Why Only 2% of $14.8 Billion in Tokenized U.S. Treasuries Enter DeFi

U.S. Treasury bonds, gold bars in Swiss vaults, SpaceX equity, home equity loans, and auto loans have all been tokenized on-chain. However, the vast majority of these assets remain idle.

Various charts won’t tell you this. Every few weeks, someone releases the same chart showing the continuous growth of real-world assets on-chain. Everyone agrees that tokenization has succeeded.

In a sense, that’s correct. The chart only shows funds entering the chain, but doesn’t reflect where those funds go after they’re on-chain. The gap between funds entering the chain and their actual circulation represents the RWA liquidity gap.

This gap is crucial because many investors are betting that it will eventually close. The bullish logic is that real-world assets will become the most important channel for traditional off-chain capital to enter the crypto industry. Investors purchasing tokenized government bonds are not directly buying cryptocurrencies, but their funds are connected to blockchain infrastructure, allowing them to access all other on-chain assets with just one click.

But all of this depends on the ability of funds to move. If a token sits in a wallet for an entire year, it may be on-chain, but it lacks liquidity—much like a car parked and stationary in a garage.

To this end, I have selected four major RWA categories—U.S. Treasuries, commodities, equities, and credit assets—and analyzed them around two key questions:

Ultimately, the conclusion is far more intriguing than the chart suggests: U.S. Treasuries are largely held passively, gold is primarily held as a store of value, equities can be traded normally, and credit assets are actively put to work.

All categories have passed the first test (continuous capital inflow), but so far, only credit assets have clearly passed the second test (capital circulation). In this article, we’ll begin with tokenized government bonds—the largest "asset parking lot" on-chain.

Tokenized U.S. Treasuries are the largest category of RWA assets. Over the past year, their market size grew from approximately $8.9 billion to $14.82 billion, an increase of 66.5%. However, issuance volume is only half the story—the more important question is how funds on-chain are put into motion.

What is the underlying asset being tokenized?

The U.S. government raises funds by issuing Treasury bills, notes, and bonds. These assets are backed by the full faith and credit of the U.S. government and are considered the safest assets in financial markets. Tokenized U.S. Treasuries bring exposure to these assets on-chain. BUIDL by BlackRock, USYC by Circle, and USDY by Ondo offer tokenized products to qualified investors, providing yield generated by U.S. Treasury-backed assets.

The underlying asset remains traditional government debt; the only difference is that ownership certificates can be transferred using blockchain infrastructure.

Why has demand surged?

The rising popularity of tokenized U.S. Treasuries stems from two factors: the declining credibility of native crypto yield strategies, coupled with increasing attractiveness of traditional Treasury yields.

First, the crypto industry crisis revealed the hidden risks behind on-chain yields. In May 2022, the collapse of Terra was quickly followed by the failures of Celsius and Three Arrows Capital. These events exposed fragile peg mechanisms, excessive leverage, and flaws in certain yield strategies. Such yields relied on token incentives or favorable market conditions rather than sustainable cash flows.

For DeFi investors, this has prompted them to seek yield opportunities more actively outside the crypto ecosystem.

Meanwhile, government bonds have regained their investment appeal. After the Federal Reserve initiated its interest rate hiking cycle, short-term U.S. Treasury yields surpassed 5% in 2023. During the same period, yields in many DeFi sectors weakened. Investors can now earn returns through U.S. government bonds without relying entirely on trading activity, leverage, or protocol token incentives.

Tokenization bridges two markets. Tokenized U.S. Treasury products enable crypto-native funds, protocols, and institutional investors to access U.S. Treasury yields via blockchain channels. Investors can hold these stable, interest-bearing assets on-chain without fully withdrawing their funds from the on-chain ecosystem.

With mature underlying assets and attractive yields, combined with potential on-chain application value, tokenized U.S. Treasuries have become one of the earliest and most successful RWA use cases. Subsequently, traditional financial products such as BlackRock’s BUIDL and Franklin Templeton’s on-chain money market funds have gradually entered the space.

