Tokenized Securities Surge as Investors Seek Stable Passive Income

Following Bitcoin’s peak above $109,000, investors are increasingly turning to tokenized securities, particularly US treasuries, for more predictable passive income.

• Tokenized treasuries reach $4.6 to $4.8 billion
• Institutional and protocol demand drives growth
• BlackRock and Franklin Templeton lead issuance

Imagine parking your crypto earnings in a safe haven amidst the wild west of the crypto market. That’s exactly what’s happening as tokenized US treasuries surge to a staggering $4.6 to $4.8 billion in just two months. After Bitcoin’s exhilarating climb past $109,000, investors are pivoting towards these securities, seeking a more stable, yield-bearing asset to weather the crypto rollercoaster.

Data from Messari and RWA.xyz highlight this shift, indicating that tokenized treasuries are not just a fleeting trend but a significant expansion phase within the crypto market. These securities serve as safe investments that protect against market downturns, often referred to as risk-off assets. In simpler terms, they’re the crypto equivalent of a safe harbor, allowing investors to secure their earnings while still earning passive income.

Institutional investors and protocols are at the forefront of this surge, eager to secure their earnings in low-risk investments. The most common tokenized security is US treasury debt, which forms the backbone of RWA (Real World Assets) protocols. These protocols often pair tokenized treasuries with stablecoins to provide stability within the volatile crypto ecosystem. RWA refers to assets from the real world, like property or bonds, that are represented on the blockchain.

The growth of tokenized securities has been remarkable, outpacing even the initial expansion of stablecoins with a 20% increase in the first quarter of 2024. The market is not only growing but also diversifying, with 23 government security products now bridging traditional finance and the crypto world. Major issuers like BlackRock and Franklin Templeton are leading the charge. BlackRock’s BUIDL and Franklin Templeton’s BENJI are prominent offerings, but other players like Hashnote, Ondo Finance, Securitize, Superstate, and Spiko are also making significant inroads.

However, access to these promising securities remains largely the domain of institutional investors and protocols, leaving retail investors on the sidelines. Franklin Templeton’s BENJI fund offers a rare exception, available to US-based retail buyers, but for the most part, this market remains an institutional playground.

The blockchain platforms facilitating this tokenization are primarily Ethereum-based, though Franklin Templeton has ventured into Arbitrum, Avalanche, Polygon, and Stellar, while BlackRock’s BUIDL has recently expanded to include Solana. Ethereum is a decentralized platform that enables the creation of smart contracts and decentralized applications, making it ideal for tokenization. The other platforms mentioned are also blockchain networks that offer similar capabilities, allowing for the tokenization of assets across different ecosystems.

This shift towards tokenized securities post-market peak isn’t just a tactical retreat from volatility; it’s a strategic move towards securing earnings in an increasingly mature market. As Messari aptly put it:

Tokenized treasuries tend to rise after crypto market tops, indicating a shift to yield-bearing assets when sentiment dips.

The institutional interest in tokenized assets is undeniable, with over 60% of institutions allocating more than 1% of their portfolio to digital assets or related products, according to EY-Parthenon. This isn’t just about chasing the next big thing; it’s about leveraging the potential of blockchain for asset management and diversification. Hedge funds, in particular, are bullish on tokenization, hinting at further growth and innovation on the horizon.

Yet, despite the optimism, there’s a cautious undertone to this trend. Regulatory uncertainty and the need for trusted partners and secure custody solutions loom large, influencing the pace and direction of this burgeoning market. It’s a delicate balance between embracing the potential of tokenized assets and navigating the complexities of integrating them into traditional financial systems.

So, what does this mean for the future of crypto? Let’s dive into some key questions and takeaways:

• Why are investors turning to tokenized securities after a market peak?

  Investors are seeking more predictable and secure sources of passive income, moving away from the volatility of other crypto assets.

• What role do tokenized US treasuries play in the crypto market?

  Tokenized US treasuries serve as risk-off assets, providing a secure way for protocols and investors to park their earnings with additional passive income.

• Which entities are the major issuers of tokenized securities?

  Major issuers include BlackRock (BUIDL), Franklin Templeton, Hashnote, Ondo Finance, Securitize, Superstate, and Spiko.

• How has the market for tokenized securities evolved recently?

  The market has diversified with new inflows from smaller issuers like Securitize and Hashnote, and there’s been a shift in demand affecting the supply of products from major issuers.

• Are tokenized securities accessible to retail investors?

  Currently, tokenized securities are mostly used by institutional investors and protocols, with limited retail access, except for Franklin Templeton’s BENJI fund available to US-based retail buyers.

• Which blockchain platforms are used for tokenizing securities?

  Ethereum is primarily used, but Franklin Templeton also utilizes Arbitrum, Avalanche, Polygon, and Stellar, while BlackRock’s BUIDL recently added Solana.

The surge in tokenized securities post-Bitcoin peak is more than just a trend; it’s a testament to the evolving nature of the crypto market. As investors navigate the highs and lows, the quest for stability and passive income through tokenized assets like US treasuries signals a maturing market ready to bridge the gap between the decentralized world of crypto and the structured realm of traditional finance. The future might just be a bit less volatile, and a whole lot more promising, with tokenized securities leading the way.