Will Tokenized U.S. Treasuries Drain Liquidity from the Crypto Market?

Over the past three months, the tokenized U.S. Treasury bond market has surged by $1.57 billion, surpassing the $4 billion milestone. This rapid growth signals increasing institutional adoption, but also raises an important question—will this expanding sector disrupt the crypto market?

The tokenization of real-world assets (RWA) has been one of the strongest narratives in finance, bridging traditional investments with blockchain technology. Leading the charge is Hashnote Short Duration Yield Coin (USYC), which combines U.S. Treasury bills with reverse repo agreements, offering investors a hybrid approach to fixed-income returns. USYC alone has grown by $461.2 million since November 26, bringing its market cap to $956.27 million.

\ Close behind is Franklin Templeton’s on-chain money market fund (BENJI), which has expanded by $270.35 million, reaching a total market cap of $686.80 million. BlackRock’s tokenized liquidity fund (BUIDL), distributed via Securitize, also plays a key role but is primarily accessible to institutional clients with a minimum entry requirement of $5 million.

\ Together, these three funds control 56.78% of the tokenized Treasury market, which is currently valued at $4.07 billion. The market’s rapid expansion has also led to an influx of new participants—over 15,463 investors now hold tokenized U.S. Treasury bonds, doubling in just three months.

\ With institutional capital increasingly flowing into tokenized treasuries, some analysts believe this trend could divert liquidity away from the broader crypto market. The appeal is clear—these instruments offer an average yield of 4.2% APY, backed by one of the world’s most secure assets: U.S. government debt. In contrast, DeFi protocols and stablecoin yields have struggled to compete, particularly as regulatory pressures continue to mount.

\ Crypto markets thrive on capital rotation, and if investors see safer, regulated tokenized bonds as a more attractive alternative, the demand for riskier crypto assets could decline. This shift could impact everything from DeFi lending protocols to yield-bearing stablecoins, potentially leading to a downturn in digital asset prices.

\ While tokenized Treasuries are growing, they are just one piece of a much larger financial transformation. The next logical step is the tokenization of gold, commodities, and other tangible assets, which could further shift investment dynamics.

\ Recently, concerns over a potential gold shortage in London and the U.S. have intensified discussions about digital asset-backed commodities. Rumors surrounding the audit of Fort Knox by the Trump administration and Elon Musk’s public speculations on gold reserves have pushed financial institutions to accelerate tokenization efforts. Unlike physical assets, tokenized versions may eliminate the right to physical redemption, ensuring full market liquidity without supply constraints.

Despite the potential risks, the crypto market may not necessarily face an outright collapse. Instead, it could evolve to integrate RWA tokenization into DeFi platforms. If projects successfully build on-chain financial instruments that rival traditional fixed-income assets, they could attract new institutional players while maintaining crypto-native liquidity.

\ Furthermore, the decentralized finance sector might push back against the dominance of centralized tokenization efforts from firms like BlackRock and Franklin Templeton. If DeFi can offer permissionless access to tokenized bonds with greater composability, it may retain a significant share of the growing RWA market.

\ The rise of tokenized Treasuries is not necessarily a death blow to crypto, but it is a paradigm shift that could force the industry to innovate. As capital increasingly seeks stable, yield-generating instruments, both centralized and decentralized finance players must adapt to stay relevant.

\ The question remains: Will crypto-native projects find a way to integrate and compete, or will they be sidelined as institutional capital embraces tokenized traditional finance? The coming months could determine the future landscape of both markets.