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

I've been digging into tokenized Treasuries for months now, and what started as skeptical curiosity has turned into genuine fascination. Here's an asset class that shouldn't exist — US government debt living natively on blockchain — but it's growing at a pace that has even a traditional finance guy like me paying attention.

The numbers tell the story: tokenized Treasury value jumped from under $1 billion in 2023 to over $3 billion by early 2025. That's not meme coin volatility — that's institutional money recognizing something fundamental is shifting.

This guide walks through what these products actually are, who's building them, and whether they make sense for 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 exactly what it sounds like: a blockchain token that represents ownership of — or economic exposure to — US Treasury securities. Usually short-term T-bills, though the specifics vary by issuer.

Here's the basic plumbing: An issuer like BlackRock buys Treasury bills through normal channels. A regulated custodian (think Bank of New York Mellon) holds those bills in segregated accounts. Tokens get minted on blockchain to represent claims on those underlying assets. Token holders earn the yield, minus fees. Want out? Burn tokens, get USD back at net asset value.

The magic is in the bridge. Traditional T-bills are among the world's safest investments, but they're trapped in TradFi rails. You can't use a T-bill as collateral on Aave. You can't trade it at 3 AM on a Saturday. You can't send it to a wallet address in Singapore.

Tokenization changes that equation. Now you have government-backed yield that lives natively on-chain, composable with DeFi protocols, accessible 24/7.

The Major Tokenized Treasury Products

BlackRock BUIDL (USD Institutional Digital Liquidity Fund)

When BlackRock — the $10 trillion asset manager — launched BUIDL in March 2024, it became the largest tokenized Treasury product almost overnight. That tells you something about institutional demand.

The structure: US Treasury bills, repo agreements, and cash, custodied by Bank of New York Mellon. Each token targets $1 NAV, with yield distributed monthly. Management fee runs 0.50% annually.

The catch: $5 million minimum investment. This is an institutional product, not a retail play.

Why it matters: BlackRock's entry validated the entire category. When the world's largest asset manager treats tokenization as serious infrastructure — not a crypto experiment — everyone else pays attention.

Ondo Finance (OUSG and USDY)

Ondo Finance has positioned itself as the accessible alternative to BlackRock's institutional-only approach. I've spent considerable time reviewing their documentation, and they've built something interesting.

OUSG (Ondo Short-Term US Government Treasuries) invests primarily through BlackRock's SHV ETF and BUIDL fund. Lower minimums than BUIDL, though still requiring accredited investor status in most jurisdictions.

USDY (US Dollar Yield) is structured as a tokenized note backed by short-term Treasuries and bank deposits. The token accrues value over time rather than distributing yield. Notably not available to US persons — a regulatory constraint I'm still parsing.

Franklin Templeton (BENJI / FOBXX)

Franklin Templeton was actually ahead of the curve here. Their OnChain U.S. Government Money Fund launched as one of the first traditional asset manager tokenization efforts.

Key differentiator: $20 minimum investment through their Benji app. That's retail accessibility that BlackRock doesn't touch.

Structure matters: This operates as a registered 40 Act fund, meaning it follows the same regulatory framework as traditional mutual funds. That's either reassuring compliance or unnecessary overhead, depending on your perspective.

Initially launched on Stellar, now expanded to Polygon and other chains.

Other Notable Players

The ecosystem is expanding fast. Securitize operates as BlackRock's transfer agent and partners with other issuers. Superstate offers USTB backed by short-term bills. Mountain Protocol's USDM is a yield-bearing stablecoin backed by Treasuries. Hashnote targets institutional clients.

What I'm watching: How these products differentiate beyond fee compression and minimum investment requirements.

How Tokenized Treasury Yield Works

The Yield Source

This isn't yield farming or liquidity mining. The yield comes from the same place it always has: the US government paying interest on its debt. When Treasury bills are issued at discount and mature at par, that difference is your return.

Current yields track the federal funds rate. Fed raises rates, T-bill yields increase. Fed cuts rates, yields decrease. As of early 2025, we're still in a relatively high-rate environment, but don't assume that persists.

I cannot stress this enough: Treasury yields are not fixed. They move with Fed policy and macro conditions. The 4%+ yields available today could be 2% or 6% next year.

Fee Impact

Management fees come directly out of your net yield:

• BlackRock BUIDL: 0.50% annual fee
• Franklin FOBXX: ~0.20% expense ratio
• Others vary — always check current documentation

Simple math: if underlying Treasuries yield 4.5% and management fees are 0.50%, your net yield is roughly 4.0%.

Distribution Mechanics

Products handle yield differently:

Rebasing tokens increase the number of tokens in your wallet. Hold 100 tokens, earn yield, wake up with 100.01 tokens.

Value-accruing tokens keep token count constant but increase NAV. Same 100 tokens, but each worth $1.0001 instead of $1.0000.

Periodic distributions pay yield as stablecoins or additional tokens at set intervals.

How to Access Tokenized Treasuries

The Gatekeeping

Unlike permissionless DeFi, these products have requirements:

KYC/AML verification is universal. You're buying regulated securities, so identity verification is non-negotiable.

