Market research firm Kaiko believes tokenized Treasuries will continue to attract investors even as the U.S. Federal Reserve (Fed) is expected to cut interest rates, which can often make fixed income assets less attractive.
According to the company’s Q2 market report, interest in tokenized funds continues to grow among investors seeking liquidity and stability.
Kaiko explained that even with a potential rate cut, the real federal funds rate, adjusted for inflation, could remain stable or even rise. This scenario could keep Treasuries attractive relative to riskier assets as investors prioritize liquidity and safety.
Increase 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 that provide exposure to traditional debt instruments such as U.S. Treasuries. Other notable funds include Franklin Templeton’s FOBXX, Ondo Finance’s OUSG and USDY, and Hashnote’s USYC, all of which offer yields tied to 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, temperature, After announcing our partnership with BUIDL, we experienced a significant surge in transactions, reaching an all-time high. $1.56 in June.
Challenge
However, the report noted that inflows into these funds could face challenges as the market hype subsides and the U.S. interest rate environment changes.
The appeal of tokenized Treasury funds may persist despite expectations of a potential Fed Funds rate cut, as the market expects a 100bps cut this year. Recent weaker-than-expected U.S. inflation data has reinforced expectations of a September rate cut.
However, a rate cut may not necessarily lead to an easing of monetary policy. If inflation falls at the same rate or faster than the nominal rate cut, real interest rates may remain stable or even rise. The real federal funds rate, adjusted for the producer price index, has risen moderately this year despite the stability of nominal interest rates.
A $2 billion market
The tokenized U.S. Treasury market hit a record high of $1.93 billion on August 14, according to rwa.xyz. dataThe market has grown 150% since the beginning of the year.
Since BlackRock’s BUIDL launch, Ethereum (ETH) has become the preferred infrastructure for issuing tokenized versions of funds, with $1.4 billion worth of digital assets created on the network at the time of writing.
Stellar comes in second with $430 million, led 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 U.S. Treasuries committed, respectively.