Tokenized Treasuries: How They Work

What are tokenized treasuries?

A US Treasury security is a debt instrument issued by the US government. A tokenized treasury is a digital token whose value tracks a holding of those securities, either directly or through a fund. The New York Fed publishes information on Treasury securities.

The token is not the Treasury security. It is a claim on a fund, a note or a trust that owns the security. That distinction decides what happens when the holder wants to redeem, and it is the first thing to check in any product. The BIS describes the range of designs in The tokenisation continuum.

Ondo describes its OUSG product, for example, as built for institutional investors and offering exposure to short-term US Treasuries with 24/7 instant mints and redemptions (ondo.finance). That is the issuer's description, and the terms of any product sit in its offering documents.

Redemption is only one exit. For holders who want to sell to another eligible party, Liquid Mercury provides tokenized asset marketplace infrastructure and a Mercury RWA secondary market for order handling and settlement. The wider context is in the institutional RWA tokenization guide.

How tokenized treasury products work

Most products have the same moving parts:

• The issuer. The company that creates the product and sets its terms.
• The fund or note. The legal vehicle that holds the Treasury securities and issues the claim.
• The custodian. The institution that holds the Treasuries and the cash. Ondo says its products hold assets at third-party qualified custodians with daily independent accounting and annual audits (ondo.finance).
• The transfer agent. The party that keeps the official register of holders, which the token mirrors or replaces.
• The token. The on-chain record, with rules on who may hold and move it.

The subscription and redemption flow runs like this:

1. An eligible investor passes identity and eligibility checks.
2. The investor sends payment, and the issuer or its agent issues tokens against it.
3. The fund buys or holds Treasury securities with the payment.
4. To exit, the investor asks for redemption, the tokens are burned or returned, and cash is paid out under the product's terms.

The details of timing, minimums and cut-off times differ by product. Read each issuer's offering documents for the terms that apply.

Tokenized treasury funds vs tokenized T-bills vs tokenized bonds

Money market funds that hold Treasuries are a close relative. They are a fund wrapper around short-term government and cash instruments, and several tokenized products use that wrapper.

Treasury money market funds are covered in more depth in tokenized money market funds.

Why institutions use them

The benefits issuers and institutions cite are usually these:

• Collateral. A tokenized Treasury position can be used as collateral where the receiving party accepts it.
• Cash management. A treasurer can hold a government-backed instrument in a form that moves on-chain.
• 24/7 settlement. Because the record is on a blockchain, subscription and redemption are not limited to banking hours, depending on the product. Ondo describes 24/7 instant mints and redemptions for OUSG.

These benefits depend on the product and on the venue. Always check the source for any claim of yield or of settlement speed. No yield or size figures are quoted on this page, because they change and need a dated primary source.

Private credit is another asset class being tokenized, with different liquidity and risk. See tokenized private credit.

How tokenized treasuries are traded and settled

There are two ways out of a tokenized treasury position:

• Primary redemption. The holder redeems with the issuer or its agent under the product's terms. This depends on the issuer and the redemption schedule.
• Secondary trading. The holder sells the token to another eligible party, on a venue or bilaterally, at a price set in the market.

Secondary trading needs a venue, order handling, eligibility checks and settlement. The Mercury RWA materials describe delivery-versus-payment settlement, Mercury Ledger position keeping and BitGo custody connectivity and KYC verification in the workflow as that settlement path. See delivery versus payment for the concept. DTCC describes its tokenization service.

Liquid Mercury, the Chicago-based institutional digital asset infrastructure provider, describes Mercury RWA as the execution and settlement layer for tokenized assets, not as an issuer of Treasury products. For the wider context, read the RWA tokenization overview and the RWA glossary entry.

Risks and checks

• Redemption terms. Know who redeems, how fast and what limits apply.
• Transfer restrictions. Many products can only be held by approved wallets, and some are not available to US persons. Check eligibility before any other step.
• Issuer and custodian risk. The holder depends on the fund or note and on the custodian. Check who they are and how they are audited. The FSB reviews the risks in The Financial Stability Implications of Tokenisation.
• Venue liquidity. A token that can be redeemed may still have few buyers on the secondary market.
• Rate risk. Treasury prices move with interest rates, and longer-dated products are more sensitive.

This page is educational and is not investment advice.