However, market growth is unevenly distributed, with a few platforms attracting the majority of funds and their products accounting for the largest share of the market.

A few platforms dominate the market.

The tokenized U.S. Treasury market is highly concentrated among leading platforms, with the top five platforms accounting for approximately 77% of the $14.82 billion market size.

Each platform has a flagship product offering exposure to U.S. Treasuries:

On the product level, the top ten products collectively account for approximately 86% of the market share, totaling around $12.8 billion. However, market size only reflects the amount of capital that has entered the blockchain, not how that capital is being used after on-chain entry.

Small amounts of liquid funds

I selected eight leading tokenized U.S. Treasury products on DeFiLlama, with a combined value of approximately $10.1 billion, accounting for 68% of the $14.82 billion total market. Among these products, only about $200 million, or 2% of the total, are included in DeFi’s active locked volume.

Even for market-leading products, the vast majority of U.S. Treasury assets have not been allocated to measurable DeFi applications. Where the funds are going is far more worth investigating than the low utilization rate itself.

In statable use cases, stablecoin reserves account for two-thirds. WisdomTree’s WTGXX, Superstate’s USTB, and BlackRock’s BUIDL are used in Frax’s frxUSD ecosystem; Circle’s USYC can be deposited to mint Usual’s USD0. In this model, U.S. Treasuries as underlying assets continuously generate yield while serving as reserve assets for another dollar-denominated product. These assets enter the DeFi ecosystem but are not necessarily used for trading or lending strategies.

Lending collateral scenarios account for approximately one-quarter of the remaining assets. Typical examples include Ondo’s OUSG on Flux Finance and Superstate’s USTB on Aave Horizon. A small portion of funds is allocated to liquidity pools and yield strategies; additionally, some assets are held in protocol treasuries, such as Franklin Templeton’s BENJI in the Arbitrum DAO treasury.

There is a key distinction: assets can play a role in DeFi without necessarily being frequently traded. The vast majority of measurable applications serve as stablecoin reserves rather than being used for lending or trading.

Three factors have led to low utilization of tokenized U.S. Treasuries in DeFi: an imbalance in the economic returns from lending, transfer permission restrictions, and high concentration of ownership.

(1) Borrowing against U.S. Treasury bonds as collateral often yields unprofitable returns.

The appeal of tokenized U.S. Treasuries is straightforward: earn yields from U.S. Treasuries without leaving the on-chain ecosystem. However, yields have now declined. In October 2026, the yield on tokenized U.S. Treasuries was approximately 3.7%, down from around 5.3% at the beginning of 2024.

This is crucial: one potential use of U.S. Treasury tokens is to collateralize stablecoin loans and use the proceeds to buy more of the same assets. This strategy relies on the new returns covering the borrowing costs and other expenses.

Current U.S. Treasury yields are nearing the overnight funding benchmark rate, significantly reducing the cost-effectiveness of leveraged long U.S. Treasury strategies. After accounting for borrowing costs, protocol fees, and liquidation risk, the returns from additional exposure struggle to offset potential losses. This does not mean using U.S. Treasury tokens as collateral for borrowing is entirely unfeasible—rather, their economic appeal has greatly diminished, and asset utilization is jointly influenced by market access, collateral parameters, liquidity, and yield.

The logic behind reserve management is entirely different. U.S. Treasury tokens held as stablecoin reserves do not require refinancing or additional purchases of Treasuries; they continue to generate interest while supporting another dollar-denominated stable product. This is why demand for U.S. Treasury tokens as reserve assets persists, even when leveraged borrowing and reinvestment strategies lose their appeal.

(2) Most tokenized U.S. Treasuries are permissioned assets

The vast majority of tokenized U.S. Treasuries permit transfers only to vetted wallets or impose other access controls. USDY and mTBILL are among the few exceptions, allowing permissionless secondary transfers within their product guidelines.

However, the availability of transfers does not equate to widespread adoption in DeFi scenarios. According to my snapshot data, only 0.4% of USDY’s assets are deployed in the DeFi applications I track, and mTBILL has a total volume of approximately $1,300 across the integrated use cases surveyed.

