Not long ago, decentralized finance (DeFi) was a completely crypto-native space, with staked Ethereum, wrapped Bitcoin, and algorithmic stablecoins. The vision was that DeFi could create its own collateral without relying on traditional methods. However, tokenized US Treasuries have become the new foundation of on-chain finance, surpassing $9 billion by the end of 2025.
This article explains how tokenized Treasuries became the cornerstone of the DeFi market.
Key takeaways
- Tokenized Treasuries exceeded $9 billion in assets by the end of 2025, as investors sought a stable, real return on-chain.
- BlackRock, Franklin Templeton and JPMorgan have accelerated adoption by combining traditional fixed income assets with blockchain settlement, custody and compliance infrastructure.
- DeFi protocols now use tokenized treasuries as base collateral and yield benchmarks, signaling a shift from crypto-native assets to real-world asset-backed foundations in decentralized finance.
The rationale for transforming tokenized Treasury bonds
The growth of the tokenized Treasury market is both sudden and exponential. Between the start of 2024 and the end of 2025, total assets under management, all issuers combined, increased from $2 billion to $9 billion, an increase of 350% in just over 18 months. The main factors responsible for this rapid development are:
- The interest rate cycle between 2023 and 2025 has featured U.S. Treasuries with attractive yields of between 4.5% and 5.2% per year, compared to the APYs offered by pure DeFi protocols. Investors looking for risk-free returns from smart contracts have found tokenized Treasuries to be an attractive alternative.
- Blockchain infrastructure had reached a point where it could facilitate institutional-level custody, regulatory compliance, and real-time settlement in a single set of products. This was enough to attract some of the world’s largest asset managers to the market.
How Tokenized Treasury Bills Work
Here is the basic process of how tokenized treasury bonds work, from issuance to yield:
- Acquisition of assets: The issuer acquires short-term U.S. Treasury bonds through conventional means and holds them at an approved institution through a qualified custodian account.
- Issuance of tokens: A corresponding number of digital tokens are issued on a blockchain. Each token represents a pro rata interest in the underlying fund or assets.
- Verification: Investors confirm their identity on the issuer’s platform. The BlackRock USD Institutional Digital Liquidity (BUIDL) fund, for example, requires a minimum of $250,000 and uses Securitize to onboard it. Retail platforms, such as INX.one, allow smaller entry points after standard KYC verification.
- Breakdown of yield: Interest earned on the underlying Treasury bonds is distributed to token holders at the discretion of the issuer. For example, Superstate’s USTB experiences price appreciation (token value appreciates daily), while Franklin Templeton’s BENJI directly tokenizes fund shares (share value includes yield).
- Redemption: Tokens can be exchanged for cash or stablecoins through the issuer’s platform. The process is almost instantaneous, unlike the T+2 cycles of traditional fixed income securities.
What influence does he have on the industry?
When BlackRock rolled out BUIDL in March 2024, the move attracted industry-wide attention. Quickly, the fund surpassed $1 billion in assets under management and eventually reached a peak of around $2.9 billion in mid-2025, representing more than 40% of the total market. It is now accepted as collateral on Deribit and Crypto.com, extending its usefulness well beyond passive yield generation.
Franklin Templeton took a different approach with the introduction of its OnChain US government money fund called BENJI. This symbolizes the shareholder registry so that each BENJI token represents a single fund share, with on-chain documentation.
Ondo Finance and Superstate have addressed the native DeFi market, creating products more deeply integrated with lending protocols and automated strategies. Others include Circle, with its USDC yield offering, while OpenEden expands access to the asset class.
Why DeFi protocols are adopting Treasuries
DeFi protocols, such as MakerDAO and Frax, have shifted their reserve collateral from crypto assets to treasuries and repurchase agreements. This stabilizes the underlying assets and, in a high interest rate regime, provides a source of return that can be distributed to users.
Pendle Finance has constructed on-chain yield curves that reference tokenized Treasury rates, allowing traders to speculate or hedge against future rates with DeFi tools. Additionally, JPMorgan launched a tokenized money market fund on Ethereum to leverage the benefits of 24/7 settlement and stablecoin infrastructure.
The effect of this is that the monetary base of DeFi now serves as a mix of stablecoin reserves and RWA-backed securities, with US government debt at the core. Additionally, regulatory clarity provided by SEC Commissioner Hester Peirce on tokenized securities has encouraged asset managers to move from pilot programs to full-scale products.
Possible risks
Liquidity and maturity asymmetries between the tokens and the underlying assets could create a pressure situation during the bulk buyout. TBAC pointed out that demand for Treasuries, fueled by stablecoins, could pose a risk of fire-selling in the market in the event of a run. BlackRock’s BUIDL itself experienced capital outflows of approximately $447 million in August 2025, serving as a reminder that even the most successful product is not immune to capital turnover.
Smart contract risks, counterparty risks in custody models, and secondary market liquidity of products are also factors that investors should carefully evaluate.
Conclusion
Tokenized Treasuries went from an experiment to infrastructure in less than two years. With assets of nearly $10 billion, institutional issuers, regulatory support, and strong integration of the DeFi ecosystem, this market has become a bridge between traditional bond markets and on-chain finance. Whether this will transform into an open financial system or simply an efficient version of the current system will be determined by the level of interaction between issuers, regulators and the DeFi ecosystem.
