Tokenized Bonds Are Becoming Crypto’s Core Asset: Yield, Liquidity & More

Tokenized bonds are becoming a core crypto asset. As reported by Falcon Finance, tokenized bonds have become the most dominant in the fast-developing real-world asset (RWA) industry, with a total market value of $12.7 billion. This amount is about 55% out of all tokenised RWAs, which indicates a crucial change in the institutional capital shift to onchain. This total is composed of U.S Treasury ($9.6 billion), corporate bond ($1.6 billion), and sovereign debt outside of the U.S ($1.5 billion).

The expansion of the tokenized fixed income substantially outpaces other categories of RWA, including commodities, institutional alternative funds, and personal credit. The momentum does not only signify experimentation, but also long-term usage by some of the largest financial institutions in the world.

Traditional Bond Markets Face Structural Limits

The traditional bond markets have been associated with slow turnover of settlements, a large minimum investment requirement, and numerous layers of mediation. Trades frequently require days to clear or settle, initial minimum injections may range to over one hundred thousand dollars, and are usually limited to large institutions or to high-net-worth individuals.

The inefficiencies are converted into an increase in operational costs, restricted liquidity, and capital inefficiency. Even though traditional bonds provide stable yields, it is operationally rigid and not open to a larger market.

Tokenization Delivers Better Financial Rails

The solution to these limitations involves the tokenization of fixed income instruments, re-architecturing the issuance, trading and payment of these instruments. 

Onchain settlement is able to provide near-instant finality, and fractionalization will reduce the barrier to entry and allow a larger group of investors to participate. Also, 24/7 trading is another way to enhance liquidity and flexibility.

More importantly, the tokenization process itself does not make any changes to the underlying yield profile of the asset. It provides an equal economic exposure to the investors on an improved infrastructure. With lower intermediaries, automated settlement, and simplified compliance processes, industry projections indicate that lifecycle costs might be saved by 3040 percent at scale.

Breakout Products Signal Institutional Commitment

The recent achievements highlight the extent to which institutions are involved in tokenized bonds. The BUIDL fund provided by BlackRock has crossed the $2 billion mark as an asset under management, being one of the biggest tokenized Treasury funds in the market. Investment exposure to collateralized loan obligations (CLOs) JAAA, a service of Centrifuge, has passed the threshold of total value locked to over $1 billion, underscoring that structured credit using the blockchain is demanded.

In the meantime, JPMorgan has shown how it can settle at scale in practice, as it completed a $50 million commercial paper trade on Solana in December. This progress proves tokenized bonds to be already out of pilot programs, and financial instruments in production quality by world institutions.

Beyond Holding: Bonds as Onchain Collateral

Composability is the strongest trend of tokenized bonds, rather than ownership. They do not have to be passive yield instruments anymore; onchain bonds can now be utilized to serve as productive collateral that is easily deployed in decentralized financial systems.

As an example, this represents a change of direction by Falcon Finance that allows users to mint USDf against tokenized assets like JAAA and CETES, government treasury bills in Mexico. This strategy renders fixed income programmable liquidity so that bonds do not need to be sold in order to support borrowing, leverage and capital deployment.

Because of that, tokenized bonds leave the fixed balance sheet of building block assets in onchain financial markets.

A Structural Upgrade, Not a Replacement

The emergence of tokenised bonds does not indicate that the traditional financial markets are being replaced, but rather that they are improved. Old instruments on infrastructure, which provide more rapid settlement, less cost, and greater flexibility, are being reconstructed, without changing regulatory alignment or institutional standards.

As the largest asset managers, banks, and infrastructure providers are taking the lead, tokenized bonds are regarded more and more as the platform of institutional onchain finance. With the growth in collateral use cases and the liquidity, the next phase of programmable capital markets is bound to rely on fixed income.