I recently started studying RWA systematically. In the previous article, I learned the basic concept of RWA and the main categories of real-world assets going onchain.
This time I plan to look more closely at one of the more important directions: tokenized Treasuries and government debt.
When I used to follow DeFi and saw a protocol offering 5%, 10%, or even higher annualized yield, my first thought was: where does this yield come from? Can it be sustained?
But after getting into RWA, I found that the yield of some onchain financial products today actually comes from US Treasuries.
This left me with several questions.
Treasuries already trade in traditional financial markets, so why do they need to go onchain? Does buying a tokenized Treasury really equal holding a US Treasury? And how is the yield transmitted from the traditional financial system onto the blockchain?
With these questions, I looked into some materials and decided to first study the whole mechanism clearly.
1. First, what exactly is a Treasury?
To understand Treasury tokenization, we first need to know what a Treasury itself is.
In fact, Treasuries are not complicated.
Put simply, a Treasury is a debt instrument issued when a government borrows money from investors.
Governments need funds to support public spending, repay maturing debt, and other activities, and issuing Treasuries is one way to raise money.
Suppose the US government issues a batch of Treasuries with a one-year term. Investors who buy them are effectively lending money to the US government.
At maturity, the U.S. Department of the Treasury repays the principal as agreed and delivers return to investors through interest or an issuance discount.
However, different Treasuries generate yield in different ways.
Taking US Treasuries as an example, they fall mainly into three types.
First: Treasury Bills.
Their terms usually do not exceed one year.
These Treasuries are usually issued at a discount. For example, take a bill that repays $1,000 at maturity. If an investor buys it at $960 and receives $1,000 when held to maturity, the $40 in between is the return the investor earns.
The numbers here are just an example and do not represent actual current US Treasury yields.
Second: Treasury Notes.
Their terms mainly include 2 years, 3 years, 5 years, 7 years, and 10 years, and they usually pay interest every six months.
Third: Treasury Bonds.
Their terms are generally 20 or 30 years, and likewise they usually pay interest every six months.
In addition, US Treasuries include products such as inflation-protected securities and floating-rate notes.
So the "US Treasury yield" we often hear about is not one fixed number.
Treasuries of different terms may differ in yield, price volatility, and interest-rate risk.
This point matters, because many of the RWA products we will discuss invest mainly in short-term US Treasuries or related money market funds, not necessarily the 10-year US Treasuries we often see in the news.
2. What does Treasury tokenization actually mean?
With Treasuries understood, let's look at tokenization.
Treasury tokenization means using digital tokens on a blockchain to represent Treasuries themselves, or the rights in financial products related to Treasuries.
This needs to be emphasized in particular:
It is not about turning US Treasuries into a new cryptocurrency, but about changing how Treasuries or the related financial rights are registered, held, and transferred.
At present, this can be understood through two common models.
The first is tokenization of Treasuries themselves.
For example, a government or related institution issues bonds on blockchain infrastructure that meets regulatory requirements, with the onchain records representing rights in the corresponding debt securities.
The second is tokenization of a fund or financial product that holds Treasuries.
For example, an asset management institution sets up a fund, uses investors' money to buy short-term US Treasuries or other eligible assets, and then issues the fund shares as onchain tokens.
For investors, it is the second model that is especially easy to encounter.
However, there is one important difference between the two models.
With directly tokenized Treasuries, holders may have rights in the corresponding debt securities.
With a tokenized Treasury fund, holders usually have fund shares or other agreed entitlements, not a direct position as creditors of the U.S. Department of the Treasury.
The underlying asset being a US Treasury does not mean the token itself is a US Treasury.
Understanding this distinction is the foundation for studying all RWA Treasury products.
3. How does a US Treasury get onto the blockchain?
Let's take a simplified example.
Suppose there is an asset management institution called A that is preparing to launch an onchain yield product backed by short-term US Treasuries.
The overall process looks roughly like this.
Step 1: Investors provide the funds.
Eligible investors subscribe to institution A, putting in, say, $10 million.
Step 2: The institution buys the underlying assets.
Following the product rules, institution A invests the funds in short-term US Treasuries, government money market funds, or other permitted assets.
These assets are usually held in custody by qualified financial institutions.
Step 3: Corresponding tokens are issued.
Institution A issues tokens through smart contracts so that investors hold the corresponding product rights.
Suppose each token initially corresponds to $1 of net asset value; then $10 million of initial assets could correspond to 10 million tokens issued.
The actual issuance amount also needs to take into account factors such as the product's NAV and fees.
Step 4: The underlying assets generate yield.
US Treasuries generate interest or discount-based return according to their own rules.
