# How do tokenized treasuries work? A tokenized treasury is a token for a share in a fund or vehicle holding short United States Treasury bills. Yield arrives as a rising price or new tokens. --- A tokenized treasury is a token on a blockchain that represents a share in a fund or vehicle holding short-dated United States Treasury bills and repurchase agreements, or a contractual claim on such holdings. The bills themselves never move onchain: they stay with a custodian, the token records who owns a share of them, and the interest the bills earn reaches the holder either as a rising token price or as additional tokens. Three legal structures share the name, and they differ in the claim they give you, in who may hold them and in how you get your cash back. Every yield used below is illustrative and labelled as such: nothing here is a forecast, a return promise or a recommendation of any product. It is general information, not investment, legal or tax advice, and the rules that apply to a given token depend on where it is issued and where you are.
$989,888.89price of a 13-week bill with $1,000,000 face value at an illustrative 4.00% discount rate
$219.18first day of yield on a $2,000,000 holding at an illustrative 4.00% net annual yield
Almost $9 billionin tokenized money market funds at the end of October 2025, in a sample of 36 funds

First two cells: worked examples computed in this article from illustrative rates. Third cell: Bank for International Settlements, Bulletin No 115, November 2025.

## What does a tokenized treasury token actually represent? A tokenized treasury token represents a share in a fund, a note issued by a vehicle, or a contractual claim on an issuer, each backed by short-dated United States government debt held offchain by a custodian. The token is the ownership record; it is not the Treasury bill, and holding it does not make you a creditor of the United States Treasury. Every right you have therefore runs through the issuer's documents. The Bank for International Settlements, in a 2025 bulletin on tokenized money market funds, describes the usual build: the shares are tokens on public blockchains, they are legally securities, and much of the process remains offchain, including custody of the assets, proof of ownership and the daily calculation of the net asset value, which is brought onchain once a day by a price feed. How tokenized funds work in general (the administrator, the transfer agent, the custodian, the share register) is the subject of a separate article; this one stays with what is specific to vehicles that hold government bills. ## How does a Treasury bill itself work? A Treasury bill is a short-term debt security of the United States government that pays no coupon: it is sold at a discount to its face value, or at par, and repays face value at maturity, so the interest is the difference between the two. According to the United States Treasury's own description, bills are offered with maturities of 4, 6, 8, 13, 17, 26 and 52 weeks. The same Treasury pages give the practical terms. The rate is set at auction. The 52-week bill is auctioned every four weeks and the other six maturities every week. Bills are issued in electronic form only, with a minimum purchase of $100 in increments of $100. A non-competitive bid is capped at $10 million, and a competitive bidder may be awarded no more than 35% of the offering. Interest is subject to federal income tax and exempt from state and local income taxes. The Treasury also publishes the pricing formula. The price per $100 of face value equals 100 multiplied by one minus the discount rate times the days to maturity divided by 360. Its own published illustration uses a discount rate of 0.800% and 28 days, which gives a price of 99.937778. Apply that formula to a worked example with an illustrative rate. A 13-week bill has 91 days to maturity. At a discount rate of 4.00%, the price is 100 × (1 − 0.04 × 91 ÷ 360) = 98.988889. A fund buying $1,000,000 of face value pays $989,888.89 and receives $1,000,000 after 91 days: $10,111.11 of interest. Note that the discount rate is not the return on the money invested. It is quoted on face value and on a 360-day year. The Treasury's second formula, the investment rate or coupon-equivalent yield, divides the discount by the price paid and uses the actual days in the year: (100 − 98.988889) ÷ 98.988889 × 365 ÷ 91 = 4.097%. A fund's reported yield is built from this second kind of number, and then reduced by fees. ## Which structures are sold as tokenized treasuries, and how do they compare? Three structures are sold under the name tokenized treasuries: a tokenized share of a money market fund, a tokenized note issued by a special purpose vehicle, and a yield-bearing token designed to