Euphoria is in the air. China’s stimulus, mixed with the Federal Reserve’s slash in interest rates earlier this month, is causing investors to ditch haven assets and pile into riskier bets.
Prices of US Treasury bonds — the safest bet out there — have tumbled. That means issuers of those government bonds on the blockchain are seeing less demand as yields drop from as high as 5%.
“Falling rates do change the investment thesis,” said Timo Lehes, co-founder of Swarm, a trading platform offering tokenised versions of bonds and stocks on the blockchain.
No matter.
Swarm and rivals, including Centrifuge and Backed Finance, say this year is the true test of the market for bringing private debt, bonds, equities, and real estate onto the blockchain. Boston Consulting Group estimates that opportunity will reach $16 trillion by 2030.
The US government bond possibilities alone are huge — the Treasury market is worth some $29 trillion.
Cheap transactions
The value of Treasuries that have moved onchain has more than doubled since the start of the year — fuelled in part by BlackRock, JPMorgan, and Franklin Templeton getting more investor offerings onchain.
The promise of cheap, transparent, and more efficient transactions will keep the demand coming, issuers say.
“Equities and indexes have been unexplored onchain,” David Henderson, Backed Finance’s head of marketing, told DL News. “Corporate bond ETFs — which we’ve tokenised — offer a similar risk profile to Treasuries with better yields.”
Higher-risk products
Pundits argue that blockchains can replace creaky financial rails riddled with middlemen. Tokenised versions of Google stock, barrels of oil, and real estate can be seamlessly settled at the speed of the internet.
There’s also a suite of higher-risk products on the blockchain for DeFi lovers to pile into.
“We expect onchain investors, who naturally have a higher risk tolerance, to explore opportunities further up the risk curve,” Bhaji Illuminati, CMO of Centrifuge, told DL News.
“This could mean shifting towards other safe assets, such as AAA-rated collateralised loan obligations, or showing a growing appetite for private credit deals.”
At just $4 billion, tokenised Treasuries are barely a blip in the $119 trillion bond market.
And as rates fall, some investors will be lured away.
Stablecoin lenders on Aave, for example, can earn up to 6%. At the beginning of August, it was just 2.4%.
Henderson says that as investors weigh their appetite for risk amid another Fed cut in November, they’ll have a broader swathe of tokenised assets to choose from.
Liam Kelly is a DeFi Correspondent for DL News. Got a tip? Email him at liam@dlnews.com.