Source: Token Dispatch
Author: Vaidik Mandloi
Compiled and organized by BitpushNews
Real-world assets (RWA) tokenized have surged 179% this year. Trading volume on Hyperliquid for stocks and commodities now even exceeds that of crypto tokens. The consensus seems to be that traditional finance (TradFi) is finally fully entering the blockchain.
But when you dig deeper to find out who is truly buying these RWA assets, you’ll realize this isn’t the grand narrative of institutional adoption—because the vast majority of funds actually come from within the crypto ecosystem. Major protocols and DAO treasuries are aggressively accumulating, converting their reserves into tokenized U.S. Treasuries.
This article will delve into why this RWA frenzy appears more like a “dollarization” of cryptocurrency itself rather than a downgraded strike by institutions; and what it means when crypto protocols become the largest buyers of these tokenized U.S. Treasuries.
Who is trading RWA?
Let me take you back a few years: if you were following DeFi in 2020 and 2021, you would have seen absurdly high yields—lending pools offering annualized returns of 15%-20% to attract USD deposits, sometimes reaching as high as 40%. Hundreds of billions of dollars poured in, yet almost no one questioned where this money was coming from.
Because these returns come from token emissions—the protocol mints its own governance tokens and distributes them as “rewards” to depositors, counting this subsidy as yield. This is the ultimate tactic to attract investors and boost TVL (Total Value Locked), but it only works under one condition: the token price must continue to rise. Later, when the market crashed and governance token prices plummeted by 80%-90%, the actual organic yield of DeFi turned out to be only 2%-3%.
This is even lower than the yield on U.S. short-term Treasury bonds, while carrying significantly higher risk. This reveals a harsh truth: the financial system built over years in the crypto world cannot generate competitive returns from its own economic activity. Because those yields come from new capital inflows purchasing governance tokens, not from any productive use of the capital itself. Once the flow of new capital slows, the entire model collapses back to its original state.
As a result, major protocols were left holding treasuries worth hundreds of millions of dollars denominated in their own governance tokens, unable to earn any competitive returns within the crypto ecosystem. Then, in 2023, tokenized versions of U.S. Treasuries and dollar-denominated credit products began launching on-chain; for the first time, protocols could deposit their reserves into assets that generated real dollar yields—without even leaving the on-chain ecosystem.
Since then, this has become the norm. A recent study by Arrakis on on-chain buyers tracked $91.3 billion in deposits across more than a dozen tokenized dollar-yield products. They found that of the $12.4 billion in identifiable buyer funds, a full two-thirds originated purely from the treasuries of crypto protocols and DAOs. The remainder was distributed among native crypto investors, exchanges, and market makers.
(Source: Arrakis)
Of the tracked funds, zero came from institutions such as pension funds, asset management companies, or banks. In this $36.2 billion market, constantly hyped by the industry as “institutional entry,” traditional investors are virtually nowhere to be found.
BlackRock has launched the BUIDL fund, designed to bring institutional capital into Ethereum. It is a fully regulated, risk-free-rate tokenized Treasury fund specifically structured for pension funds to purchase directly without having to justify cryptocurrency exposure to their boards. Yet today, 98% of the funds are held by crypto-native buyers. Ethena alone accounts for more than half of the fund’s total value through its USDtb product. The remaining top 10 holder slots are occupied by protocols such as Ondo and Sky’s Spark Sub DAO.
(Source: Arrakis)
BUIDL is not an isolated case; across the entire market, the top five holders of nearly every tokenized RWA product control over 90% of the supply.
If you want to foresee the future landscape, the best example is MakerDAO. In 2021, the protocol held only about $17 million in real-world assets. Today, that figure has surged to $4 billion, with more than half of its total collateralized assets consisting of U.S. Treasuries rather than cryptocurrencies. Maker’s original vision was to operate a stablecoin backed by collateral of native crypto assets, using over-collateralization to absorb the volatility of Ethereum (ETH). This compromise was costly, as the value of locked funds far exceeded the value of minted tokens, but the prevailing belief at the time was that decentralization was worth sacrificing some capital efficiency.
However, it ultimately proved that you simply cannot do this—at least not at scale—without relying on the traditional financial system it once sought to replace. Following this, the protocol was renamed, its governance structure was reorganized to create dedicated Sub-DAOs, and its treasury portfolio was managed accordingly.
This phenomenon occurs frequently across the industry and is not unique to Maker. The core issue is that no protocol can hold large amounts of its own governance token as reserves, because its value is logically circular: the token’s price depends on the protocol’s success, the protocol’s success depends on the health of its treasury, and the health of the treasury is tied back to the token’s price.
Uniswap’s DAO holds a treasury valued at nearly $6 billion, almost entirely in UNI tokens. Last year, its community passed a governance proposal called “Mobilizing the Uniswap Treasury,” aimed at diversifying assets by moving away from the native token and allocating to stable assets. Even Uniswap’s own voters acknowledged: unless UNI’s price rises forever, holding anything else is better than holding UNI. Holding the native token as a reserve is like an emerging-market central bank counting its government bonds as foreign exchange reserves—as long as you never need to sell, it appears to pose no solvency issue.
In international economics, this dilemma has a specific term: "Original Sin." It means that only about five currencies worldwide can truly sustain borrowing and reserve accumulation denominated in their own value. All other countries ultimately have no choice but to denominate their transactions in U.S. dollars—regardless of their governments' preferences—due to the dollar's absolute dominance as the global pricing unit, combined with prohibitively high switching costs and liquidity that has long since converged there.
