Tokenized U.S. Treasuries Surge Above $1 Billion — And It’s Just the Start

KEY TAKEAWAYS

  • The total value of U.S. Treasury notes tokenized on public blockchains has exceeded the $1 billion threshold.
  • With $700 million of all real-world assets (RWA) tokenized on its platform, Ethereum leads the tokenization market, followed by Stellar and Polygon.
  • Beyond U.S. Treasuries, there's a vast potential market for tokenizing stocks, real estate, art, and more.
  • Advances in blockchain scalability, smart contracts, and interoperability protocols have significantly facilitated the tokenization process.
  • The surge in tokenized U.S. Treasury values is largely driven by rising yields and the appeal of digital assets.

The cumulative value of U.S. Treasury notes tokenized on public blockchains has surpassed the $1 billion mark in what can be a significant indicator of the acceptance of blockchain technology within the traditional finance industry.

Treasury notes on Ethereum (ETH) account for $700 million of all real-world assets (RWA) tokenized on-chain. Stellar and Polygon have the second and third largest market share of tokenized products at $358 million and $13 million, respectively.

However, U.S. Treasuries represent just a fraction of the potential market. Stocks, real estate, intellectual property, art, securities, commodities, and numerous other assets also hold the possibility for tokenization.

Mohammed AlKaff AlHashmi, co-founder of L1 blockchain HAQQ, told Techopedia:

“I think it hints at a future where tokenization extends beyond U.S. Treasuries to a diverse array of assets that have traditionally been opaque and exclusive.”

$1 Billion U.S. Treasuries Tokenized on Public Blockchains

In a Thursday post on X, Tom Wan, an analyst at crypto firm 21.co, revealed that more than $1 billion worth of U.S. Treasuries have been tokenized on public blockchains. A Dune Analytics dashboard shows that tokenized government securities currently manage $1.07 billion in assets across 17 products, up more than 20% over the past week.

Tokenized Treasuries, which are digital versions of U.S. government bonds, have seen their market value increase almost tenfold since January of last year. The trend has gained further momentum following the announcement of the Ethereum-based tokenized fund BUIDL by financial heavyweight BlackRock on March 20.

The surge in interest has positioned BUIDL as the second-largest fund of its kind, boasting a tokenized value of $245 million, just behind Franklin Templeton’s Franklin OnChain U.S. Government Money Fund (FOBXX). FOBXX, with $360.2 million in deposits, leverages the BENJI token to represent shares.

The surge in tokenized U.S. Treasuries has been propelled by the rising yields over the past two years, making these digital assets increasingly attractive to investors seeking alternatives to the traditional lending and borrowing mechanisms in the decentralized finance (DeFi) market.

With the 10-year Treasury yield climbing to 4.22% from 1.69% since March 2022, the appeal of tokenized Treasuries has grown, offering crypto investors a novel means to diversify their portfolios.

“Tokenization breaks down the barriers of high entry costs and complex access requirements,” AlHashmi said, adding that it also allows for wider participation from a diverse investor base.

More Assets Will Get Tokenized on Blockchains

Experts foresee the tokenization trend to extend beyond U.S. Treasuries to encompass a wider array of assets. This expansion is expected to further bridge the gap between traditional financial securities and blockchain technology, providing investors with enhanced flexibility and liquidity.

“The trend could encourage the exploration of new frontiers in tokenization,” AlHashmi told Techopedia.

He specifically mentioned the possibility of the digitalization of Sukuk, which are referred to as “sharia-compliant” bonds.

“The modern Sukuk industry is thriving, with over $1 trillion market capitalization. Tokenization would open this market to the two billion Muslims around the world and anyone else who’s interested.”

AlHashmi noted that there is a challenge in how to connect all those people in the traditional way with the Sukuk market.

“I mean, you should have a physical entity operating under specific laws and regulations and accessible everywhere so that individuals can physically visit and invest in Sukuk, or their banks enabling that,” he added.

Technical Advancements Facilitate Growth of Asset Tokenization

The current stage of the tokenization process has been greatly influenced by several technical advancements, which have collectively pushed the boundaries of what’s possible in digitizing and managing assets on blockchain platforms.

Innovations such as layer 2 scaling solutions (e.g., rollups and sidechains) and improvements in consensus mechanisms (like proof-of-stake) have significantly enhanced the scalability and efficiency of blockchain networks.

These solutions have made it feasible to conduct a higher volume of transactions at lower costs, an essential factor for the tokenization of a wide array of assets.

“I see the dedicated blockchain oracles as the most important development, as they ensure the pricing of tokenized assets remains accurate and up-to-date,” AlHashmi said. Oracles act as bridges between blockchain platforms and the real world, fetching external data into the blockchain ecosystem.

He added that on top of these developments, new services emerged, improving the RWA tokenization.

“Centrifuge, Maple, and many others took the well-explored concepts of DeFi, liquidity pools, and collateralized lending and applied them to traditional finance.”

Addressing one crucial matter, AlHashmi claimed that the tokenization of RWA and Sukuk “aligns well with Shariah principles.” He said that the transparency and traceability that blockchain tech offers enhance the compliance of these financial instruments with Islamic ethical standards, including risk-sharing, fairness, and the avoidance of uncertainty in financial transactions.

RWA-Related Tokens Surge

With tokenization in the spotlight, RWA-related tokens have also enjoyed a notable amount of attention. Projects like Ondo Finance have been on a streak, with its native token touching new all-time highs.

More specifically, ONDO has displayed an impressive performance over the past year, gaining over 460% to outperform red-hot Bitcoin (BTC). The token has gained around 114% over the past month, according to data from CoinMarketCap.

Backed Finance, Matrixdock, Maple Finance, and Swarm are among the blockchain-native firms operating in the space. These projects have also seen their native tokens surge amid the recent frenzy surrounding tokenized assets.

In total, the RWA sector on CoinMarketCap has surged by an average of 10% over the past day. Theopetra’s THEO is the biggest gainer in the sector over the past 24 hours, surging by more than 176%.

The Bottom Line

The recent growth in tokenized U.S. Treasuries, which has crossed the $1 billion threshold on public blockchains, showcases the growing acceptance of blockchain technology in the realm of traditional finance.

Meanwhile, experts suggest that there’s a vast potential market for tokenization beyond U.S. Treasuries. This expansion is expected to further bridge the gap between traditional financial securities and blockchain technology, providing investors with enhanced flexibility and liquidity.

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