Tokenized Treasuries: How On-Chain U.S. Government Debt Works

How tokenized U.S. Treasuries work, including BUIDL and BENJI, NAV, yield, subscriptions, redemptions, stablecoin settlement, collateral and the difference…

An editorial illustration of U.S. Treasury instruments moving through tokenized funds and on-chain settlement

Last verified: 2026-08-23

A tokenized Treasury fund can sit in the same wallet as USDC, settle over the same blockchain and be worth about one dollar per share. That does not make it a stablecoin.

The difference is straightforward. A stablecoin is designed primarily to function as money or settlement value. A tokenized Treasury product gives the holder an investment interest in a fund or security whose assets may include Treasury bills, government securities, repurchase agreements and cash. The holder receives the economics of those assets, including yield, and is subject to the legal and transfer rules of the investment product.

That distinction has become more important as the market has grown. BlackRock's USD Institutional Digital Liquidity Fund, known as BUIDL, and Franklin Templeton's OnChain U.S. Government Money Fund have turned tokenized government debt from a small crypto-market experiment into part of institutional cash management. Other issuers and platforms have followed, while stablecoin companies have begun connecting tokenized funds directly to their own settlement products.

The result is a new piece of financial infrastructure: cash can remain on-chain when an investor moves between a payment asset and a yield-bearing asset, rather than leaving the blockchain every time it is invested.

What is actually being tokenized?

Tokenization does not put a Treasury bill itself into a crypto wallet in most of the products investors use today.

Instead, an asset manager creates a conventional legal investment vehicle — commonly a fund — that owns the underlying securities. Blockchain infrastructure is then used to represent ownership, process transactions, maintain a record of shares, or enable transfers between approved investors.

Franklin Templeton's OnChain U.S. Government Money Fund is a useful example. The fund is a registered U.S. government money-market fund. Franklin's Benji platform uses blockchain-integrated recordkeeping for fund shares, while the portfolio itself invests in government securities, cash and repurchase agreements under the fund's mandate.

BlackRock's BUIDL is structured differently. It is an institutional fund offering tokenized shares and investing primarily in cash, U.S. Treasury bills and repurchase agreements. Securitize provides the tokenization and transfer-agent infrastructure, while institutional custody and banking partners sit around the product.

Payment flow

Investor cash / stablecoin → fund subscription → fund buys Treasury/repo/cash assets → blockchain token represents fund interest → yield accrues to investor

The blockchain token is therefore a representation of the investment claim. The Treasury securities remain assets of the fund.

Why this is different from a stablecoin

— Fiat-backed stablecoin — Tokenized Treasury / money-market product

Primary purpose — Payments, settlement and dollar liquidity — Investment and cash management

Holder's economic claim — Redemption claim under issuer terms — Fund/shareholder or security interest

Yield — Usually retained by issuer unless separately passed through — Portfolio income generally accrues to investors, net of fees

Underlying assets — Reserve assets held against token liabilities — Assets owned by an investment vehicle for shareholders

Price — Designed to remain at or near $1 — NAV/share price under product structure; some aim for stable $1 NAV

Investor eligibility — Token may circulate broadly even if direct redemption is restricted — Often subject to securities-law, KYC and investor restrictions

Transferability — Generally transferable across supported wallets/networks — Usually permissioned to approved wallets/investors

Regulatory framework — Payment/e-money/stablecoin regulation depending jurisdiction — Securities and investment-fund regulation

The overlap is in the assets. Circle's USDC reserve, for example, includes short-dated U.S. government obligations and overnight Treasury repo through the BlackRock-managed Circle Reserve Fund. A tokenized Treasury fund can hold similar instruments. The holder's legal claim is nevertheless different.

With USDC, the investor owns a stablecoin and relies on Circle's reserve and redemption structure. With a tokenized fund, the investor owns an interest in the investment vehicle. Similar underlying assets do not create the same product.

Where the yield comes from

A Treasury token does not create new yield by being on a blockchain. The income comes from the underlying portfolio.

If a fund holds $100 million of short-term government assets yielding 4% annually, the portfolio generates roughly $4 million of annualized gross interest before management fees, operating expenses and changes in market yields.

Worked example

Illustrative Treasury-fund economics

Portfolio: $100,000,000

Gross portfolio yield: 4.00%

Annualized gross interest: $4,000,000

If total fund expenses are 0.25%:

$100,000,000 × 0.25% = $250,000

Illustrative net annualized income ≈ $3,750,000, before any other effects.

The token changes how the investor accesses and moves the fund interest. It does not change the basic source of return.

This matters when comparing tokenized funds with stablecoins. A stablecoin issuer can earn the yield on its reserve while the holder receives no interest. In a tokenized money-market product, the investment income is part of what the investor is buying.

How subscriptions and redemptions work

The practical difference between a tokenized fund and a conventional fund is most visible at the edges of the transaction.

An eligible investor first completes the fund's onboarding requirements. That can include KYC, sanctions screening, jurisdiction checks and investor-qualification rules. Once approved, the investor subscribes using cash or, where supported, a stablecoin. The fund or its service providers issue the corresponding tokenized shares to an approved wallet.

