Tokenized Treasuries: How On-Chain Bonds Generate 4% Yields

In the evolving DeFi landscape, tokenized U.S. Treasuries offer a stable 4% yield while maintaining full collateralization by government bonds. By bringing traditional bond mechanics on-chain, platforms like Fraction and BondAppétit bridge regulated fixed income with crypto-native liquidity.

Overview of Tokenized Treasuries

Tokenized treasuries are digital tokens—often ERC-20—that represent fractions of U.S. government debt. Each token is backed one-to-one by real Treasury bills or notes held by a custodian. This system enables 24/7 trading, instant settlement, and programmable features like fractional maturity.

Yield Mechanism

Yield derives from the underlying bond coupons and discount to par for T-bills. On-chain protocols accrue earned interest daily and distribute pro-rata to token holders. For example, a 4-week T-bill yielding 4.2% APR translates to approximately 0.0115% daily credit to the token balance.

Major Platforms

• Fraction: Partners with regulated custodians, offers T-bill and T-note tokens, automatic yield distribution via smart contracts.
• BondAppétit: Provides API for issuance and redemption, integrates with Curve for liquidity, and supports customized bond baskets.

Key Risks

• Custodial risk: Reliant on trusted third-party custody of real-world assets.
• Regulatory changes: Policy shifts around tokenized securities could impact issuance.
• Smart contract bugs: Vulnerabilities may freeze tokens or misallocate yields.

Getting Started

To begin, acquire USDC, then mint T-bill tokens via the platform’s portal or DeFi aggregator. Monitor on-chain yield accrual and toggle redemptions at maturity for on-chain or off-chain settlement. Always verify smart contract addresses and review audit reports before depositing.