Research firm Kaiko believes tokenized Treasuries will continue to attract investors even in the face of anticipated rate cuts from the U.S. Federal Reserve, which can often diminish the appeal of fixed-income assets.
According to the company’s second quarter market report, interest in these tokenized funds continues to grow due to their appeal to investors seeking liquidity and security.
Kaiko explained that even with potential rate cuts, the real federal funds rate, adjusted for inflation, could remain stable or even rise. This scenario could maintain the appeal of Treasuries relative to riskier assets as investors prioritize liquidity and safety.
Growing activity
According to Kaiko’s research, BlackRock’s on-chain tokenized fund, BUIDL, has become the largest on-chain fund by assets under management (AUM) since its launch in March, with net inflows of $520 million as of the end of June.
The fund is part of a growing trend of tokenized funds offering exposure to traditional debt instruments like U.S. Treasuries. Other notable funds include Franklin Templeton’s FOBXX, Ondo Finance’s OUSG and USDY, and Hashnote’s USYC, all offering yields aligned with the federal funds rate.
The report also details the growing activity in the on-chain market for these tokenized assets. Ondo Finance’s governance token, ONDO, saw a significant increase in trading after announcing a collaboration with BUIDL, reaching a record high from $1.56 in June.
Challenges
However, the report notes that inflows into these funds could face challenges as the US rate environment evolves, with market froth having subsided.
Despite expectations of a potential Fed rate cut, with markets pricing in a 100bps cut this year, the appeal of tokenized Treasuries may persist. Recent weaker-than-expected US inflation data has reinforced expectations of a September rate cut.
However, rate cuts will not necessarily translate into monetary policy easing. If inflation falls at the same pace or faster than nominal rate cuts, real rates could remain stable or even rise. The real federal funds rate, adjusted for the producer price index, has risen moderately this year despite stable nominal rates.
A $2 billion market
The tokenized U.S. Treasury bond market hit an all-time high of $1.93 billion on August 14, according to rwa.xyz. dataThe market has grown by 150% since the beginning of the year.
Following the launch of BlackRock’s BUIDL, Ethereum (ETH) has become the preferred infrastructure for deploying tokenized versions of funds, with $1.4 billion worth of digital assets created on the network as of press time.
Stellar comes in second with $430 million deployed, driven by Franklin Templeton’s FOBXX, while Solana and Mantle are also among the most used networks, with $48 million and $30 million worth of tokenized US Treasuries, respectively.
