The market size expanded by 66.5%, but only a small amount of assets truly entered the DeFi ecosystem.

Written by: Ishita

Translated by: Luffy, Foresight News

The on-chain real-world asset size has reached $38.7 billion, but most of these assets remain idle.

U.S. Treasury bonds, gold bars in Swiss vaults, SpaceX equity, home equity loans, car loans—these assets have all been tokenized on-chain. However, the vast majority of them are just sitting stored away.

Various charts will not tell you this. Every few weeks, someone releases the same chart: the size of on-chain real-world assets continues to rise. Everyone agrees that the path of tokenization has been successful.

From a certain perspective, this is indeed the case. The charts only show the process of funds entering on-chain but do not reflect where the funds go after they are on-chain. The gap between funds on-chain and funds truly circulating is the RWA liquidity gap.

This gap is crucial, as many investors bet that it will eventually close. The bullish logic is that real-world assets will become the most important channel for traditional off-chain funds to enter the crypto industry. Investors purchasing tokenized treasury bonds are not actually buying cryptocurrencies, but their funds connect to the blockchain infrastructure, and with just one click, they can access all other on-chain assets.

However, all of this is predicated on the ability of funds to flow. If a token sits in a wallet for a whole year, it, although on-chain, lacks liquidity, just like a car parked and not moving.

To this end, I selected four major RWA categories: U.S. Treasury bonds, commodities, stocks, and credit assets, analyzing them one by one regarding two questions:

• Is there continuous new capital entering the market?
• Once funds are on-chain, can they circulate? Can they enter lending pools, serve as collateral, act as stablecoin reserves, or achieve other uses beyond being encased?

Ultimately, the conclusion drawn is far more intriguing than the charts: U.S. Treasury bonds are essentially deliberately idled, gold is primarily held; stocks can be traded normally, and credit assets are truly put to use.

All categories passed the first test (continuous capital inflow), but so far, only credit assets clearly passed the second test (capital circulation). In this paper, we will start with tokenized treasury bonds, the largest on-chain “asset parking lot.”

U.S. Treasury Bonds: The Largest Asset Parking Lot on-Chain

Tokenized U.S. Treasury bonds form the largest category of RWA. Over the past year, its size has grown from about $8.9 billion to $14.82 billion, an increase of 66.5%. But the issuance volume is only half the story; how the funds operate once on-chain is the more noteworthy issue.

What exactly are the tokenized underlyings?

The U.S. government finances itself by issuing treasury bills, notes, and bonds. These assets are backed by the credit of the U.S. government and are considered the safest assets in the financial market. Tokenized U.S. Treasury bonds bring this type of asset exposure onto the blockchain. BlackRock’s BUIDL, Circle’s USYC, and Ondo’s USDY provide tokenized products for qualified investors to obtain income backed by U.S. Treasury bonds.

The underlying asset remains traditional government debt, with the only difference being that the ownership certificates for these assets can circulate based on blockchain infrastructure.

Why did demand surge?

The rise in popularity of tokenized U.S. Treasury bonds is rooted in two major factors: the declining credibility of native crypto yield strategies and the increasing attractiveness of traditional Treasury yields.

First, the crises in the crypto industry exposed the risks lurking behind on-chain yields. In May 2022, the collapse of Terra was followed by the failures of Celsius and Three Arrows Capital. These events revealed the frail peg mechanisms, excessive leverage, and flaws in certain yield strategies. These yields rely on token incentives or favorable market conditions rather than sustainable cash flows.

For DeFi investors, this pushed them to actively seek sources of yield outside the crypto ecosystem.

At the same time, Treasury bonds regained their investment appeal. After the Fed began a rate hike cycle, short-term U.S. Treasury yields surpassed 5% in 2023. Meanwhile, many DeFi tracks saw weakening yields. Investors could then rely on U.S. government bonds for income, no longer solely depending on trading activity, leverage, or protocol token incentives.

Tokenization connected two markets. Tokenized U.S. Treasury bond products allow crypto-native funds, protocols, and institutional investors to obtain U.S. Treasury yields through blockchain channels. Investors can hold these robust income-generating assets on-chain without completely withdrawing their funds from the ecosystem.

With mature underlying assets and attractive yields, coupled with potential on-chain application value, multiple advantages make tokenized U.S. Treasury bonds one of the earliest and most successful RWA application scenarios. Subsequently, traditional financial institutions like BlackRock BUIDL and Franklin Templeton's on-chain money market fund entered the market one after the other.

However, the growth in the market is not evenly distributed, with a few platforms absorbing the vast majority of funds, and their products occupy the bulk of the market share.

A Few Platforms Dominate the Market

The tokenized U.S. Treasury bond market is highly concentrated among leading platforms, with the top five platforms collectively accounting for about 77% of the market size of $14.82 billion.