circulate like a stablecoin. They can hold identical bills and still give the holder a different legal claim, a different regulator and a different redemption right. The table compares them on the same criteria. It describes families, not products: the offering document is the only reliable source for a given token. | Criterion | Tokenized money market fund share | Tokenized note of a special purpose vehicle | Yield-bearing stablecoin-like token | | --- | --- | --- | --- | | What the holder owns | A share in a fund; proportionate interest in the portfolio | A debt claim on the vehicle, usually secured on its bills | A contractual claim on the issuer, defined by the token's terms | | Typical regulatory wrapper | A regulated or registered fund, or a private fund under an exemption | A securities offering, often under a prospectus or a private-placement exemption | Varies by jurisdiction; often a security, sometimes offered only outside certain countries | | Who sets the price | The fund administrator, at net asset value | A calculation agent, from the vehicle's assets | The issuer; often a fixed $1.00 with yield paid in tokens | | How yield usually arrives | Daily dividend paid in new shares, or price accrual | Price accrual | New tokens, or a wrapped version whose price accrues | | Redemption | With the fund, on dealing days, at net asset value | With the vehicle, often through authorised participants | With the issuer for onboarded holders; others sell in the market | Where the first structure is a money market fund registered in the United States, the portfolio rules are specific. Under Rule 2a-7 of the Investment Company Act, administered by the Securities and Exchange Commission, a government money market fund is one that invests 99.5 percent or more of its total assets in cash, government securities and repurchase agreements that are collateralized fully. The same rule bars a money market fund from acquiring an instrument with a remaining maturity of more than 397 calendar days and from maintaining a dollar-weighted average portfolio maturity above 60 calendar days. Many tokenized treasury products are not registered money market funds at all: the Bank for International Settlements notes that these tokens are legally securities, though not always money market funds. A private fund or a note may follow similar limits by contract, not by fund regulation. ## Where does the yield on a tokenized treasury come from? The yield on a tokenized treasury comes from the interest earned on the assets it holds, which is the discount on Treasury bills and the interest on repurchase agreements, less the fees and costs of the fund or vehicle. No yield is created by the token or the blockchain: the token only passes on what the portfolio earns. The bill discount is the first source: each bill bought below face value moves towards face value as it approaches maturity. The second is the repurchase agreement, or repo: the fund lends cash overnight or for a few days to a dealer against government securities as collateral, and receives the cash back with interest. Repo returns cash to the fund every morning, which helps it meet redemptions without selling bills. From the gross income, the structure deducts its costs: management, administration, custody, audit and the transfer agent. In the worked example used through this article, the portfolio earns an illustrative gross yield of 4.25% a year and the structure charges an illustrative total fee of 0.25% a year, leaving a net yield of 4.00%. On a holding of $2,000,000 over 30 days, counted on a 365-day year, the gross income is $6,986.30, the fee is $410.96 and the net income is $6,575.34 before any compounding. The fee is taken inside the fund before the yield is declared, so you see it only by comparing the yield of the token with the yield of the bills. The net yield is not fixed. Bills held by the fund mature within weeks and are replaced at whatever rate the next auction sets, so the yield of a tokenized treasury follows short-term interest rates up and down with a short delay. ## How does the yield reach the holder: a rising price or new tokens? Yield reaches the holder of a tokenized treasury in one of two ways: the price of each token rises while the number of tokens stays the same, or the price stays at $1.00 and the holder receives additional tokens. The economic result is the same to within rounding; the accounting, the tax treatment and the way the token behaves in other applications are not. The Bank for International Settlements describes both designs in its 2025 bulletin: returns are paid at regular intervals, typically daily or monthly, and some funds pay them as additional tokens to keep a stable value per share while others let returns accumulate in the