Ownership data provides further insight. On the Ethereum chain, the top ten addresses hold approximately 95% of USDY and over 99% of mTBILL. Even on the Solana chain, where USDY has over 8,000 holding addresses, the top ten addresses still control 96% of the assets.

These data do not directly prove that concentrated holdings lead to low utilization, but they do indicate that the mere ability to transfer assets is not enough to encourage holders to deploy their assets into various DeFi applications.

(3) Most holders are not traders.

The entire market has approximately 86,000 holding addresses. Dividing $14.82 billion by the number of addresses yields an average paper holding of about $170,000 per address, but this does not represent typical investors. Holdings are highly concentrated, and one wallet address does not equate to one independent investor.

Concentration at the product level is more pronounced: Circle’s USYC totals $2.38 billion and is distributed across only 35 addresses; BlackRock’s BUIDL, at $2.2 billion, is spread across 105 addresses; and JPMorgan’s on-chain liquidity fund, approximately $738 million, is held in just 7 addresses.

Cross-chain data also exhibits similar characteristics:

The above data represents snapshots from various chains; large wallets may belong to custodial institutions, cross-chain bridges, or protocols, rather than individual investors. However, a high number of holding addresses does not necessarily indicate widely dispersed asset ownership.

This also explains why trading activity remains consistently low. Certain assets are held by institutional treasuries, custodians, or stablecoin reserves. They function more like cash on a balance sheet than as assets intended for frequent trading. Without a clear purpose, these assets remain idle.

The number of holding addresses can only reflect the distribution breadth of the token across addresses, not the number of unique investors or the level of active asset usage.

There is a contradiction here: the yield has declined from over 5% to 3.7%, yet the market size has still grown by two-thirds. If the motivation for holding were solely yield, such growth would be difficult to explain.

My understanding is that investors purchase not just for returns, but to gain access to blockchain infrastructure. A tokenized U.S. Treasury bond can serve as collateral for stablecoins, circulate across supported markets, or act as collateral in lending protocols. Even if the asset remains idle in a wallet for most of the time, this optionality itself holds value.

However, options do not equate to actual asset utilization. Institutions seek to gain exposure to U.S. Treasuries on-chain to drive market growth; however, transfer restrictions, insufficient collateral support, and financing costs collectively limit the scale of capital flow.

Low utilization does not equate to project failure. The underlying infrastructure supporting the on-chain operation of U.S. Treasury tokenization is still in its infancy; current idle assets are merely normal in this early stage. To change this situation, four breakthroughs are needed:

The goal of the first phase was to bring U.S. Treasuries on-chain, and this goal has already been achieved. The next phase is to enable asset liquidity. Asset pools with genuine circulation channels will continue to expand, while other assets will remain inactive and stationary.

Returning to the two initial questions: Has new capital entered the market? The answer is yes. Even as yields declined from over 5% to 3.7% in October 2026, the market size grew by 66.5% over the year to reach $14.82 billion. Despite shrinking yields, capital continues to flow in and remain idle.

After funds are on-chain, can they be transferred? It’s difficult. Among the eight products I surveyed, only about 2% are counted in DeFi active lock-ups, and the vast majority of these merely serve as stablecoin reserves—functioning effectively, but in a static capacity.

The root issue is not infrastructure failure, but rather economic logic. When financing costs approach or even exceed U.S. Treasury yields, the returns from leveraged borrowing fail to cover fees and liquidation risks; simply lifting transfer restrictions is insufficient to change this situation. Wallet data shows highly concentrated asset holdings, but existing data does not prove that concentrated holdings are the root cause of low utilization.

So, although this asset parking lot is fully occupied, this is largely by design. On-chain U.S. Treasuries are like cash on a balance sheet—they are held in reserve for specific purposes and remain idle until those purposes are identified.

This is not equivalent to failure. The goal of bringing U.S. Treasury exposure on-chain has been achieved in the first phase. The next phase involves expanding the use cases for such assets in the DeFi market; related explorations are underway but remain limited in scale.

Article by Ishita, translated by Luffy, Foresight News