Each platform has flagship products that carry U.S. Treasury bond exposure:

• Ondo: USDY, OUSG
• Franklin Templeton: BENJI, iBENJI
• Circle: USYC
• WisdomTree: WTGXX
• Securitize: Provides tokenization infrastructure for BlackRock BUIDL fund

The product level is also concentrated, with the top ten products collectively accounting for approximately 86% of the market share, amounting to about $12.8 billion. However, the market volume can only reflect how much capital entered on-chain and does not indicate the state of the funds’ use after going on-chain.

Small Amount of Liquid Funds

I selected eight leading tokenized U.S. Treasury bond products on DeFiLlama, corresponding to a scale of about $10.1 billion, which accounts for 68% of the total market of $14.82 billion. Among these products, only about $200 million, or 2% of the total scale, is counted as active DeFi locked value.

Even for the market's top products, the vast majority of U.S. Treasury bond assets have not been put into any quantifiable DeFi applications. The direction of funds, far more than low utilization itself, deserves further exploration.

In measurable application scenarios, stablecoin reserves account for two-thirds. WisdomTree's WTGXX, Superstate’s USTB, and BlackRock BUIDL are used in Frax’s frxUSD ecosystem; Circle's USYC can be deposited to mint Usual's USD0. In these models, the underlying U.S. Treasury products continuously generate income while serving as reserve assets for another dollar product. The assets enter the DeFi space but are not necessarily used for trading or lending strategies.

The scenario of collateral for lending accounts for about the remaining quarter. Typical cases include Ondo's OUSG on Flux Finance and Superstate's USTB on Aave Horizon. There is also a small portion of funds invested in trading pools and yield strategies; additionally, some assets are stored in protocol treasuries, such as Franklin Templeton's BENJI in the Arbitrum DAO treasury.

There is a key distinction here: assets can play a role in DeFi but may not necessarily be traded frequently. The vast majority of quantifiable applications serve as stablecoin reserves rather than for lending or trading.

Why are U.S. Treasury assets rarely used in DeFi?

Three main factors contribute to the low utilization rate of tokenized U.S. Treasury bonds in DeFi: the economic imbalance in borrowing, transfer permission restrictions, and high concentration of ownership.

(1) Borrowing against U.S. Treasury bonds often yields unprofitable results

The appeal of tokenized U.S. Treasury bonds is quite straightforward: one can earn U.S. Treasury yields without leaving the on-chain ecosystem. However, yield rates have now fallen. In October 2026, the yield on tokenized U.S. Treasury bonds is about 3.7%, down from about 5.3% in early 2024.

This point is critical; a potential use of U.S. Treasury bond tokens is to be used as collateral for borrowing stablecoins to buy more of the same type of asset. The viability of this strategy hinges on the new yields covering the borrowing costs and other expenses.

Currently, U.S. Treasury bond yields are close to or even exceed the benchmark overnight funding rate, significantly lowering the cost-effectiveness of leveraged long U.S. Treasury strategies. After deducting loan costs, protocol fees, and adding liquidation risks, the new exposure's returns struggle to cover the potential risks. This does not mean that using U.S. Treasury bond tokens for collateralized borrowing is entirely unfeasible, but the economic attractiveness has markedly diminished, and asset utilization is affected by market access, collateral parameters, liquidity, and yield rates.

The logic of reserve management is entirely different. U.S. Treasury bond tokens held as stablecoin reserves do not need to refinance and increase holdings of Treasury bonds. They can continue to generate income while supporting another dollar stable product. This is also why, even as the collateralized borrowing strategy loses appeal, the market demand for U.S. Treasury bond tokens as reserve assets persists.

(2) Most tokenized U.S. Treasury bonds are permissioned assets

The vast majority of tokenized U.S. Treasury bonds only allow transfers to audited wallets or have other access verifications in place. USDY and mTBILL are rare exceptions that allow non-permissioned secondary transfers within the product rules.

However, open transfers do not equate to widespread application in DeFi scenarios. According to my snapshot data, only 0.4% of USDY's assets are invested in the DeFi applications I tracked, with mTBILL having approximately $1,300 in assessed integration scenarios.

The ownership data provides further clues. On the Ethereum chain, the top ten addresses of USDY hold about 95% of the share, while the top ten addresses of mTBILL hold over 99%. Even in Solana, where USDY has over 8,000 holding addresses, the top ten addresses still control 96% of the assets.

These data do not directly prove that a highly concentrated holding causes low utilization, but they indicate one thing: merely allowing transfers is insufficient to motivate holders to deploy assets across various DeFi applications.

