Investing.com — The creation of a digital version, or tokenization of real-world assets on a blockchain, has become a cutting-edge technology demonstrating use cases for cryptocurrencies. And while tokenized government bonds are currently enjoying a moment in the spotlight as a yielding alternative to stablecoins, these emerging digital assets have a significant chance of achieving the widespread adoption needed to dethrone stablecoins. facing hurdles.
The market capitalization of tokenized government bonds (digital versions of government bonds created on the blockchain) has reached nearly $2.5 billion, up from about $800 million since the start of the year, according to data from tracker RWA.xyz.
Tokenized government bonds: meeting your yield needs
“This world of tokenized government bonds has grown rapidly over the past year, approaching $2.4 billion. And while it is much smaller than the $180 billion world of traditional stablecoins, its rapid This growth has the potential to challenge the dominance of stablecoins in the future,” JP Morgan analysts said. mentioned in a recent memo.
The need for high-yielding alternatives to major stablecoins such as and (which typically do not offer interest or equity reserve yields) is driving demand for tokenized government bonds.
JPMorgan said it makes regulatory sense for stablecoins to not offer interest to users, and that doing so would invite further regulation requiring compliance with securities laws, adding, “As a result, the crypto ecosystem “The current seamless, unauthorized use as a source of collateral in the United States will be disrupted.” ”
However, stablecoin users are not sitting on their hands and accepting the opportunity cost of owning high-yielding assets. They have adopted various strategies to obtain stablecoin yields.
But analysts said strategies such as secured and unsecured loans and basis trading “involve risks and relinquish control and custody of balances.”
As US Treasury yields remain at multi-year highs and are expected to remain high for an extended period of time as US economic exceptionalism continues, tokenized Treasuries are the key to the ‘need for yield’ itch. There is a possibility that it will continue to steal dollars from stable coins in the future.
Tokenized Treasuries: New Kids on the Cryptocurrency Derivatives Market Block
Tokenized treasuries have several advantages over traditional stablecoins. They provide yield to users without the need for risky trading or financing strategies, and they also do not require users to transfer control or custody of their assets.
The market for tokenized government bonds is also being stimulated by institutional investors launching tokenized funds, giving investors access to 24/7 liquid on-chain products. .
BlackRock (NYSE:) launched BUIDL, its first tokenized fund, on the Ethereum blockchain earlier this year. This allows investors to redeem their stocks and BUIDL tokens for USDC stablecoins at any time through smart contracts without the need for intermediaries.
Some tokenized funds, including BlackRock’s BUIDL, which has amassed a market capitalization of nearly $600,000 since its inception in April, are also trying to steal stablecoin lunches in the major crypto derivatives market.
Stablecoins tend to be used as collateral for cryptocurrency derivatives transactions, and Tether Holdings’ stablecoin USDT and Circle Internet Financial’s USDC are the most widely used tokens as derivatives collateral on exchanges, with market capitalization are $120 billion and $34 billion, respectively.
Regulatory hurdles hindering the introduction of tokenized government bonds
But the very advantage that tokenized government bonds can dangle in front of investors, the yield they offer, has become a major headwind in their quest to steal a significant portion of the stablecoin lunch. are.
“Tokenized government securities fall under securities laws that restrict their availability to accredited investors, hindering their widespread market adoption,” the analysts said.
For example, BlackRock’s BUIDL has a high barrier to entry with a minimum investment of $5 million, limiting the availability of these products to accredited investors.
BlackRock’s big push to persuade crypto exchanges to use digital tokens more widely suggests they could partially replace traditional stablecoins as collateral for crypto derivatives trades However, liquidity, or lack thereof (compared to stablecoins), suggests these newcomers. It is unlikely that the crypto derivatives market block will become dominant anytime soon.
This regulatory hurdle is due to stablecoins, which have a market capitalization of nearly $180 billion across multiple blockchains and centralized exchanges, to ensure traders receive low transaction costs even for large trades. This suggests that there is no risk of losing the significant advantage it has over tokenized government bonds. In terms of liquidity, JP Morgan said:
This abundance of liquidity, which is key to seamless transactions, suggests that tokenized government bonds, with a market capitalization of approximately $2.4 billion, will “eventually replace only a small portion of the stablecoin world.” JPMorgan said.
While the hurdles for ripping stablecoins off their perch appear to remain high, tokenized U.S. Treasuries are expected to bring “non-yielding stablecoins from DAO Treasuries, liquidity pools, and idle cash” to crypto ventures. It is expected to continue to grow with the possibility of replacing the fund.
