Tokenized versions of US Treasury bonds have become popular this year. Issuers expect growth to continue despite expected rate cuts from the Federal Reserve.
Blockchain assets representing ownership of tokenized Treasuries, yield-bearing government bonds, have surged more than 100% this year.
In January, onchain US Treasuries were $773 million, per data from a real-world asset data platform rwa.xyz.
That's more than $1.9 billion.
Issuers of these so-called tokenized treasuries expect growth to continue.
“As onchain capital holders become more sophisticated, they realize that tokenized treasuries are superior to stablecoins,” said Ian de Bode, chief strategy officer of real-world asset platform Ondo. News.
De Bode said tokenized Treasuries offered by Ondo and other issuers are more attractive because of their higher yields and investor protection. “Stablecoins do not offer these benefits to users,” he said.
As volatility shakes the crypto market, tokenized treasuries provide a safe haven that still puts capital to work. Interest rates in the US currently range from 5.25 to 5.5% – the highest level in 23 years.
Inflows to Ondo Finance tokenized treasuries have doubled this year.
It's not just about cashing in on the Ondo trend. $9 trillion asset manager BlackRock launched BUIDL this year, an Ethereum-based tokenized treasury fund that has already raised $500 million.
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But the lucrative interest rates offered on US Treasuries are not expected to last. CME Groups FedWatch The Federal Reserve shows a 100% probability that it will cut rates by at least 0.25% at its September 18 meeting.
Demand for leverage
Rather than the decline in Treasury yields dampening investor appetite, industry insiders say the cuts will actually boost demand.
“Tokenized treasuries keep cash efficient,” says Timo Lehes, co-founder of real-world asset platform Swarm Markets. News. “They are the logical next step to go for people who own stablecoins because they benefit from both stability and yield.”
Stablecoins are, by many accounts, the most successful use case of crypto.
They provide a way for investors to cash out of volatile assets like Bitcoin and Ethereum while staying within the crypto ecosystem, and provide an easy way to expose dollars to investors outside the US.
“Even if the Fed cuts rates, we expect tokenized Treasuries to continue to grow, as any yield is better than nothing,” Lehes said.
Ondos de Bode also said falling rates could benefit tokenized treasuries.
When interest rates fall, investors generally look to take on more risk, increasing the demand for credit and leverage.
De Bode argues that tokenized Treasuries are a better form of collateral because of their local yield-bearing features and investor protections.
“We expect demand for these assets to increase, not decrease, when rates come down,” he said.
It's all about liquidity
However, stablecoins still have one huge advantage over tokenized treasuries: liquidity.
Tether's USDT, the largest stablecoin, has more than $116 billion in circulation across multiple blockchains and centralized exchanges.
This deep liquidity allows those trading using USDT to get better prices on their trades, even if they exchange large amounts.
On the other hand, tokenized treasuries are still in their infancy and are comparatively less liquid.
Ondo's premier tokenized treasury product, the Ondo US Dollar Yield Token, has just over $341 million in circulation across six blockchains.
While tokenized treasuries have advantages over stablecoins, it is difficult to gain investor interest. Large investors do not use tokenized Treasuries unless they are liquid and investors should use the products to increase their liquidity.
Issuers like Ondo will need to find an answer to this problem to have any chance of rivaling stablecoin giants like Tether — at least for now.
There is Tim Craig News' Edinburgh-based DeFi correspondent. Reach out with tips at [email protected].
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