Over $1B in U.S. Treasury Notes Has Been Tokenized on Public Blockchains

BY Coindesk | TREASURY | 03/28/24 06:48 AM EDT By Omkar Godbole
  • Data tracked by 21.co shows $1.08 billion in Treasury notes has been tokenized through public blockchains.
  • The tally has risen nearly 10-fold since January 2023 amid elevated interest rates worldwide.

The market for tokenized U.S. Treasury debt is booming.

The market value of Treasury notes tokenized through public blockchains like Ethereum, Polygon, Avalanche, Stellar and others has crossed above $1 billion for the first time, data tracked by Tom Wan, an analyst at crypto firm 21.co, show.

Tokenized Treasuries are digital representations of U.S. government bonds that can be traded as tokens on the blockchain. The market value has risen nearly 10-fold since January last year and 18% since traditional finance giant BlackRock (BLK) announced Etheruem-based tokenized fund BUIDL on March 20.

As of writing, BUILD is the second-largest such fund, with a tokenized value of $245 million, trailing only Franklin Templeton's Franklin OnChain U.S. Government Money Fund (FOBXX) ? one share of which is represented by the BENJI token ? which led the pack with $360.2 million in deposits.

"Just happened, $1B Total Tokenized U.S. Treasuries on Public Blockchains. Blackrock's (BLK) BUIDL increased by 400% from 40M to 240M supply in a week," Wan posted on X. "OndoFinance is now the largest holder of BUIDL, holding 38% of the total supply. Now Ondo's OUSG is fully backed by BUIDL."

Tokenized government securities by product

The rapid rise in Treasury yields in the past two years has fueled demand for their tokenized versions. The 10-year yield, the so-called risk-free rate, has risen to 4.22% from 1.69% since March 2022, denting the appeal of lending and borrowing the dollar-pegged stablecoins in the decentralized finance market.

Investing in tokenized Treasuries can help crypto investors diversify their portfolio, allowing them to settle transactions on any given day.

"The beauty of tokenization, [is] you can settle the transaction 24/7," Wan said.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.