Investing.com – Creating digital versions or tokenizing real-world assets on blockchains is one of the most contemporary ways of demonstrating cryptocurrency operate cases. And now tokenized treasuries are enjoying their moment in the spotlight as an income alternative to stablecoins, but these emerging digital assets face significant obstacles to the broader adoption needed to dethrone stablecoins.

Tokenized Treasuries – digital versions of Treasury bonds created on the blockchain – have reached a market capitalization of almost $2.5 billion, up from about $800 million since the turn of the year, according to data from tracker RWA.xyz.

Tokenized treasures: overcoming the need for profit

“The tokenized treasury bond universe has grown rapidly over the past year, reaching $2.4 billion. And while it is significantly smaller than the $180 billion world of traditional stablecoins, their rapid growth has the potential to threaten stablecoin dominance in the future,” JPMorgan analysts wrote in a recent note.

The need for income-producing alternatives to mainstream stablecoins like i , which typically do not offer interest rates or yields on equity reserves, is driving demand for tokenized treasuries.

In the case of stablecoins, it is prudent to avoid offering interest to its users as this would create further regulatory restrictions requiring compliance with securities laws, JPMorgan said, “thus hampering their current liquid and permissionless use as a source of collateral in the crypto ecosystem.” ”

However, Stablecoin users are not sitting idly by, willing to eliminate the opportunity costs of holding income-producing assets. They operate different strategies to make money on their stablecoins.

However, these strategies, such as secured lending, unsecured lending, and basis trading, “involve risk and the ceding of control and custody of balances,” analysts said.

With U.S. Treasury yields still at multi-year highs and now expected to remain higher for an extended period of time amid continued U.S. economic exceptionalism, tokenized government debt appears to meet the need for yield and could potentially continue to displace dollars from stablecoins.

Tokenized vaults: the modern kids for approxcrypto derivatives market block

Tokenized treasures offer several advantages over classic stablecoins. They provide users with a profit without having to operate risky trading or lending strategies, and do not require users to give up control or custody of their assets.

The tokenized treasury bond market has also been boosted by institutional investors bringing tokenized funds to market, allowing investors to access on-chain offerings with 24/7 liquidity.

Blackrock (NYSE:) launched its first tokenized BUIDL fund on the Ethereum blockchain earlier this year, allowing investors to exchange their BUIDL shares or tokens for the USDC stablecoin via a astute contract at any time, without the need for an intermediary.

Some tokenized funds, including Blackrock’s BUIDL, which has amassed a market capitalization of nearly $0.6 million since its launch in April, are also looking to steal the stablecoin lunch in a key market: the cryptocurrency derivatives market.

Stablecoins are typically used as collateral in cryptocurrency transactions, with Tether Holdings’ USDT stablecoin and Circle Internet Financial’s USDC stablecoin being among the most widely used tokens as derivatives collateral on exchanges, with market capitalizations of $120 billion and $34 billion, respectively.

A regulatory hurdle preventing the adoption of tokenized treasury bonds

But it is this advantage, the yield offering that tokenized treasures are able to dangle in front of investors, that is the main obstacle in their quest to steal significant portions of stablecoins.

“Tokenized treasuries are subject to securities regulations that limit offerings to accredited investors, thereby hindering broader market adoption,” analysts said.

For example, BlackRock’s BUIDL has high barriers to entry with a minimum investment of $5 million and restrictions on offering these products to accredited investors.

Blackrock’s substantial push to persuade cryptocurrency exchanges to expand operate of its digital token shows that there is potential to partially replace classic stablecoins as collateral in cryptocurrency derivatives trading, but the liquidity or lack thereof (compared to stablecoins) suggests that these modern players The cryptocurrency derivatives market block will probably not dominate in the near future.

This regulatory hurdle suggests that stablecoins – which boast market capitalizations approaching $180 billion across multiple blockchains and centralized exchanges, providing investors with low transaction costs even for enormous transactions – are not at risk of losing the significant advantage they hold over tokenized bonds treasuries in terms of liquidity, JPMorgan said.

This deep liquidity, which is key to silky trading, means tokenized treasuries with a market capitalization of about $2.4 billion “will ultimately replace only a fraction of the stablecoin universe,” JPMorgan said.

While the bar to knock stablecoins off their perch is likely to remain high, tokenized treasuries are expected to continue to rise, potentially replacing “non-yielding stablecoins in DAO vaults, liquidity pools, and untapped cash with crypto venture capital funds.”