Treasury-yield surge boosts tokenization of real-world assets on blockchains, leading ‘huge paradigm shift’ in finance

• The rise of Treasury yields since 2022 has delivered a major boost to the tokenization of real-world assets.
• The total value of on-chain, real-world assets sits at $118.6 billion, according to Fundstrat.
• “It’s becoming increasingly likely that blockchains can become the back-end infrastructure for almost every asset class.”

The breathless rise of Treasury yields since 2022 has delivered a major boost to the tokenization of real-world assets.

With US bonds paying 5% recently, investment firms like Franklin Templeton have issued more government securities on the blockchain.

“The rising interest rates over the past year has been big,” Tom Couture, a Fundstrat analyst, told Insider, noting that yields in decentralized finance previously were much higher than for US bonds. “But obviously over the past year and a half, rates have gone up and you get a risk-free 5% on US Treasurys. So demand has gone up.”

And it’s not just Treasurys. There is a growing momentum around packaging commodities, currencies and investment funds into tokens and adding them to the blockchain.

Right now, the total value of on-chain, real-world assets sits at $118.6 billion, according to Fundstrat. But experts say that number is expected to explode. 

Boston Consulting Group offered what it called a “highly conservative” forecast of $16 trillion by 2030, with a bullish scenario putting it at $68 trillion.

That’s still a long ways away from the total market value of real-world assets, which Fundstrat estimates is more than $992 trillion.

But big banks are also jumping in. In October, JPMorgan went live with its Tokenized Collateral Network — a system that allowed BlackRock to tokenize one of its money market funds and transfer it to Barclays in a derivatives trade. 

And the global banking network SWIFT is also building a blockchain-based system for financial transactions with the tech company Chainlink.

Perks of tokenization

To be sure, tokenization is not new. ETFs and REITs are earlier examples putting assets into a package – or a token.

But the tokenization of real-world assets onto the blockchain is a newer trend that’s picking up steam. That’s because investors see a lot of benefits.

For one, it helps assets become a lot more liquid. When an asset is tokenized, it allows for fractionalization — divvying up that token into smaller pieces — which improves affordability.

Also, a token on the blockchain can be traded 24 hours a day instead of the seven and a half hours on a typical stock exchange. Blockchain trades also have faster transaction speeds.

“It’s becoming increasingly likely that blockchains can become the back-end infrastructure for almost every asset class,” Couture wrote in a recent Fundstrat note.

Obstacles to tokenization

One reason that the tokenization trend hasn’t leapt even further is because the market is very fragmented, according to Lee Bratcher, president of he Texas Blockchain Council.

For example, tokenized government securities are available on various platforms instead of one centralized exchange.

“What we really need to happen for the tokenization of real world assets to take off is for an entity that has the requisite licenses to really become a national securities exchange like the CME for commodities or Nasdaq for stocks,” he said.

Bratcher said he doesn’t know of efforts to accomplish this, but he sees a national exchange forming in as soon as three years.

Whenever it happens, it could mark the next step in the evolution of finance.

“It’s a huge paradigm shift in how finance is facilitated,” Couture from Fundstrat said. “At first you had analogue, a lot of paper. Then we moved into the digital age with computers and excel and digital ledgers. I think this is likely the next step where you have everything on transparent blockchain rails.”