US Treasury Tokenization: The $11.70 Billion On-Chain Market
Tokenized U.S. Treasury funds represent the fastest-growing segment of on-chain fixed income, reaching $11.70 billion in total market value across 73 products and 55,520 holders as of March 2026 (RWA.xyz). The market grew 7,400% from $100 million in January 2023 to $7.5 billion by mid-2025, then surged to $8.64-9.2 billion by year-end 2025 — a 121% year-over-year increase from $3.91 billion at the start of 2025. BlackRock’s BUIDL ($2.01B AUM, 3.45% yield), Ondo Finance’s USDY ($1.21B AUM, 3.55% yield), Franklin Templeton’s BENJI ($1.01B AUM, 3.51% yield), and Circle USYC ($2.40B AUM, 3.13% yield) lead a market that barely existed two years ago. These products tokenize shares in money market funds or separately managed accounts holding short-duration U.S. Treasury bills, providing on-chain access to the risk-free rate with an average 7-day APY of 2.89%.
Market Structure
The tokenized Treasury market operates through two distinct models. The fund tokenization model — used by BlackRock BUIDL, Franklin Templeton BENJI, and Hashnote USYC — tokenizes shares in a registered investment vehicle that holds U.S. Treasuries. Investors receive ERC-20 tokens representing their fund shares, with NAV updated daily based on the underlying Treasury portfolio. The direct tokenization model — represented by Ondo OUSG and Maple Finance — structures the exposure through special purpose vehicles or managed accounts that hold Treasuries, with token value reflecting the underlying portfolio.
BlackRock BUIDL (the BlackRock USD Institutional Digital Liquidity Fund) launched in March 2024 on Ethereum, structured as a BVI-domiciled fund managed by BlackRock Financial Management with Bank of New York Mellon as custodian. The fund invests in U.S. Treasury bills, repurchase agreements, and cash, targeting a $1.00 NAV per token. Securitize serves as the transfer agent and tokenization platform (18.08% platform market share). BUIDL’s minimum investment is $5 million, targeting institutional and qualified purchaser investors. The fund expanded to 8 blockchains — Ethereum, Aptos, Avalanche, Polygon, Optimism, Arbitrum, Solana, and BNB Chain — and achieved key integrations including Binance collateral listing (November 2025) and Uniswap DEX trading for whitelisted investors (February 2026). BUIDL has distributed $100 million+ in total dividends since inception, with monthly distributions ranging $4-8 million.
Franklin Templeton’s OnChain U.S. Government Money Fund (BENJI) was the first and only U.S.-registered mutual fund to leverage a public blockchain as the system of record for processing transactions and recording share ownership. Initially launched on Stellar (which still holds 63% of AUM at approximately $489 million), BENJI expanded to 9 blockchains including Ethereum, Polygon, Avalanche, Aptos, Arbitrum, Base, Solana, and BNB Chain. In 2025, Franklin Templeton launched a patent-pending intraday yield feature enabling continuous yield distribution “down to the second,” allowing investors to earn yield for exact holding periods. BENJI has paid $51 million+ in total dividends. Unlike BUIDL’s offshore structure, BENJI is a registered 1940 Act fund with a 0.15% management fee, providing the regulatory wrapper familiar to U.S. institutional investors.
Yield Mechanics
Tokenized Treasury products pass through the yield on underlying T-bills minus management fees. Current yields range from 3.13% (Circle USYC) to 3.77% (ChinaAMC CUMIU, $546.1M AUM on Ethereum), with BUIDL at 3.45%, USDY at 3.55%, BENJI at 3.51%, WisdomTree WTGXX at 3.49% ($742.8M AUM), and Superstate USTB at 3.50% ($666.8M AUM). These yields still significantly exceed stablecoin lending rates on most DeFi platforms, driving institutional capital from unbacked stablecoins into yield-bearing tokenized Treasuries.
The yield distribution mechanism varies by product. BUIDL distributes yield as additional tokens (rebasing), maintaining a $1.00 NAV per token. OUSG distributes yield through NAV appreciation — the token price increases daily to reflect accrued Treasury yields. Franklin Templeton BENJI distributes daily dividends reinvested as additional shares, consistent with traditional money market fund convention.