After management fees, service fees, and other costs are deducted, the remaining yield may be credited to investors according to the product rules.
Step 5: The yield is reflected in the tokens.
Different projects use different mechanisms.
Some products reflect yield through steadily increasing token net asset value, while others may deliver it by increasing the number of tokens held or distributing yield.
Step 6: Investors request redemption.
Investors hand back or burn the corresponding tokens according to the rules, and once the issuing institution completes settlement, it pays the corresponding funds to investors.
There is an easy misunderstanding here.
Although the tokens run on a blockchain, the underlying assets still have to be bought, managed, and redeemed through the traditional financial system.
So even if a token supports 24/7 onchain transfers, that does not mean the issuing institution can complete a fiat redemption immediately at any time.
Blockchain solves certain recordkeeping, transfer, and settlement problems; it does not automatically remove the business hours and asset-settlement constraints of traditional financial markets.
4. Where does the yield of onchain Treasuries actually come from?
This is probably the question Crypto users care about most.
In DeFi, some yield may come from lending interest, trading fees, protocol incentives, or newly issued tokens.
But for RWA yield products with short-term US Treasuries as the underlying assets, the main economic source is usually the traditional financial assets themselves.
For example.
Suppose a product manages $10 million of funds, all invested in short-term Treasury assets with a 4% annualized yield.
Let's set aside price changes and complex compounding calculations for now.
Then the gross yield for one year is about $400,000.
Suppose the combined management and service costs amount to 0.5% of the asset size, or about $50,000 a year; investors would ultimately receive roughly $350,000 in net return, a net annualized yield of about 3.5%.
These numbers are used only to explain the yield mechanism.
Real products may differ in asset allocation, fees, yield rates, and distribution methods.
This also means the yield of tokenized Treasuries does not come from nowhere.
Onchain only changes how the rights to the yield are recorded and distributed; it is still the underlying financial assets that truly generate the yield.
One further point deserves attention.
US Treasury yields are affected by factors such as market interest rates, terms, and prices.
When market interest rates change, the yield on newly purchased Treasuries may change accordingly, and funds holding bonds of different terms are affected to different degrees.
So even if a product shows a 4% annualized yield today, that should not be taken to mean it will reliably earn 4% for years to come.
5. Which tokenized Treasury products are worth watching today?
After understanding the basic principles, let's look at a few real cases.
1. Ondo Finance: USDY and OUSG
Ondo Finance is one of the projects worth knowing when studying RWA Treasury tokenization.
Two products under it help us understand how the products differ: USDY and OUSG.
Start with USDY.
USDY is a yield-accruing tokenized debt product backed by assets such as short-term US Treasuries and bank deposits.
It looks somewhat similar to a dollar stablecoin, but it is not a stablecoin in the ordinary sense of holding a fixed price of 1 dollar.
USDY is designed so that investors receive yield related to the underlying assets, so its value can change as yield accrues.
However, subscription and redemption of USDY are subject to geographic and investor eligibility restrictions. For example, under the official product rules, it does not offer regular subscription and redemption services to US persons.
Now look at OUSG.
OUSG is closer to a tokenized institutional-grade yield product, and its investment portfolio involves tokenized money market funds and other assets permitted by the product rules.
OUSG has access requirements for qualified investors and specific regions; it is not open for anyone holding a crypto wallet to subscribe directly with the issuer.
What makes these two products worth studying is that although both involve low-risk dollar assets such as US Treasuries, investor eligibility, legal structure, holding methods, and liquidity arrangements are not entirely the same.
2. BlackRock: BUIDL
Another highly representative case is BUIDL from BlackRock.
BUIDL's full name is the BlackRock USD Institutional Digital Liquidity Fund.
At its core, it is an institutional liquidity fund using tokenized shares, not an ordinary cryptocurrency issued by BlackRock for the public to speculate on.
The fund mainly invests in assets such as cash, US Treasuries, and related repurchase agreements, and uses the fund structure to provide corresponding yield to eligible investors.
Securitize participates in its tokenized issuance and investor services.
Here is a very important point of understanding:
BUIDL is not a US Treasury issued directly by the U.S. Department of the Treasury on a blockchain; it is a tokenized fund managed by BlackRock.
Investors hold fund rights, while the underlying assets are allocated by the fund according to its investment strategy.
So "BlackRock launches a tokenized fund" should not be read directly as "BlackRock issued a new dollar stablecoin."
These two concepts are completely different.
3. Tokenized bonds issued directly by governments and financial institutions
Beyond tokenizing shares of existing financial products, another route is issuing bonds directly on blockchain infrastructure.
