Tokenized Government Debt: A Growing Risk to Crypto Markets
The market for yield-bearing tokenized US Treasury products has reached nearly $7.4 billion, facilitating their use as collateral for leveraged crypto trading. Tokenization converts real-world assets into digital tokens, presenting risks beyond those of traditional money market funds, including credit, interest rate, and liquidity risks. Crypto exchanges like Deribit and Crypto.com have begun accepting tokenized US Treasurys for leveraged trades, integrating BlackRock’s BUIDL fund. The US Treasury warns that the growth of tokenized assets could lead to volatility in broader financial markets during stress periods. Additional risks include de-dollarization, fiscal policies, and geopolitical tensions. There is a growing interest in tokenizing alternative assets like gold and real estate as investors seek stable stores of value amid concerns over US fiscal stability. Tokenized gold may also serve as collateral in the DeFi ecosystem. Robust risk management and regulatory oversight are essential as traditional finance and decentralized finance converge.