DeFi Integration
Tokenized Treasuries serve as the yield-bearing base layer for decentralized finance protocols. MakerDAO allocated $1 billion+ to tokenized U.S. Treasuries through BUIDL and other providers, using tokenized T-bill exposure as backing for the DAI stablecoin. This represents the single largest DeFi allocation to tokenized real-world assets.
Ondo OUSG tokens are accepted as collateral on Flux Finance (Ondo’s lending protocol), enabling leveraged yield strategies. Mountain Protocol’s USDM uses tokenized Treasuries as backing. Ethena Labs allocated substantial reserves to BUIDL. The integration pattern is clear: tokenized Treasuries are becoming the risk-free rate benchmark for on-chain finance, analogous to the role T-bills play in traditional money markets.
Regulatory Framework
SEC regulation of tokenized Treasury funds depends on the product structure. Franklin Templeton BENJI, as a registered 1940 Act fund, falls under full SEC Investment Company Act oversight. BlackRock BUIDL, as an offshore vehicle sold to qualified purchasers, operates under Regulation D/Regulation S exemptions. Ondo OUSG restricts access to qualified purchasers under Reg D 506(c).
The SEC’s Staff Accounting Bulletin 122 (SAB 122, replacing SAB 121) modified the accounting treatment for digital assets custodied by reporting entities, partially reducing the balance sheet burden that deterred banks from custodying tokenized securities. BNY Mellon and State Street have cited SAB 122 as enabling their digital custody service expansion.
Competitive Dynamics
The tokenized Treasury market is consolidating around a few dominant platforms. BlackRock’s brand, institutional distribution network, and BUIDL’s integration with Securitize’s compliance infrastructure give it structural advantages. Franklin Templeton’s registered fund structure appeals to U.S. institutional investors requiring 1940 Act compliance. Ondo Finance’s DeFi-native distribution and integration with lending protocols capture the on-chain capital market.
Newer entrants have scaled significantly: Superstate USTB reached $666.8 million AUM (up from $189.2 million in late 2024), raised $82.5 million in Series B funding led by Bain Capital Crypto, and is building an onchain issuance layer for SEC-registered equities. WisdomTree’s WTGXX hit $742.8 million AUM after receiving landmark SEC exemptive relief in February 2026 — the first registered tokenized mutual fund shares permitted to trade and instantly settle 24/7 within the U.S. regulatory perimeter, using Circle USDC for instant settlement. Janus Henderson JTRSY ($860.9 million AUM) and ChinaAMC CUMIU ($546.1 million AUM, Hong Kong’s first retail tokenized fund) round out the top tier. Platform market share is led by Circle (20.87%, $2.4 billion), Securitize (18.08%, $2.1 billion), and Ondo (17.06%, $1.9 billion). The market is large enough — the $6 trillion U.S. money market fund industry provides essentially unlimited supply of underlying Treasury exposure — that multiple winners can coexist across different distribution channels.
For the broader fixed-income tokenization thesis, tokenized Treasuries validate that on-chain products can achieve institutional scale ($2.01B AUM), attract brand-name asset managers (BlackRock, Franklin Templeton), and integrate with both traditional (SWIFT) and decentralized infrastructure. The next frontier is extending these products to repo markets and cross-border settlement systems.
Institutional Adoption Drivers
The growth trajectory from near-zero (2022) to $11.70 billion across 73 products (March 2026) reflects multiple institutional adoption drivers converging simultaneously. An EY survey found 91% of high-net-worth investors plan to allocate to tokenized bonds by 2026, while 83% of institutions plan to allocate. First, the interest rate environment — with the Fed funds rate sustained above 4% — makes Treasury yield economically meaningful for the first time in over a decade. Stablecoin holders sitting in USDC or USDT earn zero yield; switching to BUIDL or OUSG captures 4%+ risk-free return without leaving the blockchain ecosystem.
Second, regulatory clarity has improved incrementally. The SEC’s replacement of SAB 121 with SAB 122 reduced the balance sheet burden for banks custodying digital assets, enabling BNY Mellon and State Street to expand digital custody services for tokenized Treasury products. While comprehensive SEC guidance on tokenized securities remains pending, the practical accommodation of registered products (BENJI as a 1940 Act fund) and offshore vehicles (BUIDL under Reg D/Reg S) provides workable frameworks.
