Notes 7/17: Tokenized Treasuries, Lido and Binance Rewards

Tokenization of securities and real world assets (RWA) is one of the promises of crypto. And tokenizing U.S. treasuries is a low-hanging fruit because the market for such securities is already liquid. According to, the market value of blockchain-based investment products for treasury bills, bonds, and money market funds into tokens totals $614 million.

While that figure is insignificant as compared to the international treasury market running into millions of dollars, it is still impressive for a nascent ecosystem. The Fed’s interest rate hikes, which boosted yields from such products, have played no small part in growing this market.

A Limited Market

The chances, however, that the current market will grow much are highly unlikely. This is because it is expensive and inefficient. The so-called decentralized finance (DeFi) funds are essentially brokers for real world funds. And their intermediated token does not offer much benefits.

The yields are over and above those offered from the underlying funds on which they are based. And they will not pay for currently expensive gas fees. What’s more, they are they are either unregulated or function in a regulatory gray zone, much like the rest of the crypto.

Here’s what Ondo Finance has up on its website regarding regulation:

In cases of legal or regulatory ambiguity—or in cases where the way to best abide by such regulations in a DeFi context is unclear—we typically consult with multiple legal and regulatory experts and take a conservative approach.

That’s not very helpful, is it?

A Stablecoin Boost

Given the red flags for ordinary investors, why then do they exist? As the Bank of International Settlements (BIS) puts it, crypto is largely self-referential meaning its products and services form a closed loop. In the current case, the process to buy treasuries begins with a stablecoin transaction.

“Large stablecoin holders, including startups and DAOs (decentralized autonomous organizations), are faced with a choice between having their purchasing power eroded away by inflation or taking too much risk, with the current set of on-chain yields,” Nathan Allman stated in a post announcing Ondo Finance’s inhouse token. In other words, they help boost demand for dubious instruments that have lost their pegs multiple times in the past.

To complicate matters further, they have also adopted the sham cryptoeconomic principle of issuing tokens for governance. Most governance tokens in DeFi are distributed among few investors, funds, and developers. They cash out when the token’s price pumps.

The Future of Tokenization

Most figures and statistics in crypto are made up since they consist of bloated and made up valuations for worthless tokens. And DeFi concepts serve as test runs before actual implementation. For example, central bank digital currency (CBDCs) implementations utilize concepts from crypto. In that sense, tokenization of treasuries and RWAs will happen in the future. Just not this way.

For example, the Hong Kong government issued a green bond earlier this year. It was done on a private blockchain network. Ondo Finance and Maple Finance, two issuers of tokenized fund tokens, operate on Ethereum’s clunky blockchain where settlement finality and expensive gas fees are an issue.

Lido and Binance

As sure as night follows day, Lido’s yields match or exceed that of Ethereum. Typically, yields from the world’s biggest staking platform for Ethereum should offer yields that are less than those advertised by the underlying platform. As of this writing, Ethereum’s website states that yields from staking ether are 4.7%. Lido’s platform is matching that yield, meaning its staking service is essentially free to customers.

Rewards are important to Lido because they help prop stETH liquidity and maintain demand for its governance token, LDO. As of this writing, the staking platform has generated 316,657 ether, by far the largest among staking providers, in rewards since Shanghai according to data from Dune Statistics. The source of those rewards remains mysterious because Ethereum’s fundamentals remain the same since the last upgrade.

Binance’s Token

Binance, the world’s biggest cryptocurrency exchange by trading volume, is not far behind Lido in generating rewards from staking. It has generated 100,178 in staking rewards from Ethereum – roughly 52.1% of its overall inflow since the upgrade – since the Shapella upgrade.

The exchange is also in the news because investors are shorting its native token BNB. The token also reached a six-month low in prices earlier this year after the Commodities Futures Trading Commission (CFTC) alleged that it was a security. What happens to Binance if BNB loses cachet among investors?

Not much actually. According to Multicoin Capital, a venture capital firm that invested in BNB when it was launched, Binance is expected to transition to a decentralized model in which the token will transition to becoming a utility token.

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