Demand for tokenized versions of U.S. Treasury bonds is increasing rapidly as higher yields in traditional financial markets draw in capital from crypto investors. The market capitalization of tokenized money market funds has risen to nearly $500 million this year, according to CoinDesk, which is four times its size at the start of 2021.
Money market funds are a traditional investment option that involve short-term government securities and offer a secure way to gain yield. People are attracted to these funds because of their protection from failing banks and their 4-5% interest rate compared to bank deposits.
This high yield of government bonds has also captivated digital asset investors who were discouraged by low lending rates and bankruptcies last year. Thus, many platforms have found a way to provide access to these bonds through tokens.
Franklin Templeton’s Franklin OnChain U.S. Government Money Fund (FOBXX)- which gives a BENJI token on the Stellar blockchain representing one share- has seen its assets hit $276 million at the end of April, nearly tripling the deposits in early January represented by the BENJI token supply, blockchain data reveals.
The competition is catching up quickly. Ondo Finance’s OUSG and Matrixdock’s SBTB tokenized products, both of which were created in January and backed by short-term government bonds, have amassed $132 million and $72 million of funds respectively, according to Dune Analytics.
More recently, Switzerland-based Backed Asset’s tokenized short-term government bond fund (bIB01) has accumulated $4.6 million in assets since its March release, according to Etherscan. Singapore-based OpenEden, a platform that allows USDC stablecoin holders to invest in a Treasury bond vault by minting yield-generating TBILL tokens, has gained $4.8 million of deposits within two months, data from Dune shows.
The tokenization of real world assets such as government bonds is one of the most popular trends in crypto this year. JPMorgan has called it the killer app for blockchain, while Bank of America said it’s a key factor for digital asset adoption.
These tokenized money market funds are especially attractive to those who hold large amounts of stablecoins, a token version of U.S. dollar cash. This includes digital asset investment funds, crypto companies, and decentralized autonomous organization (DAO) treasuries, according to Eugene Ng, co-founder of OpenEden.
Justin Schmidt, president and chief operating officer of Ondo Finance, commented that fund investors are taking an increasingly advanced approach when it comes to on-chain cash management. “A low-risk asset that pays meaningful yield in token form can serve as a valuable option for CFOs [chief financial officers] as they position their treasury operations for success.”
The involvement of established players in this space is also a catalyst for growth, according to Doug Schwenk, chief executive officer of Digital Asset Research, a research and crypto data provider for institutional clients. “Brands like Franklin Templeton and Ondo Finance are bringing more trust to an asset that would be viewed more skeptically,” Schwenk said.