TL;DR
- BlackRock’s BUIDL has become the largest tokenized fund on blockchain by assets under management.
- The popularity of these funds has driven activity in secondary markets, including a significant increase in the price of the ONDO governance token.
- Despite the expectation of interest rate cuts, tokenized Treasury bonds could remain attractive due to the stability of real rates.
Over the past 18 months, the tokenized Treasury bonds market has seen significant growth, driven in large part by the introduction of products such as BUIDL, BlackRock’s blockchain-based tokenized fund.
Launched in collaboration with Securitize in March 2024, the fund has raised over $520 million in assets under management, making it the largest on-chain fund to date.
BUIDL, like other funds such as Franklin Templeton’s FBOXX, Ondo Finance’s OUSG and USDY, and Hashnote’s USYC, focuses on short-term US debt instruments, offering yields aligned with the federal funds rate.
The growth of these funds has generated a notable increase in activity in both on-chain flows and related secondary markets.
In particular, Ondo Finance’s governance token, ONDO, saw a surge in value, reaching an all-time high of $1.56 in June 2024.
This surge coincided with the announcement of a collaboration between Ondo Finance and BlackRock around BUIDL, reflecting the growing interest in tokenized funds.
However, with initial enthusiasm waning and the US rate environment potentially changing, flows into these funds could face new challenges.
Since the August 5 sell-off, the narrative has strengthened that the US Federal Reserve may be behind the curve and needs to cut rates more aggressively to avoid a recession.
Markets are anticipating cuts of up to 100 basis points this year, especially after last week‘s inflation data came in weaker than expected, cementing expectations of a cut in September.
However, it is important to note that cutting rates does not necessarily mean easing monetary policy.
If the Fed cuts nominal rates but inflation falls at the same pace or even faster, real rates could remain stable or even rise.
The appeal of tokenized treasuries bonds for Blackrock
Against this backdrop, the stimulative effect of Fed rate cuts could be more limited than expected if real rates remain stable.
This suggests that Treasuries, even tokenized ones, could remain an attractive option for investors seeking liquidity and safety rather than risk.
In fact, as the economic and rate environment changes, these instruments are likely to continue to offer a unique combination of safety and yield, making them a viable alternative to more volatile assets.
The ability of tokenized treasury bonds to adapt to different market environments and offer access to traditional debt instruments through blockchain technology could continue to drive their popularity, regardless of fluctuations in nominal interest rates.
