The market for tokenized US Treasuries will exceed<a href="https://startupnews.fyi/2026/02/26/tokenized-us-treasury-market-surges-by-1b-since-beginning-of-year/" rel="noopener noreferrer" target="_blank"> </a>$10 billion as of January 2026, a 100-fold increase from a market capitalization of under $100 million two years earlier. The exponential growth of on-chain assets was largely driven by an increased awareness by institutions about how to tokenize conventional bonds/treasuries, which are less expensive to create than their physical counterparts, thus making them attractive investments that should be considered by many organisations in the future. This guide will outline the process of converting traditional bond securities such as US Treasuries into tradable digital securities using blockchain technology as the underlying infrastructure.<h2>Step One: The Issuer Acquires the Underlying Asset</h2>This entire process begins prior to entering into the world of the blockchain. When institutional issuers (for example, BlackRock, Ondo Finance, Franklin Templeton, etc.) are purchasing T-bills or T-bonds, they are purchasing these assets in traditional financial markets (purchasing cash for T-bills is equivalent to selling bonds), and delivering cash to purchase T-bills/bonds. T-bills are a short-term debt product issued by the government, pay a discount price at issuance, and will pay each T-bill holder $1 at maturity. T-bill maturities range from 4 weeks to 52 weeks. Prior to issuing a new token, the institutional issuer of the T-bill/bond must obtain all of the regulatory approvals required to participate in the capital markets. Once the issuer has executed purchase transactions for T-bills/bonds with the appropriate regulatory approvals, the issuer must deliver the actual T-bills/bonds to a licensed custodian (e.g.,<a href="https://www.coindesk.com/business/2025/11/14/blackrock-s-usd2-5b-tokenized-fund-gets-listed-as-collateral-on-binance-expands-to-bnb-chain" rel="noopener noreferrer" target="_blank"> </a>Bank of New York Mellon custodial services on behalf of BlackRock BUIDL), who will maintain the assets in a segregated account. The segregation of T-bills and T-bonds is the first layer of protection against financial defaults by an issuer of T-bills and T-bonds. Since the custodian will never commingle assets held in custody with the financial records of the institutional issuer of T-bills and T-bonds, the value of T-bills and T-bonds will not be subject to financial loss if an issuer is unable to continue as a going concern.<h2>Step Two: The Legal Structure Gets Built</h2>A large percentage of the online articles discussing this subject never address the most significant phase in the investment cycle — ownership through utilizing technology associated with these asset classes (e.g., Physical U.S. Treasury T-Bills). A person who wishes to invest in T-Bills via the majority of structured products available today will not obtain direct legal title to these instruments, due to the fact that the issuing of securities creates a separate legal entity that will hold the underlying asset via various types of entities such as trusts, special purpose entities or other entities that are subject to regulation (regulated funds) whereby shares or other claims against the underlying asset are/tokenized and then recorded using a distributed ledger (blockchain) (for example, BlackRock operates a formally-regulated fund called BUIDL in the British Virgin Islands to provide liquidity using the shares of BUIDL, which represents the main source of liquidity for certain OUSG (Ondo) products). Superstate has established a privately-held limited liability company in the US where USTB shares will serve as investment opportunities for accredited investors only. The factors that determine your eligibility to be an investor include whether the product is regulated according to the jurisdiction where the regulatory body resides, whether or not the product is considered a security based on the<a href="https://www.sec.gov/newsroom/press-releases/2026/2026-34" rel="noopener noreferrer" target="_blank"> </a><a href="https://www.sec.gov/newsroom/press-releases/2026/2026-34" rel="noopener noreferrer" target="_blank">SEC's Staff Statement regarding Tokenized Assets (January 2026)</a>, and how you will redeem your tokens all come from the regulatory structure under which the legal vehicle is created. The obligations of the legal person under applicable US securities laws will not change based solely on the format of the token; the tokens represent ownership of interests that are in the underlying legal vehicle (i.e., the fund in which the investments were made).<h2>Step Three: Tokens Are Minted on Blockchain</h2>Once all legal documents have been executed, and all asset documentation has been completed, the platform will then issue token representations of ownership to the asset(s).In order for creators to tokenize their assets, they may utilize the<a href="https://securitize.io/learn/press/blackrock-launches-first-tokenized-fund-buidl-on-the-ethereum-network" rel="noopener noreferrer" target="_blank"> </a>Securitize Tokenization Ecosystem on many protocols including Ethereum, Solana, Polygon, Arbitrum, Avalanche, Aptos, and BNB Chain. Each equity token is therefore issued backed by a set amount of equity backed by an initial amount of the underlying asset (held in a "Treasury") in a pro-rata basis.The company has coded smart contracts that encode all the compliance attributes of these tokens; KYC records, accreditation status, transfer limits, and jurisdictional eligibility, have all been encoded directly into the tokens. Chainlink oracles are responsible for providing verified information on the value of tokens and actual holdings of authorized custodians by means of live price feeds and proof of reserves.As such, this represents an independent (non-institutional) method for verifying the true value of a given asset.<h2>Step Four: Yield Distribution Runs Automatically</h2>Two separate mechanisms act in very different ways. Ondo uses a "rebasing" method through its USDY token whereby each time a new income streams into the fund, all token holders' wallets are updated automatically to reflect this income. This process allows for approximately 4.25% annualized yield (APY) to be provided directly to the account that is holding the token, as opposed to having to be manually collected by a human. The "price appreciation" method stacks token net asset value (NAV) over time without changing the supply of discontinued assets. Similarly Superstate applies this methodology to its USTB where the price of the token actually increases daily due to the Treasury yield. Franklin Templeton goes one additional step in providing BENJI by allowing yield-generating shares (themselves) to be programmed natively on-chain as a result of tokenizing fund shares. Additionally, because of the operational complexity associated with requiring both the yield payment itself and reconciling the separate yield payment source, the method associated with rebasing complicates automated collateral systems. Conversely, when trading on infrastructure, the method of price appreciation is much more simple. The mechanical difference associated with price appreciation drove Circle's USYC into brief existence as the<a href="https://onchaintreasury.org/2026/01/23/tokenized-us-treasuries-for-dao-treasuries-usyc-vs-buidl-tvl-yields-and-integration-2026/" rel="noopener noreferrer" target="_blank"> </a>highest total value owned by February 2026, due simply to differences in mechanical versus yield rationale.

Tokenized bonds and Treasury bills place government debt on the blockchain using custodians, legal funds, and smart contracts, enabling automated yield payments and near-instant settlement with worldwide access.

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