Tokenized Treasurys at $7.4B: Unfolding Crypto Risks

- Significant new risk vectors emerge with widespread use of tokenized US Treasurys. - This use creates potential cascading effects on DeFi and broader financial markets. On June 24, 2025, Cointelegraph reported that traders increasingly use tokenized US Treasury products as collateral in leveraged crypto trading, a practice presenting new pathways for market risks. As of June 2025, the market capitalization of these tokenized US Treasurys stands at approximately $7.4 billion, introducing the potential for significant cascading effects, especially on decentralized finance (DeFi) protocols and potentially the broader financial markets. Tokenization, a process gaining traction, converts real-world assets such as US Treasurys into digital tokens on a blockchain. These digital tokens, which represent on-chain claims to government debt, provide a novel way to engage with previously low-risk assets. However, using these tokenized assets in leveraged trading creates new risk exposures. According to a Moody's report from June 2025, heightened risks are associated with tokenized US Treasurys. While these assets traditionally involve low risk, their tokenized forms carry additional dangers due to the underlying technology. Leveraged trading using tokenized Treasurys as collateral relies on loan-to-value (LTV) ratios, where significant drops in the collateral’s value could trigger automatic liquidations and necessitate additional collateral to meet margin requirements. Crypto exchanges like Deribit and Crypto.com have started accepting tokenized US Treasury funds as collateral, including BlackRock's BUIDL fund, which has a value of nearly $2.9 billion. This move allows traders to utilize a lower-volatility, yield-bearing digital asset for margin trading. The US Treasury has expressed concerns, noting that as the volume of tokenized assets grows, the associated volatility could spill over into broader financial markets. Furthermore, during stressful periods, the seamless nature of blockchain ledgers may exacerbate deleveraging, potentially leading to fire sales and further market instability. Additional risk factors for tokenized US Treasurys include potential de-dollarization by foreign nations, US fiscal spending policies, liquidity challenges, interest rate changes, and geopolitical events. In light of these factors, Nick Jones of Zumo emphasized the necessity for robust risk management, enhanced regulatory oversight, and increased transparency as traditional and decentralized finance sectors converge. Given these concerns, some investors are turning to other tokenized real-world assets (RWAs) like gold and real estate as alternative stores of value. Kevin Rusher of RAAC indicated that tokenizing hard assets, such as gold and income-generating real estate, will likely become a significant trend. For instance, investors could lend tokenized gold for yield or use it as collateral within DeFi ecosystems. According to CoinMarketCap, as of 12:00 UTC on June 24, Ethereum (ETH) trades at $2,486, and its 24-hour trading volume has increased by 1.4%.