From yield to collateral: the $8.6 billion tipping point
Tokenized U.S. Treasuries, the largest class of real assets (RWA) after stablecoins, have entered a new phase. Tokenized money market funds (MMFs), which pool cash in short-term U.S. government bonds, are moving from passive yield to collateral for trading, credit and repurchase transactions.
As of late October, the market capitalization of tokenized U.S. Treasuries reached $8.6 billion, up from $7.4 billion in mid-September. The increase was led by BlackRock’s BUIDL with approximately $2.85 billion, followed by Circle’s USYC with $866 million and Franklin Templeton’s BENJI with $865 million. Fidelity’s newly launched tokenized MMF also showed impressive growth, rising to $232 million.
Institutional adoption: exchanges, banks and custodians intervene
Digital representations of Treasury bills are beginning to move through the same clearing and margin systems that support traditional collateral markets. The first practical test of funds as collateral took place in June, when BUIDL was approved on Crypto.com and Deribit. By late September, Bybit announced it was expanding this concept to accept QCDT, a DFSA-approved US Treasury-backed tokenized money market fund, as collateral. This token can be posted by professional customers to the exchange’s trading platform in place of cash or stablecoins. This allows you to earn underlying yield from Treasury funds and maintain trading exposure.
In traditional banking, DBS was the first to actively test tokenized funds. The Singaporean lender has confirmed that Franklin Templeton’s sgBENJI, an on-chain version of the US Government Monetary Fund, will be available for trading and lending on the DBS digital exchange, along with Ripple’s RLUSD stablecoin. The bank is also conducting pilot transactions using sgBENJI as repo and credit collateral. This project transforms tokenized money market funds from a passive investment into a working part of a bank’s lending infrastructure.
Infrastructure and Messaging: The Hidden Engine of Tokenized Finance
The infrastructure that connects banks and blockchain systems has also evolved. Chainlink and Swift have teamed up with UBS Tokenize to complete a pilot using standard ISO 20022 messages to process tokenized fund subscriptions and redemptions. Simply put, this test showed that the same message formats that banks already use to settle securities and payments can trigger smart contract actions on the blockchain.
This pilot represents a clear step towards interoperability. Until now, tokenized funds existed in separate digital systems and required a custom link to connect with banks. Using ISO 20022 as a message format provides a common language for both parties. This will allow custodians and fund administrators to move tokenized assets through the same settlement and reporting processes already used for traditional securities.
For investors and institutions, this means that tokenized U.S. Treasuries are starting to fit into regular financial workflows, rather than being isolated as a cryptocurrency experiment.
Market composition and friction
Although the market is still led by a small number of large funds, it is gradually becoming more diversified. BlackRock’s BUIDL still holds the largest share of the market, accounting for approximately 33% of all tokenized U.S. Treasuries. Franklin Templeton’s BENJI, Ondo’s OUSG, and Circle’s USYC each account for around 9% to 10%.
A quick look at the table below shows how this balance is starting to shift. In a field that was once dominated almost entirely by one financial instrument, multiple regulated managers now share a significant portion of the market. This distribution spreads liquidity and makes accepting collateral more viable for exchanges and banks that prefer diversified exposure.
The reason why tokenized government bonds still face friction is due to regulatory hurdles rather than the demand side. Most of the funds are available only to qualified purchasers under U.S. securities laws, typically institutional investors or high net worth individuals (HNWIs).
The cutoff time is also a subtle but important limitation. Similar to traditional money market funds, the tokenized version allows for redemptions and new subscriptions only at specific times. During periods of high redemptions or liquidity stress, this schedule may delay liquidity withdrawals or injections. This allows them to operate more like traditional funds rather than like 24/7 crypto assets.
Tokenized funds still trade in illiquid markets and rely on blockchain settlement cycles. Therefore, exchanges tend to discount the posted price to a greater extent than traditional Treasury bills. For example, exchanges such as Deribit apply a margin reduction of around 10%. On the other hand, the haircut rate for government bonds in the traditional repo market is only about 2%.
This difference reflects operational risks rather than credit risks, such as redemption delays, on-chain transfer finality, and reduced secondary market liquidity. As tokenized US Treasuries mature and reporting standards become more stringent, these discount rates are expected to narrow towards traditional financial market standards.
Perspective: From pilot to production
Next quarter, we’ll cover the pilot connections mentioned in this article. Repo testing by DBS, experimentation by exchanges, and the Swift x Chainlink ISO 20022 integration all point to routine intraday collateral usage.
On the regulatory side, the US CFTC launched the Tokenized Collateral/Stablecoin Initiative on September 23rd. If these discussions and repo programs progress, tokenized U.S. Treasuries should move from a pilot project to a production-level tool. They serve as the active layer of the global collateral stack, bridging bank balance sheets, stablecoin liquidity, and on-chain finance.
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