Third, DeFi protocol treasuries — DAOs collectively holding $10+ billion in treasury assets — represent a natural institutional buyer for tokenized Treasuries. MakerDAO’s $1 billion+ allocation to tokenized Treasuries (through BUIDL and direct T-bill purchases) validated the use case. Aave, Compound, and other lending protocols have explored or implemented tokenized Treasury integrations for treasury management and protocol reserve backing.
Collateral and Composability
Tokenized Treasuries’ most transformative application is as on-chain collateral. In traditional finance, U.S. Treasuries serve as the highest-quality collateral for repo, derivatives margining, and securities lending — the $4+ trillion daily repo market runs primarily on Treasury collateral. On-chain, tokenized Treasuries can serve the equivalent function.
BUIDL tokens are accepted as collateral on several DeFi lending protocols, enabling borrowing against Treasury exposure without selling. Ondo OUSG tokens function as collateral on Flux Finance, enabling leveraged yield strategies where investors borrow stablecoins against OUSG, purchase additional OUSG, and earn the spread between Treasury yield and borrowing cost. This leverage mechanism — familiar from traditional repo markets — is now accessible on-chain through tokenized Treasury composability.
Broadridge DLR — processing $385 billion in average daily tokenized repo — could extend its platform to accept tokenized Treasury fund tokens as repo collateral, creating a bridge between institutional repo markets and on-chain Treasury products. The integration would enable institutional holders of BUIDL or BENJI to finance positions through the same repo infrastructure used for traditional Treasury collateral, with Canton Network providing the interoperability layer connecting the tokenized fund platform with the repo platform.
Multi-Chain Distribution Strategy
The competitive dynamics among tokenized Treasury providers have driven aggressive multi-chain distribution. Franklin Templeton BENJI is available on 9 blockchains — Stellar, Ethereum, Polygon, Avalanche, Aptos, Arbitrum, Base, Solana, and BNB Chain — among the broadest blockchain distributions of any tokenized Treasury product. This multi-chain strategy maximizes the addressable investor base by meeting investors on their preferred blockchain rather than requiring migration to a single network.
Ondo Finance expanded USDY across 10 blockchains — Ethereum, Solana, Mantle, Sui, Aptos, Arbitrum, Noble, Stellar, Plume, and Cosmos — reaching $1.21 billion AUM. Ondo’s total TVL hit an all-time high of $1.926 billion in December 2025, bolstered by the launch of Ondo Global Markets (which reached $320 million TVL by October 2025) and the acquisition of Oasis Pro Markets for broker-dealer and ATS registrations. BUIDL expanded from Ethereum to 8 blockchains, with notable distribution across Avalanche ($554.7 million), Aptos ($544.1 million), and Polygon ($530.9 million) as of October 2025. The multi-chain approach creates operational complexity — each deployment requires separate smart contract audits, compliance infrastructure, and liquidity management — but the distribution advantages outweigh the costs at current growth rates.
The interoperability challenge for multi-chain tokenized Treasuries is significant. An investor holding BENJI tokens on Polygon cannot directly transfer them to an Ethereum-based DeFi protocol. Cross-chain bridges introduce counterparty risk and latency that institutional investors may find unacceptable. SWIFT’s tokenized asset transfer experiments address this by providing a standardized messaging layer that could facilitate cross-chain transfers through trusted intermediaries rather than trustless bridges.
Stablecoin Comparison and Competition
Tokenized Treasuries compete directly with stablecoins for on-chain dollar exposure, with the critical differentiator being yield. USDC ($30B+ market cap) and USDT ($100B+ market cap) provide dollar-pegged tokens with zero yield — the issuing entities (Circle, Tether) earn the Treasury yield on reserves and retain it as revenue. Tokenized Treasury products pass this yield through to holders, creating a direct economic advantage.
