Demand for Tokenized Treasury Bonds Soars as Crypto Investors Chase TradFi Yield

The combined market capitalization of tokenized money market funds is nearing $500 million as high yields in traditional markets attract crypto capital.

AccessTimeIconMay 19, 2023 at 8:34 p.m. UTC
Updated May 23, 2023 at 1:51 p.m. UTC

Demand for tokenized versions of U.S. Treasury bonds is soaring as rising yields in traditional financial markets attract fresh capital from crypto investors.

The combined market capitalization of tokenized money market funds nears $500 million, and has quadrupled in size this year, according to data compiled by CoinDesk.

Money market funds are traditional investment products that hold short-term government securities and offer a relatively safe way to earn a yield. Investors have been flocking to these funds for their perceived safety from failing banks and their 4-5% interest rate offering compared to bank deposits.

The high yields of government bonds have also captivated digital asset investors discouraged by low lending rates and last year’s bankruptcies. Hence, a slew of platforms have come up with a way to offer access to them on the blockchain in the form of a token.

The first and largest offering, investment giant Franklin Templeton’s Franklin OnChain U.S. Government Money Fund (FOBXX) – which gives a BENJI token on the Stellar blockchain representing one share – grew to $276 million in assets as of the end of April. This is almost triple the deposits in early January represented by the BENJI token supply, blockchain data shows.

New challengers are quickly catching up in market share. Ondo Finance’s OUSG and Matrixdock’s STBT tokenized products both opened for investors in January and each backed by short-term government bonds, have raked in $132 million and $72 million of funds so far, respectively, according to Dune Analytics dashboard by Steakhouse Financial.

Recent entrants also experienced substantial inflows. Switzerland-based Backed Asset’s tokenized short-term government bond fund (bIB01) now has $4.6 million assets under management since its March release, according to Etherscan.

Singapore-based OpenEden, a platform that lets USDC stablecoin holders invest in a Treasury bond vault by minting yield-generating TBILL tokens, has already gained $4.8 million of deposits in two months, per Dune data. The protocol opened two weeks ago for the public.

Tokenization wave

The tokenization of real world assets such as government bonds has emerged as one of the hottest trends in crypto this year. Banking giant JPMorgan called it the killer app for blockchain, while Bank of America said it’s a key driver for digital asset adoption.

Tokenized money market funds are especially in demand among those who hold large amounts of stablecoins, a token version of U.S. dollar cash. These include digital asset investment funds, crypto companies and decentralized autonomous organization (DAO) treasuries, Eugene Ng, co-founder of OpenEden, said in an interview.

Fund investors are taking an increasingly sophisticated approach when it comes to on-chain cash management, Justin Schmidt, president and chief operating officer of Ondo Finance, said in a note. “A low-risk asset that pays meaningful yield in token form can serve as a valuable option for CFOs [chief financial officers] as they position their treasury operations for success.”

The fact that established players are also coming into the space, merging blockchain technology with traditional finance, also fuels growth, according to Doug Schwenk, chief executive officer of Digital Asset Research, a research and crypto data provider for institutional clients.

“Brands like Franklin Templeton and Ondo Finance are bringing more trust to an asset that would be viewed more skeptically,” Schwenk said.

Edited by Stephen Alpher.


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Krisztian  Sandor

Krisztian Sandor is a reporter on the U.S. markets team focusing on stablecoins and institutional investment. He holds BTC and ETH.