Tokenized Treasuries: How to Earn US Government Yield On-Chain

# Tokenized Treasuries: How to Earn US Government Yield On-Chain

The fastest-growing sector in crypto is not a new Layer 1 chain or a meme coin. It is tokenized US Treasury bills — blockchain-based tokens backed by the full faith and credit of the US government.

In 2023, the total value of tokenized Treasuries was under $1 billion. By early 2025, it had grown past $3 billion. The growth trajectory has been driven by a simple proposition: earn US government yield while keeping assets on-chain, composable with DeFi, and accessible 24/7.

This guide explains what tokenized Treasuries are, how they work, who the major issuers are, and how to evaluate whether they belong in your portfolio.

Risk Warning: While tokenized Treasuries are backed by US government debt, the tokenization layer introduces additional risks including smart contract risk, issuer/custodian risk, and regulatory risk. This article is educational — not financial advice. Consult a qualified advisor before making investment decisions.

What Are Tokenized Treasuries?

A tokenized Treasury is a blockchain token that represents ownership of — or economic exposure to — US Treasury securities (typically short-term T-bills). The underlying Treasury bills are held by a custodian (often a regulated financial institution), and tokens are issued on a blockchain (usually Ethereum) to represent claims on those assets.

The Basic Structure

1. An issuer (like BlackRock, Ondo Finance, or Franklin Templeton) purchases US Treasury bills through traditional financial channels.
2. A custodian (like Bank of New York Mellon or State Street) holds the Treasury bills in segregated accounts.
3. Tokens are minted on a blockchain, with each token representing a share of the underlying Treasury portfolio.
4. Token holders earn the yield generated by the Treasury bills, minus management fees.
5. Redemption typically works by burning tokens and receiving USD (via wire or stablecoin) corresponding to the token's net asset value (NAV).

Why This Matters

Traditional Treasury bills are among the safest investments in the world, but they are not natively compatible with DeFi. You cannot use a T-bill as collateral on Aave, trade it 24/7 on a decentralized exchange, or send it to anyone with a crypto wallet.

Tokenization bridges this gap. It brings government-backed yield into the on-chain ecosystem, creating a new asset class that combines TradFi safety with DeFi composability.

The Major Tokenized Treasury Products

BlackRock BUIDL (USD Institutional Digital Liquidity Fund)

BlackRock's BUIDL fund, launched in March 2024, quickly became the largest tokenized Treasury product. Key features:

• Issuer: BlackRock, the world's largest asset manager (over $10 trillion in assets under management).
• Blockchain: Launched on Ethereum; expanded to additional chains.
• Underlying assets: US Treasury bills, repurchase agreements, and cash.
• NAV: Targets a stable $1 per token. Yield accrues and is distributed to holders (typically monthly).
• Minimum investment: $5 million (institutional product — not directly accessible to most retail investors).
• Custodian: Bank of New York Mellon.
• Management fee: 0.50% annually.

BUIDL's significance lies in BlackRock's brand and institutional credibility. Its launch signaled that the largest traditional asset manager views tokenization as a serious infrastructure upgrade for capital markets.

Ondo Finance (OUSG and USDY)

Ondo Finance has emerged as one of the most prominent tokenized Treasury issuers, offering products with lower minimum investments than BlackRock.

OUSG (Ondo Short-Term US Government Treasuries):

• Underlying assets: Short-term US Treasury securities, primarily held through BlackRock's SHV (iShares Short Treasury Bond ETF) and BUIDL.
• Blockchain: Ethereum, with expansion to other chains.
• Minimum investment: Varies by jurisdiction; lower than BUIDL's $5 million minimum but typically requires qualified purchaser or accredited investor status.
• Yield: Passes through the yield of the underlying Treasury portfolio, minus management fees.

USDY (US Dollar Yield):

• Structure: A tokenized note backed by short-term US Treasuries and bank demand deposits.
• Yield: The token accrues value over time (rebasing or value-accruing mechanism), reflecting Treasury yields.
• Accessibility: Available to non-US persons in many jurisdictions. Not available to US persons directly.

Franklin Templeton (BENJI / FOBXX)

Franklin Templeton was one of the first traditional asset managers to tokenize a money market fund.

• Product: Franklin OnChain U.S. Government Money Fund (FOBXX), accessible through the Benji Investments app.
• Blockchain: Initially on Stellar, later expanded to Polygon and other chains.
• Underlying assets: US government securities (Treasuries and government agency securities).
• Minimum investment: As low as $20, making it one of the most accessible tokenized Treasury products.
• Structure: Registered 40 Act fund — meaning it operates under the same regulatory framework as traditional mutual funds.

