- The growth curve of DeFi protocols that provide exposure to US Treasuries has stagnated.
- These products were expected to remain cold in the coming months.
Tokenized US Treasuries were one of the biggest success stories in decentralized finance (DeFi) during last year’s bear market.
By issuing them as on-chain assets, DeFi users gained access to one of the safest and most reliable investment vehicles in the traditional market.
However, since early 2024, investor interest in such projects has declined significantly, with most investors attracted to returns offered by riskier investments such as cryptocurrencies.
Bitcoin’s gain is government bonds’ pain
On-chain analyst Tom Wan drew attention to the negative correlation between investments in tokenized treasuries and the price of Bitcoin [BTC].
As the world’s largest cryptocurrency grew from $38,000 to $64,000, the size of the on-chain treasury market shrank.
Source: 21.co
In addition, the growth curve of protocols offering exposure to US government bonds stagnated.
Ondo Finance and Mountain Protocol, two of the biggest names in the sector, saw monthly TVL declines of 0.1% and 0.26% respectively, AMBCrypto researched using DeFiLlama facts.
Source: DeFiLlama
Don’t you look too optimistic?
A weak macroeconomic environment and an aggressive US Federal Reserve ensured attractive returns on US government bonds last year.
Their subsequent tokenization ensured that Web3 users could also enjoy these assured returns. This was the moment when the crypto market stagnated.
However, as the market heated up in recent months, many investors abandoned the stable 5% interest rate in favor of double- and even triple-digit returns.
Given broader expectations of a Fed rate cut, tokenized treasuries were expected to remain cold in the coming months.
Tom Han said, while advising the builders of these projects:
“In my opinion, U.S. Treasury protocols should focus on adoption and integration rather than product expansion.”
He stated that while the idea of tokenization of stocks and bonds sounds cool, the sector was vulnerable to regulatory risks.
He also suggested integrating these products into layer-1 and layer-2 networks to drive adoption.