Research firm Kaiko believes that tokenized government bonds will continue to attract investors, even in the face of expected interest rate cuts by the US Federal Reserve, which often reduce the attractiveness of fixed-income assets.
According to the company’s second-quarter market report, interest in these tokenized funds continues to grow as they appeal to investors seeking liquidity and security.
Kaiko explained that the real Fed funds rate – adjusted for inflation – could remain stable or even rise even with potential rate cuts. This scenario could keep government bonds attractive relative to riskier assets as investors prioritize liquidity and safety.
Growing activity
According to Kaiko’s research BlackRock’s on-chain token fund, BUIDL, has become the largest on-chain fund by assets under management (AUM) since its launch in March, recording net inflows of $520 million through the end of June.
The fund is part of a growing trend of tokenized funds that offer access to traditional debt instruments such as U.S. Treasuries. Other notable funds include Franklin Templeton’s FOBXX, Ondo Finance’s OUSG and USDY, and Hashnote’s USYC, all of which offer yields that track the Fed’s benchmark interest rate.
The report also describes the growing activity in the on-chain market for these tokenized assets. Ondo Finance’s governance token, ONDO, experienced a significant increase in trading after the announcement of a collaboration with BUIDL – and reached a record high of $1.56 in June.
challenges
However, the report noted that inflows into these funds may face difficulties as the US interest rate environment evolves after market hype subsides.
Despite expectations of possible Fed rate cuts, with markets pricing in 100 basis point cuts this year, the appeal of tokenized Treasury funds may remain. Recent weaker-than-expected US inflation data has reinforced expectations for a rate cut in September.
However, interest rate cuts do not necessarily lead to monetary easing. If inflation falls at the same or faster pace as nominal interest rate cuts, real interest rates could remain stable or even rise. The real Fed funds rate, adjusted for the producer price index, has risen moderately this year despite stable nominal interest rates.
$2 billion market
The tokenized U.S. Treasury bond market reached its all-time high of $1.93 billion on August 14. According to rwa.xyz DataThe market has grown by 150% since the beginning of the year.
Following the launch of BlackRock’s BUIDL, Ethereum (ETH) has become the preferred infrastructure for deploying tokenized versions of funds, with $1.4 billion worth of digital assets created on the network at press time.
Stellar ranks second with $430 million staked, backed by Franklin Templeton’s FOBXX, while Solana and Mantle are also among the most used networks with $48 million and $30 million in tokenized U.S. Treasuries, respectively.