Other Notable Issuers

• Securitize — A tokenization platform that partners with issuers including BlackRock. Operates the transfer agent function for BUIDL.
• Superstate — Offers the USTB token backed by short-term Treasury bills.
• Mountain Protocol — Issues USDM, a yield-bearing stablecoin backed by US Treasuries.
• Hashnote — Institutional-grade tokenized Treasury product.

How Tokenized Treasury Yield Works

Where the Yield Comes From

The yield on tokenized Treasuries comes from the same place as yield on traditional T-bills: the US government pays interest on its debt. When you buy a Treasury bill at a discount and it matures at par, the difference is your return.

As of early 2026, short-term US Treasury yields have been influenced by the Federal Reserve's monetary policy decisions. Treasury bill yields generally track the federal funds rate. When the Fed raises rates, T-bill yields increase. When the Fed cuts rates, T-bill yields decrease.

Do not assume current rates will persist. Treasury yields are a function of Fed policy and macroeconomic conditions. They can change meaningfully over months.

Fee Structures

Tokenized Treasury products charge management fees that reduce your net yield:

• BlackRock BUIDL: 0.50% annual management fee
• Ondo OUSG: Management fees vary; check current documentation
• Franklin FOBXX: Approximately 0.20% expense ratio (competitive with traditional money market funds)

These fees come directly out of your yield. If the underlying Treasuries yield 4.5% and the management fee is 0.50%, your net yield is approximately 4.0%.

How Yield Is Distributed

Different products handle yield distribution differently:

• Rebasing tokens — The number of tokens in your wallet increases over time. If you hold 100 tokens and the daily yield is distributed as new tokens, you might have 100.01 tokens the next day.
• Value-accruing tokens — The number of tokens stays the same, but each token's NAV increases. If you hold 100 tokens at $1.00 each and yield accrues, each token might be worth $1.0001 the next day.
• Periodic distributions — Yield is paid out at set intervals (daily, weekly, or monthly) as stablecoins or additional tokens.

How to Access Tokenized Treasuries

Requirements

Most tokenized Treasury products have some access requirements:

• KYC/AML verification — Unlike permissionless DeFi, tokenized Treasuries typically require identity verification because the underlying securities are regulated.
• Accredited or qualified investor status — Some products (especially BUIDL) require institutional or accredited investor qualification.
• Geographic restrictions — Some products are not available to US persons, or are only available in certain jurisdictions.
• Minimum investment — Ranges from $20 (Franklin Benji) to $5 million (BlackRock BUIDL).

Access Channels

• Direct from issuer — Purchase through the issuer's app or platform (e.g., Benji for Franklin Templeton, Ondo's platform for OUSG/USDY).
• Secondary markets — Some tokenized Treasuries trade on decentralized exchanges, though liquidity varies.
• DeFi integrations — Some tokens are accepted as collateral on lending protocols, meaning you can earn Treasury yield while using the tokens productively in DeFi.

Tokenized Treasuries in DeFi

One of the most compelling aspects of tokenized Treasuries is their composability with DeFi protocols.

As Collateral

Tokenized Treasury tokens can potentially be used as collateral on lending protocols. Because they are backed by US government debt, they represent a fundamentally different risk profile from volatile crypto assets. A lending protocol that accepts tokenized Treasuries as collateral could offer higher loan-to-value ratios than it would for ETH or other volatile assets.

MakerDAO was an early mover here, allocating a significant portion of its reserves to US Treasuries (both tokenized and through real-world asset vaults).

As a Yield Layer

Protocols can integrate tokenized Treasuries to offer their users US government yield without those users needing to exit the on-chain ecosystem. This creates a "risk-free rate" benchmark for DeFi — a baseline yield that all other DeFi strategies can be measured against.

Stablecoin Evolution

Some view tokenized Treasuries as the evolution of stablecoins. Traditional stablecoins like USDC and USDT hold significant Treasury reserves but do not pass the yield through to holders. Tokenized Treasury products essentially add yield distribution to the stablecoin model, creating "productive stablecoins" that earn government-backed returns.

Risks and Considerations

Despite being backed by US government debt, tokenized Treasuries are not risk-free.

Smart Contract Risk

The tokens exist on a blockchain and are managed by smart contracts. Bugs or vulnerabilities in these contracts could result in loss of funds or inability to redeem tokens.

Issuer and Custodian Risk

You are trusting the issuer to properly manage the fund and the custodian to properly hold the assets. While firms like BlackRock and Bank of New York Mellon have long track records, the tokenization infrastructure is relatively new.

Regulatory Risk

Tokenized securities exist at the intersection of securities law and crypto regulation. Regulatory changes could affect how these products operate, who can access them, or whether they can exist at all.

The SEC, CFTC, and other regulators are still developing frameworks for tokenized securities. A regulatory crackdown — or even unclear guidance — could disrupt the market.

