control over the tokenisation process.

Potential for a Private Network

BlackRock's potential L2 network could resemble current public chains, but with a higher level of control, especially in cases of hacks and exploits.

While Ethereum has been the primary chain for BlackRock, there is no indication that they are considering other Layer 1 solutions at this time.

BlackRock could theoretically create a private chain, though it would lack native connections to other assets.

Access to Stablecoins and Possible Chain Launch

Indirectly, BlackRock holds ownership in Circle, giving them access to USDC tokens, one of the most widely used stablecoins.

TokenTerminal analysts speculate that BlackRock might launch its own chain, possibly following a tokenless protocol similar to the Base blockchain.

The Base blockchain offers a user-friendly experience with a login-based wallet, aiming for a seamless on-chain experience.

Regulatory Challenges and Security Risks

The primary concern for BlackRock would be navigating the regulatory landscape for blockchain use.

Building an L2 chain compatible with Ethereum would still require the payment of gas fees, including a “blob fee” to maintain transaction immutability.

Moreover, the bridges between Ethereum and L2 networks are particularly vulnerable to exploits, posing significant risks.

Mitchnick’s Role and Regulatory Focus

Robert Mitchnick, now BlackRock’s Head of Digital Assets, brings experience from Ripple and has often cited regulation as a major barrier to broader adoption of distributed ledger technologies.

The development of the first Bitcoin and Ethereum ETFs was a lengthy process, underscoring the challenges of navigating regulatory frameworks.

The BUIDL Token: A Strategic Asset

BlackRock's experimental token, BUIDL, shows limited on-chain activity and is not geared towards retail investors.

Instead, BUIDL has attracted significant investments, with 18 investors contributing $74.7M to the fund, primarily held by Ordo Finance and the Gnosis Safe.

BUIDL’s supply is managed through a series of mints and burns, depending on market demand, and has become a source of low-risk passive income.

BlackRock’s Growing Influence

BlackRock continues to be the most aggressive buyer of Bitcoin and Ethereum for its investment products.

As of August 2024, the firm manages more than 37% of all inflows into Bitcoin-based ETFs.

Similar trends are evident in Ethereum ETFs, where BlackRock consistently remains a net buyer, solidifying its position as a dominant force in the crypto market.