Kaiko believes tokenized treasuries will retain appeal amid expected Fed rate cuts Kaiko believes tokenized treasuries will retain appeal amid expected Fed rate cuts
On-chain flows and secondary market activity for tokenized US Treasuries and related tokens suggest growing popularity.
2 min read
Updated: Aug. 20, 2024 at 1:20 am UTC
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Research firm Kaiko believes that tokenized Treasuries will continue to attract investors, even in the face of anticipated US Federal Reserve rate cuts, which can often diminish the appeal of fixed-income assets.
According to the firm’s second-quarter market report, interest in these tokenized funds continues to grow due to their attractiveness to investors seeking liquidity and security.
Kaiko explained that even with potential rate reductions, the real Fed funds rate — adjusted for inflation — may remain stable or even increase. This scenario could keep Treasuries attractive compared to riskier assets, as investors prioritize liquidity and safety.
Growing 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 June-end.
The fund is part of a growing trend of tokenized funds offering exposure to traditional debt instruments like US Treasuries. Other notable funds include Franklin Templeton‘s FOBXX, Ondo Finance’s OUSG and USDY, and Hashnote’s USYC, all providing yields aligned with the Fed funds rate.
The report also details the growing activity in the on-chain market for these tokenized assets. Ondo Finance’s governance token, ONDO, experienced a significant trading surge after announcing a collaboration with BUIDL — hitting a record high of $1.56 in June.
Challenges
However, the report noted that inflows into these funds may face challenges as the US rate environment evolves since market hype has subsided.
Despite expectations of potential Fed rate cuts, with markets pricing in 100bps of cuts this year, the appeal of tokenized Treasury funds may persist. Recent weaker-than-expected US inflation data has strengthened expectations for a September rate cut.
However, rate cuts may not necessarily translate to easing monetary policy. If inflation falls at the same pace or faster than nominal rate cuts, real rates could remain stable or even rise. The real Fed funds rate, adjusted for the Producer Price Index, has shown a moderate increase this year despite steady nominal rates.
$2 billion market
The tokenized US Treasuries market reached its all-time high of $1.93 billion on Aug. 14. According to rwa.xyz data, the market has grown 150% year-to-date.
After the launch of BlackRock’s BUIDL, Ethereum (ETH) has become the preferred infrastructure to deploy tokenized versions of funds, with $1.4 billion of digital assets created on the network as of press time.
Stellar comes in second place with $430 million deployed, boosted by Franklin Templeton’s FOBXX, while Solana and Mantle also count among the most used networks, with $48 million and $30 million in tokenized US Treasuries, respectively.
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Author 
Gino Matos
Gino Matos is a law school graduate and a seasoned journalist with six years of experience in the crypto industry. His expertise primarily focuses on the Brazilian blockchain ecosystem and developments in decentralized finance (DeFi).
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Ondo
$1.80785
Stakeholders in the Ondo DAO — ONDO token holders — exercise control over the DAO and Flux Finance protocol, including economic parameters and smart contract upgrades, through on-chain governance proposals..
Solana
$194.922
Solana is a high-performance blockchain platform that utilizes a unique consensus algorithm called “Proof of History” to achieve fast transaction speeds and low fees.
Mantle
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Mantle Network (MNT) is a layer-two chain on Ethereum which recently launched its mainnet alpha.
BlackRock
BlackRock, synonymous with global asset management, is an American multinational investment management corporation based in New York City.
Franklin Templeton
Franklin Resources, Inc., commonly known as Franklin Templeton, stands as an American multinational holding company rooted in the world of finance.
Kaiko
Kaiko is a market data provider in the blockchain-based digital assets space, founded in 2014, that provides institutional investors and market participants with enterprise-grade data infrastructure.