Liquidity Risk

While some tokenized Treasury tokens are redeemable daily at NAV, others may have limited secondary market liquidity. During market stress, you may not be able to sell or redeem tokens quickly.

Interest Rate Risk

If the Federal Reserve cuts interest rates, Treasury yields decline, and so does the yield on tokenized Treasury products. Investors who enter during a high-rate environment should understand that yields will decrease if monetary policy shifts.

Centralization Concerns

Unlike permissionless DeFi, tokenized Treasuries introduce centralized points of control:

• Token issuers can freeze or blacklist addresses — Many tokenized security contracts include admin functions that allow the issuer to freeze tokens for compliance purposes.
• KYC requirements limit who can participate, reducing the permissionless nature of blockchain.
• Redemption depends on the issuer — If the issuer becomes insolvent or unable to operate, redemption could be delayed or impaired, even if the underlying Treasuries are safe.

Tokenized Treasuries vs. Stablecoins vs. DeFi Lending

| Feature | Tokenized Treasuries | Stablecoins (USDC/USDT) | DeFi Lending (Stablecoins) | |---------|---------------------|------------------------|---------------------------| | Yield | US Treasury rate minus fees | None (yield kept by issuer) | Variable, market-driven | | Underlying asset | US government debt | Treasuries + cash + other | Borrower demand | | Risk profile | Low (government-backed + tokenization risk) | Low (issuer risk) | Medium (smart contract + utilization risk) | | KYC required | Usually yes | No | No | | DeFi composability | Growing | Full | Full | | Regulatory clarity | Higher (securities framework) | Moderate | Lower |

Who Should Consider Tokenized Treasuries?

Good Fit

• DeFi-native investors who want a lower-risk yield option without leaving the on-chain ecosystem.
• Institutional investors looking for on-chain cash management with familiar underlying assets.
• Treasury managers of DAOs or crypto companies who want to earn yield on reserves without converting to traditional finance rails.
• Risk-conscious investors who want yield backed by the US government rather than dependent on crypto borrowing demand.

Less Ideal For

• Users seeking maximum yield — DeFi lending often offers higher (and more variable) returns than Treasuries.
• Users who prioritize permissionlessness — The KYC requirements and admin controls conflict with DeFi's permissionless ethos.
• Non-accredited investors (for some products) — BUIDL and certain other products have high minimums or accredited investor requirements.

The Bigger Picture: Why Tokenization Matters

Tokenized Treasuries are not just a niche DeFi product. They represent the early stage of a much larger trend: the tokenization of real-world assets (RWAs).

If US Treasury bills — the most liquid, most traded securities in the world — can be successfully tokenized and integrated into on-chain systems, the same infrastructure can eventually support corporate bonds, equities, real estate, and other asset classes.

Major financial institutions including BlackRock, JPMorgan, Goldman Sachs, and Citigroup have all publicly stated that tokenization is a key part of their future infrastructure strategy. The Boston Consulting Group has projected that tokenized asset markets could reach trillions of dollars within the next decade.

Tokenized Treasuries are the proving ground. If the infrastructure works — if the tokens are secure, the regulatory framework is clear, and the liquidity is sufficient — it opens the door to a fundamental restructuring of how financial assets are issued, traded, and settled.

Getting Started

If you want to explore tokenized Treasuries:

1. Research the products — Review the documentation, fee structures, and legal terms of each product. Start with the issuer's official website.
2. Check eligibility — Determine whether you meet the KYC, accreditation, and geographic requirements.
3. Understand the redemption process — Know how to exit your position before you enter it. Some products offer daily redemption; others may take days.
4. Start small — As with any new investment, start with an amount you are comfortable with while you learn how the product works.
5. Monitor interest rates — Your yield is tied to Treasury rates, which change with Fed policy.

Bottom Line

Tokenized Treasuries represent a meaningful convergence of traditional finance and blockchain technology. They bring the safety of US government debt into the composable, 24/7 world of DeFi, creating a low-risk yield option that did not exist on-chain just a few years ago.

But "low risk" is not "no risk." The tokenization layer adds smart contract risk, issuer risk, and regulatory uncertainty. The KYC requirements make these products less accessible than typical DeFi. And the yields, while government-backed, are not fixed — they move with interest rates.

For investors who understand these trade-offs, tokenized Treasuries offer something genuinely useful: a stable, government-backed yield that lives natively on the blockchain.

Disclaimer: This article is for educational and informational purposes only and does not constitute financial, investment, or tax advice. Tokenized securities carry risks including smart contract risk, issuer risk, and regulatory risk. Past yields are not indicative of future performance. Always conduct your own research and consult a qualified financial advisor before making investment decisions.

*Bill Rice is a fintech consultant with over 15 years of experience in the lending industry. He writes about crypto lending, DeFi, and digital asset strategies at CryptoLendingHub.com.*