(3) Most holders are not traders

The entire market has about 86,000 holding addresses. Dividing $14.82 billion by the number of addresses gives an average holding of about $170,000 per address, but this does not represent ordinary investors. Holdings are highly concentrated, and one wallet address does not equal one independent investor.

The concentration at the product level is even more apparent: Circle's USYC totals $2.38 billion, dispersed across only 35 addresses; BlackRock BUIDL has a size of $2.2 billion, spread over 105 addresses; JPMorgan's on-chain liquidity fund is about $738 million, held by only 7 addresses.

Cross-chain data exhibits similar characteristics:

• USYC on BNB Chain: Almost all token supply is held by a single address.
• USDY on Solana: Despite having 8,000+ holding addresses, the top ten addresses hold 96.47% of the market cap.
• mTBILL on Ethereum: The top ten addresses hold 99.42% of the total token supply.

The above are snapshot data from each chain; large wallets may belong to custodial agencies, cross-chain bridges, or protocols rather than individual investors. But this proves that a large number of holding addresses does not indicate that assets are widely dispersed.

This also explains why trading activity remains consistently low. Some assets are held by institutional treasuries, custodians, or stablecoin reserves. They resemble cash on a balance sheet rather than investment targets for frequent trading. Without a clear purpose, assets will remain idle.

The number of holding addresses can only reflect the breadth of the token's distribution among addresses and cannot demonstrate the number of independent investors or the active utilization level of the assets.

Yield Rates Decline, Yet the Market Continues to Grow?

There is a contradiction here: yield rates have fallen from over 5% to 3.7%, yet the market size still grew by two-thirds. If the motivation for holding is merely yield, such growth is difficult to explain.

My understanding is that investors buy not just for yield but for access to blockchain infrastructure. A tokenized U.S. Treasury bond can serve as a stablecoin reserve, facilitate cross-market circulation, or act as collateral when supported by lending protocols. Even if assets remain idle in wallets for most of the time, this option itself holds value.

However, the option does not equate to actual asset utilization. Institutions wish to allocate U.S. Treasury bond exposure on-chain to drive market scale growth, while transfer restrictions, inadequate collateral support, and financing costs collectively limit the scale of fund circulation.

What Will Happen Next?

Low utilization does not equate to project failure. The underlying infrastructure that supports the operation of U.S. Treasury bond tokens on-chain is still a nascent development, and the current idle assets are merely a norm in the early stages. To change the status quo, four breakthroughs need to be achieved:

• More stablecoin reserve scenarios: Currently, the main path for assets to exit the “parking lot” is through stablecoin reserves. Every stablecoin that uses tokenized treasury bills as reserves in place of bank deposits opens up a new channel for fund flow.
• Improve regulatory rules: Clarify who can hold security-type tokens and how assets can be transferred, expanding the compliant user base.
• More trading venue support: More exchanges and trading markets should accept U.S. Treasury bond tokens as collateral. Margin trading is the most suitable scenario, as assets used as margin are similar to reserve assets and do not require a positive yield spread.
• Positive yield spread space: Using U.S. Treasury bonds as collateral for borrowing must possess economic value, with Treasury yields exceeding borrowing costs. Otherwise, leveraged strategies become laborious without reward.

The first stage's goal has been to bring U.S. Treasury bond exposure on-chain, and that goal has been achieved. The next stage is to make assets liquid. The scales of asset pools with real circulation channels will continue to expand, while the remaining assets will remain silent and idle.

Conclusion

Returning to the two questions posed at the beginning: Is there new capital entering? The answer is positive. Even though yield rates fell from over 5% to 3.7% in October 2026, the market size grew by 66.5% to $14.82 billion. Under the condition of reduced holding yields, funds are still continuously flowing in and being stored.

Can funds circulate once on-chain? It is difficult. Among the eight products I tracked, only about 2% is accounted as active DeFi locked value, and most of that serves as stablecoin reserves. It does play a role but falls under static usage.

The root problem is not a failure in infrastructure but stems more from economic logic. When financing costs approach or even exceed U.S. Treasury yields, the returns from leveraged borrowing become challenging to cover transaction fees and liquidation risks. Merely relaxing transfer permissions is insufficient to change the status quo. Wallet data indicates highly concentrated asset holdings, but existing data cannot prove that concentrated holdings are the root cause of low utilization.

So although this asset parking lot is fully loaded, it is largely a design consequence. On-chain U.S. Treasury bonds are akin to cash on a balance sheet; they await specific purposes, and until those purposes are found, they mostly remain idle.

This does not equate to failure. The first phase, which aimed to bring U.S. Treasury bond exposure on-chain, has been realized. The next phase is to expand the available scenarios for these assets in the DeFi market, and related explorations are underway, though on a limited scale.