Every protocol with a massive treasury eventually reaches the same conclusion: governance tokens cannot maintain value during downturns, and the ecosystem cannot generate sufficient returns over the long term to sustain itself—the only rational choice is to convert them into USD-denominated assets. It is precisely this network effect that sustains the US dollar’s dominance in global finance that also maintains stablecoins’ dominance in DeFi. The move toward tokenized treasuries is, in fact, the final step in the dollarization process.
The economic logic of dollarization
Economic literature on dollarization outlines a very precise "two-stage process," which the crypto world has now fully completed.
The first phase is asset substitution. People in emerging economies often lose faith in their local currency’s ability to preserve value, so they begin saving in U.S. dollars instead. They may still receive salaries and price goods in their local currency, but their savings shift to dollar-denominated accounts because the dollar’s purchasing power is more stable.
The second stage is currency substitution. Once a sufficient amount of savings are held in U.S. dollars, people begin borrowing and financing directly in dollars, as conducting business in the currency everyone already holds becomes easier. These two stages feed into each other, and in traditional emerging markets, the entire process typically takes years or even decades.
Interestingly, the crypto world completed these two steps in just three years. Asset substitution occurred during the bear market, when protocol treasuries began routing their USD-denominated reserves—such as fee income and any funds not locked in governance tokens—toward stable assets rather than redeploying them back into DeFi. Although governance tokens remained on the balance sheet, operational funds had been converted into USD.
Once these treasuries begin holding USDC and USDT, the second phase of currency substitution kicks in almost immediately. Lending markets begin pricing in stablecoins, and yield products start quoting returns in USD terms. Trading pairs previously denominated in ETH also shift to stablecoin denominations. Now, with the emergence of all tokenized Treasuries, this pricing shift becomes even more profound: moving directly from synthetic dollars to real U.S. government-issued dollar instruments that earn risk-free yields on-chain.
Oliver Wyman mentioned in a report earlier this year that stablecoins are compressing the traditional dollarization timeline from decades to just a few months. They were discussing emerging markets at the time, but this analysis fits even better within the crypto space, where there are no central banks attempting to slow the process through foreign exchange controls or compliance barriers. The switching cost to enter is nearly zero.
But this is precisely the paradoxical curse of dollarization: the switching costs of exiting are extremely high. Economists refer to this as hysteresis. Once dollarization takes root in an economy, it is nearly impossible to fully reverse—even if the initial conditions that led to dollarization have improved.
There is no equivalent in the crypto world to a “commodity supercycle” that could suddenly make governance tokens more attractive than dollar yields. Moreover, protocols can never impose capital controls or reserve requirements on stablecoin deposits. Unlike nations, the crypto world has no “historical memory” of a pre-dollarized era to revert to, because for the vast majority of DeFi, stablecoins have been the default unit of account from the start.
This is a one-way door, and the cost of passing through it is extremely high. Whenever DeFi’s internal economic activity is denominated in USDC or USDT, the seigniorage or profits generated by the currency issuers flow to Circle and Tether, rather than to the protocols where the actual economic activity occurs. Tether earned approximately $10 billion in profit last year with roughly 100 employees; Circle completed its IPO, and Coinbase took half of Circle’s net interest income simply by distributing USDC.
When Ecuador or El Salvador adopted the U.S. dollar, the seigniorage that would have funded their central banks shifted to the Federal Reserve. Similarly, when DeFi adopts stablecoins for pricing, this revenue is ceded to Tether and Circle.
A protocol that denominates its value in another currency loses the ability to manage its own economy—because it cannot respond to conditions within its ecosystem by adjusting the supply of its native token, and because core economic activity is no longer priced in that token. This is akin to a fully dollarized country that cannot use currency depreciation to navigate economic downturns. In such a scenario, the only remaining tool is spending cuts—a phenomenon we have repeatedly witnessed in DeFi over the past two years: governance votes have consistently decided to reduce grant funding, thereby laying off contributors and slowing protocol development, as the protocol has run out of other monetary levers to pull.
There is a protocol called M^0, founded by former MakerDAO and Circle executives, positioned as the "Governor of the Eurodollar System." They are building infrastructure to enable multiple issuers to mint stablecoins backed by U.S. Treasury collateral, targeting the $20 trillion offshore dollar market. They do not intend to replace the dollar, but rather to build better "tracks" for its circulation. In my view, this is the ultimate form of crypto-dollarization: infrastructure reorganizing itself to serve the demand for the dominant currency, while native tokens become optional appendages.
Wasn’t the original grand vision “Bitcoinisation”? Even the most ardent Bitcoin maximalists will tell you that it’s a long-term narrative spanning multiple cycles, achievable only when the dollar itself loses stability. Yet interestingly, the crypto world has simultaneously built the most efficient dollar distribution network in history. It didn’t impose its own monetary logic on the world; rather, the world ultimately imposed its monetary logic on crypto.
The entire industry is racing to frame the RWA boom as a story where “Wall Street has discovered the efficiency of blockchain.” Indeed, the first buyers were crypto-native players, but as much as two-thirds of identifiable capital has flowed solely into tokenized U.S. Treasuries—the world’s safest and most conventional financial product, wrapped in smart contracts.
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