U.S. Treasury Bonds Face Struggles due to Tariffs, but the Growth of Tokenized Treasuries Remains

In the ever-evolving world of finance, a new trend is emerging: the tokenization of treasuries. This innovative approach to traditional financial instruments is gaining traction, particularly among major players like BlackRock and Franklin Templeton, who are purchasing T-bills with maturation dates of less than one year. These tokenized treasuries comprise 21.29% of the total treasury market.

Meanwhile, stablecoin issuers such as Circle and Tether collectively own over $100 billion of assets. However, these assets could be impacted by a major national debt ceiling crisis. In contrast, tokenized treasuries, despite compliance requirements including AML/KYC checks and restrictions on asset receipt, are showing early growth rates that stablecoins, which have been around since 2014, could only dream of.

The tokenized treasury market, valued at $5.86 billion as of April 2021, has seen exponential growth. A significant portion of this growth comes from corporate funds like Ethena and MakerDAO's spark. The total market capitalization of tokenized treasuries has added another $1.01 billion since April 2, representing a 20.8% increase in less than a week.

The market turmoil of the last two weeks has caused a surge in derivatives trading business. Counterparties are putting on hedges and repositioning for increased volatility outside of the recent trading range. Derivit, a non-U.S. company, is planning to offer spot BUIDL for trading, making it the first to accept the token as collateral.

The yield of U.S. 10-year treasury bonds has seen significant fluctuations in the past. During the "Great Bond Massacre" from October 1993 to October 1994, the yield jumped from 5.42% to just below 8.0%. On Tuesday, U.S. 10-year yields surged overnight from 3.87% to almost 4.49%.

Despite this volatility, the tokenized treasury market has shown resistance. The 10-year to 2-year and 10-year to 3-month spreads in the treasury market have increased by 93% and 18 basis points, respectively, since April 2.

Notably, demand to post yield-bearing assets like stablecoins backed by T-bills and even liquid staking tokens for majors like ETH and SOL is increasing due to margin transfer activity. Hedge funds and other professional traders are using tokenized treasuries as a yield-bearing form of collateral when trading in margin.

Deribit's Chief Commercial Officer, Jean-David Péquignot, wants to see a wider array of investors purchasing tokenized treasuries and more diversification in asset ownership. He does not see the ongoing volatility as a deterrence to the tokenized treasury market.

In a strategic move, An MOU has been signed between Circle and the New York Stock Exchange Company Intercontinental Exchange to explore using Circle's stablecoin USDC and tokenized money market offering US Yield Coin for new products and solutions.

As the world of finance continues to evolve, the tokenization of treasuries could prove to be a significant shift, offering new opportunities for investors and institutions alike.

U.S. Treasury Bonds Face Struggles due to Tariffs, but the Growth of Tokenized Treasuries Remains