Tokenized US Treasurys expected to surpass $3B by end of 2024

The rapid growth in global crypto adoption (up 34% based on the number of holders since 2023) has increased the demand for stable, low-risk digital assets. Tokenized United States Treasurys give users access to government bonds within the crypto ecosystem. The figure below illustrates the rapid growth of tokenized products since January 2023, with their total market capitalization increasing by over 150% year-to-date.

To investigate the sector’s potential market capitalization by the end of 2024, Cointelegraph’s analysis employed three statistical models: Autoregressive integrated moving average (ARIMA), generalized autoregressive conditional heteroskedasticity (GARCH) and linear regression. The figure below displays the projected capitalization of the 12 tokenized US Treasury products aggregated.

The ARIMA model predicts $2.12 billion, GARCH forecasts $3.93 billion, and the linear regression model estimates $2.47 billion. These can be interpreted as bear, bull and base-case scenarios, respectively. A weighted combination of these three models suggests a market capitalization of $2.66 billion by the end of 2024.

The recent interest by decentralized autonomous organizations (DAOs) in tokenized US Treasurys makes them a potential source of capital influx into such products. Two DAOs, Arbitrum and MakerDAO, have announced plans to invest in tokenized US Treasurys. Arbitrum intends to invest around $25 million ( around 1% of its treasury), while MakerDAO plans to allocate $1 billion (around 19% of its treasury). Most DAOs lack stablecoin reserves, which could be easily converted into yield-bearing bonds. However, despite this, some are now consolidating their treasuries with real-world assets to ensure long-term stability.

DAO treasuries often primarily comprise their own tokens. It is unclear exactly how DAOs might go about converting their treasury tokens into tokenized bonds. Instead of selling these illiquid tokens on the open market, they might pursue partnerships with bond issuers and attempt to pledge them as collateral or gradually acquire the tokenized bonds. This would help mitigate volatility and avoid the price impact of sudden, high-volume sales.

If more DAOs follow suit and allocate portions of their treasuries to tokenized US Treasurys, this could lead to substantial inflows. As of July 30, total DAO treasuries amounted to $24.3 billion. Allocations of 1% (bear), 5% (base) and 10% (bull) to tokenized US Treasurys would yield potential additional inflows of $243 million, $1.22 billion and $2.43 billion, respectively. In the grand scheme, this would mark an increase of between 13% and 31% from today’s tokenized US Treasurys market cap of $1.85 billion.

In summary, Cointelegraph expects the demand for tokenized US Treasurys to grow as crypto investors seek low-risk, yield-bearing ways to part with their money. However, challenges may arise soon, as the Federal Reserve is expected to start cutting interest rates in September and could reduce them to 4.25%–4.5% by December, down from the current 5.25%–5.5% range. As the market enters an environment with lower rates but sticky inflation, the appeal of US Treasurys as an investment will decrease.

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