For example, some governments, public institutions, and supranational financial institutions have explored issuing digital bonds via distributed ledger technology.
Compared with tokenizing Treasury funds, this approach is closer to changing the issuance and securities-registration infrastructure of the bonds themselves.
Its value may lie not so much in letting retail investors buy Treasuries through wallets, but in the efficiency of inter-institutional issuance, registration, settlement, and collateral management.
So when studying government debt tokenization, you cannot only watch ERC-20 tokens on Ethereum.
Some institutional-grade tokenized bonds run on permissioned blockchains or restricted financial infrastructure, and ordinary users may not be able to participate directly.
6. How is Treasury tokenization different from USDT and USDC?
Getting this far, I found a question that is very easy to confuse.
The reserve assets of USDT and USDC may also include large amounts of US Treasuries and related dollar assets.
So what exactly distinguishes them from Treasury tokenization products?
The key lies in the rights investors hold and in the design goals of the products.
Fiat-backed stablecoins usually aim primarily to maintain a price close to 1 dollar and to provide a payment and settlement instrument.
Even if the issuing institution earns US Treasury interest through the reserve assets, that does not mean stablecoin holders automatically enjoy that interest.
By contrast, yield-bearing Treasury tokenization products may, as agreed in the issuance documents, credit part of the investment return generated by the underlying assets to holders.
So:
USDC mainly lets you hold and use a dollar-denominated payment asset onchain, while products like USDY and OUSG give eligible investors rights related to specific yield-bearing financial assets.
Of course, different stablecoins and different yield products vary, and in the end everything depends on the specific legal and economic structure.
You cannot judge whether a token is a stablecoin, or whether it can generate yield, just from whether "USD" appears in its name.
7. So why not just buy US Treasuries directly?
This is the question I find most worth discussing.
Since the yield comes from US Treasuries, why go through an extra institution to issue the assets as onchain tokens?
If an investor can already conveniently buy US Treasuries or Treasury ETFs through a traditional securities account, buying the tokenized product is not necessarily the better deal.
Because a tokenized product may add management fees, issuer credit risk, redemption restrictions, and smart contract risk.
But from the perspective of the blockchain financial system as a whole, tokenization may bring certain other values.
First, it makes traditional financial assets legible to onchain financial systems.
When a token represents real fund shares or bond rights, protocols that meet the relevant conditions may be able to use it for onchain collateral, lending, or asset management.
Of course, this requires supporting legal structures and risk management; not every RWA token can freely enter DeFi.
Second, it makes certain financial rights easier to transfer.
Among investors who meet the relevant regulatory and product rules, some rights transfers can be completed on a blockchain, reducing reliance on multiple separate record systems.
Third, it improves the transparency of some transactions and asset records.
A public chain lets outside researchers observe token issuance, burning, transfers, and some changes in holdings.
However, this only verifies onchain activity; it cannot independently prove the actual balances of offchain Treasuries.
Fourth, it lets financial institutions explore new settlement methods.
If bonds and settlement funds can run in compatible systems, some trades could achieve tighter synchronization between delivery of assets and payment.
So the way I see it, the biggest significance of Treasury tokenization is probably not giving retail investors one more way to manage money, but giving traditional financial assets a chance to become part of onchain financial infrastructure.
8. Is Treasury tokenization really safe?
Many people hear that the underlying assets are US Treasuries and assume such RWA products must be very safe.
In reality, though, the credit risk of US Treasuries and the overall risk of holding a tokenized Treasury product are two different things.
First, underlying asset risk.
US Treasuries have their own market prices and interest-rate risk. Long-term Treasuries in particular can fall notably in price when market interest rates rise.
If a product holds other assets, their credit and liquidity risks also need to be considered.
Second, issuer risk.
Investors need to confirm who issues the product, who holds the assets, and how their claims would be protected if the issuing institution runs into trouble.
Third, custody and legal risk.
What investors hold may be fund shares or a claim, not direct ownership of US Treasuries.
If the relevant institutions go bankrupt, whether assets can be recovered smoothly depends on asset segregation, contract terms, and the governing law.
Fourth, liquidity risk.
Even if tokens can be transferred onchain, that does not mean they can always be sold at a reasonable price or redeemed immediately through the issuing institution.
Fifth, smart contract and operational risk.
Smart contract vulnerabilities, admin privileges, private key management, and cross-chain bridge issues can all cause onchain holders additional losses.
So you cannot treat a product as a bank deposit just because it advertises that it is backed by US Treasuries, nor assume that the principal is guaranteed by the US government.
The relatively low credit risk of Treasuries does not automatically cover all the new risks added in the tokenization process.