Redemption reverses the process. The investor returns or burns the fund tokens, the fund calculates the redemption value under its rules, and cash or another supported settlement asset is delivered.

Stablecoin integrations can make this process more useful outside banking hours. Circle and Securitize, for example, announced infrastructure allowing BUIDL investors to transfer shares to Circle and receive USDC. That does not make BUIDL continuously redeemable into dollars at a bank. It creates a route from a regulated investment product into an on-chain settlement asset.

Payment flow

BUIDL / tokenized fund → redemption or transfer instruction → USDC → wallet / payment / exchange / other on-chain use

The operational gain is easy to see. An institution can move from an interest-bearing asset into a payment asset without first waiting for cash to leave the digital-asset environment.

NAV still matters

Many tokenized cash products are designed to maintain a stable share price, but investors should not assume every tokenized Treasury token is simply worth $1 because the underlying securities are government debt.

Funds calculate net asset value from the value of the portfolio minus liabilities. Some money-market funds use accounting and portfolio rules intended to maintain a stable $1 NAV. Other tokenized securities can have accumulating NAVs or distribute income differently.

Even short Treasury bills have a market value. A bill purchased below face value accretes toward par as it approaches maturity. Repo produces interest. Fund expenses reduce returns. The token's accounting needs to reflect those economics.

Yield treatment — What happens to the token/share — Investor experience

Income distribution — NAV may remain around a target while income is distributed — Investor receives periodic distributions or additional value

Accumulating NAV — Token/share value rises as income accrues — Return appears in a higher redemption value

Rebasing / additional tokens — Balance can increase while unit price remains stable — Investor holds more units over time

The product documentation, not the token ticker, determines which model applies.

Why BlackRock's BUIDL mattered

Tokenized government securities existed before BlackRock entered the market. BUIDL changed the institutional signal.

BlackRock launched the fund with Securitize in March 2024. It was the asset manager's first tokenized fund issued on a public blockchain and was designed to provide qualified investors with U.S.-dollar yield through cash, Treasury bills and repo while allowing tokenized ownership and blockchain settlement.

The product subsequently expanded beyond Ethereum to additional networks. BlackRock said in its 2026 chairman's letter that BUIDL had become the world's largest tokenized fund.

The significance is not simply BlackRock's brand. Large asset managers already know how to run Treasury and money-market products. Tokenization becomes useful if it improves distribution, settlement, collateral mobility or the ability to connect those products to other financial applications.

BUIDL's stablecoin integrations illustrate that point better than its token contract. If an institution can hold a regulated Treasury product, move it between approved counterparties and convert it into stablecoin liquidity when needed, the fund becomes easier to use inside digital-asset markets without changing what it invests in.

Franklin Templeton took a different route

Franklin Templeton began putting fund recordkeeping on public blockchains earlier than most large asset managers.

Its OnChain U.S. Government Money Fund uses the Benji platform, and Franklin says the fund was the first U.S.-registered mutual fund to use a public blockchain to process transactions and record share ownership. The fund invests almost entirely in government securities, cash and fully collateralized repurchase agreements.

Benji has expanded across multiple blockchain networks as Franklin has developed the product. That multi-chain approach is useful because it separates two questions that are often confused in tokenization: what asset the investor owns, and which network records or moves the token representing it.

The underlying fund can remain the same while the distribution infrastructure expands.

The blockchain does not remove securities law

This is one of the clearest differences between tokenized funds and stablecoins.

A tokenized security remains a security. Putting a fund share on Ethereum or another public blockchain does not make the investor-eligibility rules, transfer restrictions or regulatory obligations disappear.

BUIDL is intended for qualified institutional investors and uses permissioned transfer controls. Franklin's products operate under their own securities and fund rules. Wallets can therefore be technically capable of receiving a token while not being legally eligible to hold it.

That has important consequences for composability. A permissionless stablecoin can be sent into a smart contract without asking whether the contract is an eligible investor. A regulated fund token may require whitelisted addresses, approved counterparties and transfer-agent controls.

Tokenization can make a security programmable. It does not make it permissionless.

Tokenized Treasuries are becoming collateral

The next important use is not simply holding the token for yield. It is using the asset while it remains invested.

Traditional financial markets already use Treasury securities extensively as collateral. Tokenization can make ownership and transfer instructions easier to integrate with digital trading and lending systems, provided the legal and operational framework recognizes the movement.

This is particularly relevant to crypto markets, where firms historically parked large amounts of working capital in non-yielding stablecoins to keep collateral immediately available. A tokenized Treasury product offers a different possibility: hold a government-backed yield-bearing asset and mobilize it when collateral is required.

The economic advantage depends on whether the venue accepts the token and how quickly it can be transferred or liquidated.

Worked example

Illustrative opportunity cost

Treasury balance required for trading/collateral: $50,000,000

If held in non-yielding cash/stablecoin: $0 portfolio yield

If eligible tokenized Treasury exposure nets 3.75%: $1,875,000 annualized income

The comparison ignores fees, haircuts, liquidity requirements, stablecoin incentives and collateral rules, but it shows why institutions care about keeping idle collateral invested.