The competitive response from stablecoin issuers has been notable. Circle launched USYC (US Yield Coin) to offer yield-bearing dollar exposure. PayPal’s PYUSD explored yield-sharing mechanisms. The competition between non-yield stablecoins and yield-bearing tokenized Treasuries is driving a structural shift in on-chain dollar markets — capital is migrating from zero-yield to yield-bearing instruments, following the same economic logic that drives traditional money market fund flows.
For institutional participants evaluating on-chain dollar exposure, the choice between stablecoins and tokenized Treasuries involves trade-offs: stablecoins offer deeper liquidity and broader DeFi integration, while tokenized Treasuries offer yield, regulatory compliance, and transparent reserve backing. The market is evolving toward convergence, with yield-bearing stablecoins and liquid tokenized Treasuries occupying an increasingly overlapping product space.
Risk Factors and Limitations
Despite strong growth, tokenized Treasury products carry risks that institutional investors must evaluate. Redemption risk — the ability to convert tokens back to dollars — depends on the fund’s liquidity management. BUIDL offers same-day redemptions for amounts under $250,000, with larger redemptions processed within 1-3 business days. During market stress, if multiple large holders simultaneously seek redemptions, processing delays could create temporary illiquidity.
Smart contract risk — the possibility of bugs or vulnerabilities in the token’s code — is mitigated by professional auditing (BUIDL’s contracts were audited by multiple firms) but cannot be eliminated entirely. The smart contract risk framework for institutional tokenized securities applies to Treasury products: even simple token contracts (ERC-20 with transfer restrictions) have attack surfaces that require ongoing monitoring.
Concentration risk — BlackRock, Franklin Templeton, and Ondo collectively represent 80%+ of the tokenized Treasury market — means that operational issues at any single provider could affect a significant portion of the on-chain Treasury ecosystem. The bond tokenization market forecast projects that the provider base will diversify as the market grows, with 10+ competitive providers by 2028.
Outlook: The Path to $20 Billion and Beyond
The tokenized Treasury market has already surpassed $10 billion, reaching $11.70 billion in March 2026. The path to $20 billion+ depends on three catalysts. First, institutional mandate expansion — pension funds, insurance companies, and sovereign wealth funds allocating to tokenized Treasuries as part of their cash management strategies rather than treating them as experimental digital asset allocations. Second, DeFi protocol growth — as on-chain lending, derivatives, and structured products scale, demand for high-quality on-chain collateral (tokenized Treasuries) scales proportionally. Third, regulatory clarity — clear SEC guidance enabling tokenized Treasury mutual funds and ETFs accessible to retail investors through traditional brokerage accounts.
JPMorgan and Goldman Sachs — the two largest Treasury dealers — have the distribution infrastructure to dramatically accelerate tokenized Treasury adoption if they launch competing products or distribute existing products (BUIDL, BENJI) through their institutional client networks. The G20 tokenization roadmap identifies tokenized government securities as a priority area for cross-border standardization, suggesting regulatory tailwinds for the segment through 2028-2030.
According to BIS research, tokenized Treasury products represent the “most mature” segment of the tokenized securities market, with “production-scale volumes and institutional-grade infrastructure” that provides a template for tokenization of other fixed-income segments including corporate bonds, sovereign bonds, and money market instruments.
DTCC Integration and Settlement Infrastructure
DTCC, settling $2.4 quadrillion annually in U.S. securities transactions, has developed connectivity between its Tokenized Collateral Network and tokenized Treasury products. BUIDL tokens are accepted as collateral through the DTCC network, enabling institutional holders to pledge tokenized Treasury exposure for margin requirements at DTCC-cleared transactions. This integration transforms tokenized Treasuries from standalone digital assets into functional components of the existing securities settlement ecosystem. The total RWA tokenization market reached $20 billion in TVL excluding stablecoins ($375.99 billion including stablecoins) with 630,000+ holders as of late 2025, and is anchored by tokenized Treasuries as the largest institutional-grade segment, and DTCC’s infrastructure support validates the asset class for the broadest institutional adoption. Broadridge DLR’s acceptance of tokenized Treasury collateral for repo transactions further cements tokenized Treasuries as the foundational asset of on-chain institutional finance, with Canton Network providing the interoperability layer connecting Treasury tokenization platforms with the broader institutional infrastructure.
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