Accredited investor status required for some products, especially BUIDL's $5 million minimum.

Geographic restrictions vary widely. Some products exclude US persons entirely. Others are US-only. Check eligibility before getting excited about yields.

Access Points

Direct purchase through issuer platforms (Benji for Franklin, Ondo's platform for OUSG/USDY) is most common. Some tokens trade on DEXs, though liquidity varies.

Growing DeFi integrations are the real opportunity. Using tokenized Treasuries as collateral while earning government yield? That's genuinely new.

Tokenized Treasuries in DeFi

This is where it gets interesting from a capital markets perspective.

Collateral Evolution

Imagine using tokenized Treasuries as collateral on Aave or Compound. Because they're backed by government debt, lending protocols could offer higher loan-to-value ratios than they would for ETH or other volatile assets.

MakerDAO was early here, allocating significant reserves to US Treasuries through both tokenized products and real-world asset vaults.

The Risk-Free Rate Question

Traditional finance has the Treasury rate as its risk-free benchmark. DeFi has never had that. Tokenized Treasuries could fill that gap — creating an on-chain baseline yield that all other DeFi strategies get measured against.

Productive Stablecoins

Here's a thought experiment: Traditional stablecoins like USDC hold massive Treasury reserves but keep the yield. Tokenized Treasury products essentially add yield distribution to the stablecoin model. Why hold USDC earning 0% when you could hold tokenized Treasuries earning Treasury rates?

Risks and Considerations

Government backing doesn't mean risk-free. The tokenization layer introduces new failure modes I'm still working through.

Smart Contract Risk

These tokens live in smart contracts. Code bugs could freeze funds or break redemption mechanisms. Unlike holding T-bills in a traditional brokerage account, you're trusting both the underlying Treasury and the blockchain implementation.

Issuer and Custodian Risk

You're trusting BlackRock or Ondo to manage the fund properly and Bank of New York Mellon to custody assets correctly. These are highly credible institutions, but the tokenization infrastructure is new. Operational failures could delay redemptions even if underlying Treasuries are safe.

Regulatory Uncertainty

The SEC and other regulators are still developing tokenized securities frameworks. A regulatory shift could dramatically change how these products operate — or whether they can operate at all.

Centralization Trade-offs

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

• Issuers can freeze or blacklist addresses for compliance
• KYC requirements limit accessibility
• Redemption depends on issuer solvency and operational capacity

Interest Rate Reality Check

If the Fed cuts rates aggressively, Treasury yields plummet, and so does your return. Investors entering during today's high-rate environment need to understand yields are not locked in.

Tokenized Treasuries vs. Alternatives

Who Should Consider These Products?

Good Candidates

DeFi-native investors wanting lower-risk yield without exiting on-chain ecosystems. If you're already comfortable with blockchain interfaces and want government-backed returns, this makes sense.

DAO treasuries and crypto company cash management. Why convert reserves to traditional rails when you can earn Treasury rates on-chain?

Risk-conscious investors preferring government backing over DeFi lending demand. If Aave's variable rates make you nervous, fixed Treasury exposure might fit better.

Less Ideal Fits

Maximum yield seekers — DeFi lending often pays more (with more risk).

Permissionless maximalists — KYC requirements and admin controls conflict with DeFi's open ethos.

Small retail investors (for some products) — BUIDL's $5M minimum excludes most individuals.

The Bigger Infrastructure Play

I keep coming back to this: tokenized Treasuries aren't just a niche DeFi product. They're the proof-of-concept for tokenizing all financial assets.

If the most liquid, most traded securities in the world can be successfully tokenized and DeFi-integrated, the same infrastructure works for corporate bonds, equities, real estate, commodities — everything.

BlackRock, JPMorgan, Goldman Sachs, and Citi have all publicly committed to tokenization as core infrastructure. Boston Consulting Group projects tokenized assets could reach trillions within a decade.

Tokenized Treasuries are the testing ground. If the tokens are secure, regulations are workable, and liquidity develops, it opens the door to restructuring how all financial assets get issued, traded, and settled.

Getting Started

If you want to explore this space:

Start with research. Review issuer documentation, fee structures, and legal terms directly from official sources.

Check eligibility for KYC, accreditation, and geographic requirements before getting excited about any particular product.

Understand redemption mechanics. Know how to exit before you enter. Some offer daily redemption, others may take longer.

Size appropriately. Start small while learning how these products actually work in practice.

Monitor rate environment. Your yield moves with Fed policy. Today's returns may not persist.

Bottom Line

Tokenized Treasuries solve a real problem: bringing government-backed yield into the composable, always-on world of blockchain. For investors comfortable with the trade-offs — KYC requirements, tokenization risks, variable yields — they offer something genuinely useful.

But "low risk" isn't "no risk." Smart contract bugs, issuer operational failures, and regulatory shifts could all disrupt these products. The yields, while government-backed, move with interest rates.

For the right investor profile, tokenized Treasuries represent something I didn't think would exist this quickly: stable, government-backed yield living natively on blockchain. Whether that's worth the compromises depends on what you're trying to achieve.

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.