- Tokenised versions of US treasury bonds boomed in popularity this year.
- Issuers expect the growth to continue despite anticipated rate cuts from the Federal Reserve.
Tokenised treasuries, blockchain assets that represent ownership of yield-bearing government bonds, have grown by more than 100% this year.
In January, onchain US treasuries stood at $773 million, per data from real-world asset data platform rwa.xyz.
That’s since ballooned to over $1.9 billion.
Issuers of these so-called tokenised treasuries expect the growth to continue.
“As onchain capital holders become more sophisticated, they realise that tokenised treasuries are superior to stablecoins,” Ian De Bode, real-world asset platform Ondo’s Chief Strategy Officer, told DL News.
De Bode said that tokenised treasuries like the ones Ondo and other issuers offer are more attractive because of their high yields and investor protections. “Stablecoins don’t provide these benefits to users,” he said.
As volatility rocks the crypto market, tokenised treasuries provide a safe haven that still puts capital to work. Interest rates in the US currently sit at 5.25 to 5.5% — the highest level in 23 years.
And it’s not just Ondo cashing in on the trend. $9 trillion asset manager BlackRock this year launched BUIDL, an Ethereum-based tokenised treasury fund that’s already grown to over $500 million.
But the lucrative interest rates offered on US treasuries aren’t predicted to last. CME Group’s FedWatch shows a 100% probability that the Federal Reserve will cut rates by at least 0.25% at its September 18 meeting.
Demand for leverage
Rather than a decline in treasury yields reducing investor appetite, those in the industry say cuts will actually increase demand.
“Tokenised treasuries are effectively staked cash,” Timo Lehes, co-founder of real-world asset platform Swarm Markets, told DL News. “They are the logical next step to move into for people who hold stablecoins because they benefit from both stability and yield.”
Stablecoins are, by many accounts, crypto’s most successful use case.
They provide a way for investors to cash out of volatile assets like Bitcoin and Ethereum while staying within the crypto ecosystem, and offer an easy route for investors outside the US to gain exposure to dollars.
“Regardless of whether the Fed cuts rates, we expect tokenised treasuries to continue to grow, seeing as though any yield is better than nothing,” Lehes said.
Ondo’s De Bode also said falling rates could benefit tokenised treasuries.
When interest rates fall, investors typically look to take on more risk, increasing the demand for credit and leverage.
Tokenised treasuries, De Bode argues, are a better form of collateral due to their native yield-bearing properties and investor protections.
“We expect the demand for these assets to further increase when rates drop, not decrease,” he said.
It’s all about Liquidity
Still, there’s one huge advantage stablecoins still have over tokenised treasuries: Liquidity.
Tether’s USDT, the biggest stablecoin, has more than $116 billion in circulation across multiple blockchains and centralised exchanges.
It’s this deep liquidity that ensures those trading using USDT get good prices on their trades, even when swapping large amounts.
Tokenised treasuries, on the other hand, are still in their infancy, and are comparatively less liquid.
Ondo’s premier tokenised treasury product, the Ondo US Dollar Yield Token, has just $341 million in circulation spread across six blockchains.
Getting investors interested is difficult, despite the advantages tokenised treasuries have over stablecoins. Large investors won’t use tokenised treasuries unless they’re liquid, and the products need investors to use them to increase their liquidity.
Issuers like Ondo will need to find an answer to this problem to have any chance of rivalling stablecoin giants like Tether — at least for now.
Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.