For a trading firm, that can matter more than whether a tokenized fund transfers two seconds faster than a conventional fund.

Tokenized Treasuries and stablecoins are starting to meet in the middle

Stablecoins are becoming more regulated and increasingly backed by short-duration government assets. Tokenized Treasury products are becoming easier to settle and move on-chain. The two categories therefore sit increasingly close together operationally while remaining legally different.

Need — Stablecoin — Tokenized Treasury product

Pay supplier immediately — Usually better suited — May need redemption/conversion first

Hold transactional liquidity — Designed for this — Possible, but securities restrictions matter

Earn government-market yield — Holder usually does not receive reserve yield directly — Core purpose of the product

Use as institutional collateral — Widely used in digital-asset markets — Growing use where venues support it

Permissionless transfer — Often possible — Usually restricted to eligible/approved holders

Move into bank dollars — Issuer/redemption or secondary liquidity — Fund redemption process

This creates a natural treasury workflow. An institution can keep working capital in a yield-bearing tokenized fund, move into USDC when it needs immediate on-chain liquidity, and return surplus balances to the fund afterward.

The important question is the friction between those states: eligibility, cut-off times, liquidity, fees, settlement finality and whether conversion remains available when markets are under stress.

What can go wrong?

Tokenized Treasury products inherit risks from both conventional funds and digital infrastructure.

The underlying government securities have low credit risk, but the fund still has liquidity, operational and market-value considerations. Repo introduces counterparties. Cash introduces bank exposure. Fund administration and custody need to work correctly.

Tokenization adds another set of dependencies. Smart contracts can contain defects. Wallet keys can be compromised. Blockchain networks can become congested or experience outages. Transfer restrictions have to be enforced correctly. An investor can also confuse liquidity in the underlying Treasury market with liquidity in the token itself.

A $1 billion fund can own extremely liquid Treasury bills while its token has very little secondary-market trading. The investor may still have excellent primary redemption through the fund, but that is not the same as being able to sell $50 million of tokens instantly to another wallet at NAV.

Risk — Where it sits — What to check

Portfolio risk — Fund assets — Maturity, credit quality, repo counterparties and cash holdings

Redemption liquidity — Fund/administrator — Cut-offs, settlement timing and redemption terms

Token liquidity — Secondary market — Actual executable bids, not fund AUM

Smart-contract risk — Blockchain/token — Contract controls, audits and upgrade authority

Custody/key risk — Investor and service providers — Qualified custody, recovery and authorization model

Regulatory/eligibility risk — Legal structure — Who can hold, transfer and redeem

Network risk — Blockchain — Finality, uptime and supported transfer infrastructure

How to compare tokenized Treasury products

The headline AUM number is useful, but it is not enough to choose between products.

An investor needs to know what the token represents, who manages the portfolio, what assets the fund can hold, how yield is distributed, who can subscribe, how quickly redemption settles, which chains are supported and whether there is meaningful liquidity outside the primary market.

Question — Why it matters

What legal security does the token represent? — Determines the investor's rights and regulatory treatment

What does the portfolio own? — Determines yield, duration, credit and liquidity characteristics

Who manages and administers the fund? — Identifies the regulated institutions responsible for the investment product

Who is eligible? — A product can be technically public-chain while legally restricted

How is yield delivered? — Distribution, NAV appreciation and rebasing create different operational behavior

How does subscription/redemption work? — Determines how quickly cash or stablecoins can move into and out of the product

Which networks are supported? — Affects distribution and integration, not the underlying Treasury exposure

Can it be used as collateral? — Can materially improve capital efficiency for institutional users

What is the actual token liquidity? — Fund AUM does not guarantee a liquid secondary market

Why the market matters beyond crypto

There is a tendency to measure tokenization by asking how much conventional finance has moved onto public blockchains. That is useful, but it misses the more practical test.

The question for an asset manager is whether tokenization improves distribution or operations. For a bank, it may be whether tokenized securities can settle or serve as collateral more efficiently. For a fintech, it may be whether customers can move between cash, stablecoins and investments without maintaining separate financial systems. For a corporate treasurer, it may be whether idle balances can remain invested while still being available when a payment is due.

Those use cases do not require the Treasury market itself to migrate wholesale onto a blockchain.

They require tokenized products to become interoperable with the places where digital money is already being used.

The next phase is about what investors can do with the token

The first phase of tokenized Treasuries proved that a regulated fund interest could be represented and transferred on public blockchain infrastructure.

The next phase is less about issuance. It is about utility after issuance.

Can a tokenized Treasury position be posted as collateral without first being sold? Can an institution move into USDC outside normal banking hours? Can a corporate treasury automate the movement of excess cash between a payment balance and a yield-bearing fund? Can an asset manager distribute the same product across several networks without fragmenting ownership or liquidity?

Those questions determine whether tokenization changes financial workflows or simply gives an existing fund a new form of recordkeeping.

For now, stablecoins remain better suited to payments and immediate settlement, while tokenized Treasury products are better suited to holding short-term dollar assets and earning their yield. The market becomes more useful when institutions can move between the two without leaving the digital financial system each time.