Tokenizing national debt and building a liquidity pool on Uniswap would be a good business.
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Tokenizing national debt and building a liquidity pool on Uniswap would be a good business.
The next step for government bond tokens is to evolve into standardized ERC20 tokens.
Navigating Web3 tides with focused insightsAuthor: Huang Shiliang
Over the next five years, a large amount of traditional financial assets are expected to gradually move onto blockchains—commonly referred to in the industry as RWAs (real-world assets)—with government bonds being one of the most important types.
U.S. Treasury bonds have already been tokenized, but the current models are not yet fully "orthodox."
Standard tokens, such as the ERC20 tokens we're familiar with, are permissionless, freely transferable between any wallet, and widely usable across exchanges and DeFi platforms. However, today’s “U.S. Treasury token” products aren't true ERC20 tokens; they resemble inverse ETFs more closely. For example, MakerDAO's approach involves raising funds to purchase Treasuries, which are then held by custodial banks, with returns distributed directly to investors—lacking a genuine "Treasury coin" that circulates natively on-chain.
Although there are already some bond-related tokens like STBT[1], which represents ownership of U.S. Treasury securities, it does not conform to the ERC20 standard and has not seen widespread adoption in mainstream DeFi applications.
The Next Step for Treasury Tokens: Standardized ERC20 Tokens
The next stage for treasury tokens is to evolve into standardized ERC20 tokens, enabling full integration into the crypto ecosystem. As ERC20 tokens, they could participate in DeFi yield farming or be listed on exchanges.
Treasury tokens are particularly well-suited for the DeFi ecosystem because they naturally possess the qualities of a “pickaxe” during mining booms.
Compared to stablecoins like USDT, treasury tokens offer stable yields and relatively low price volatility, making them strong competitors to traditional dollar-backed stablecoins. For instance, traders exiting volatile positions could hold treasury tokens instead of USDT—a clearly superior choice in terms of yield generation.
DeFi Use Cases: Collateral and Liquidity Pools
Given their price stability, treasury tokens are ideal as collateral on lending platforms like Aave, enabling leveraged trading—the favorite strategy among crypto gamblers.
With built-in yield, treasury tokens can further activate various staking mechanisms within DeFi. Re-staking techniques similar to those used with stETH and wstETH can be applied to treasury tokens. Just look at how active stETH and wstETH are in DeFi to glimpse the potential of treasury tokens.
While treasury prices are relatively stable, they are not stablecoins. Historical data shows long-term price fluctuations of around 10%, with daily volatility averaging about 1%.
This moderate level of price stability makes treasury tokens especially suitable for liquidity pools on AMM protocols like Uniswap, where they can earn trading fees. On platforms like Uniswap, stablecoin pairs dominate total value locked (TVL) due to minimal impermanent loss.
As an asset that tends to revert to par value over time, treasury tokens paired with stablecoins would experience low and predictable impermanent loss, making them ideal for liquidity mining—much like USDT-USDC stablecoin pairs.
If treasury tokens achieve broad circulation in DeFi, treasury-token trading pairs on Uniswap could easily become among the largest in terms of TVL.
Global Outlook: The Potential for Tokenizing National Bonds Worldwide
If U.S. Treasuries successfully achieve on-chain circulation, other countries may follow suit by issuing their own sovereign bond tokens. Eventually, different nations' treasury tokens could be combined into cross-border liquidity pools, serving as counterparty liquidity for forex traders—and generating enormous trading volumes in the process.
Summary
Tokenizing government bonds into proper ERC20-compliant tokens holds vast future potential. Such tokens could become the largest category of real-world assets on-chain after dollar-based stablecoins, significantly accelerating the growth and maturity of DeFi.
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