fund, raising the net asset value. The table below runs the same subscription through three variants. Assumptions of the worked example: $2,000,000 subscribed, an illustrative net yield of 4.00% a year, daily accrual on a 365-day year, 30 days held. The accumulating token is issued at a price of $1.250000 on the subscription day, so $2,000,000 buys 1,600,000 tokens. | After 30 days | Accumulating token | Distributing token, daily | Distributing token, monthly | | --- | --- | --- | --- | | Tokens held at subscription | 1,600,000 | 2,000,000 | 2,000,000 | | Token price on day 30 | $1.254116 | $1.00 | $1.00 | | Tokens held on day 30 | 1,600,000 | 2,006,585.80 | 2,006,575.34 | | Yield received | $6,585.60, as price | $6,585.80, as 6,585.80 new tokens | $6,575.34, as 6,575.34 new tokens | | **Value of the position** | **$2,006,585.60** | **$2,006,585.80** | **$2,006,575.34** | Three things stand out. First, the two daily designs differ by 20 cents, the effect of rounding the accumulating price to six decimal places. Second, the monthly design pays $10.46 less over the period, because the first day's yield of $219.18 does not itself earn yield until the month-end distribution. Third, the holder of the accumulating token sees no movement in the wallet: the balance reads 1,600,000 on day one and on day thirty. - **Bookkeeping.** A distributing token produces a dated income entry each time new tokens arrive. An accumulating token produces no entry until you sell or redeem, when the gain appears in one line. - **Tax.** Whether income is taxed when new tokens are received, or only when an accumulating token is disposed of, and whether it is interest, a dividend or a capital gain, depends on your country and on the legal form of the token. The state and local exemption the Treasury describes belongs to holders of bills; whether any of it passes through a fund or a note is a question for a tax adviser. - **Units.** An invoice or a pledge written as "2,000,000 tokens" means a constant dollar amount for a distributing token and a growing dollar amount for an accumulating one. Write agreements in dollars of value, with the price source named. ## Who may hold a tokenized treasury? Only wallets that the issuer or its agent has approved may hold most tokenized treasuries directly, and approval follows identity and eligibility checks on the person or entity behind the wallet. A tokenized treasury is a security in most structures, so it carries the investor restrictions of the offering it belongs to; it is not a bearer instrument that anyone can receive. The Bank for International Settlements summarises the practice: only allow-listed wallets, onboarded by the fund administrator after anti-money-laundering checks, can directly hold or trade the tokens; some funds are restricted to qualified purchasers, typically institutions; and some institutional funds set minimum investments of $5 million while funds aimed at a wider public set much lower amounts. The restrictions come from three layers at once: the offering (a private placement accepts only the investor categories its exemption allows, under the securities law of the country of the offering), geography (many tokens are offered only outside certain countries, or only inside one), and the token contract, which makes a transfer to a wallet outside the allow list fail whatever the two parties intended. The third layer matters to anyone who expects to use the token as a means of payment: you can only pay a counterparty who has already been onboarded by the same issuer. The Bank for International Settlements adds a caveat that cuts the other way: allow lists constrain direct holding only, and exposure can spread further when the tokens are wrapped into other instruments or pledged on lending platforms. ## How do subscription and redemption work? Subscription means sending cash or a dollar stablecoin to the fund and receiving newly minted tokens at the next price; redemption means returning tokens, which are burned, and receiving cash or a stablecoin once the fund has processed the order. Both run on dealing days with a cut-off time, because the bills behind the tokens are bought and sold in a market with its own hours and settlement cycle. The steps below follow the accumulating token of the worked example: 1,600,000 tokens bought for $2,000,000, with a partial redemption of 400,000 tokens on day 30 at the illustrative price of $1.254116.
From subscription to redemptionWorked example: $2,000,000 subscribed, 400,000 tokens redeemed on day 30, illustrative 4.00% net yield
  1. OnboardingThe investor completes identity and eligibility checks with the fund's administrator or transfer agent and registers the wallet that will hold the tokens. That wallet is added to the allow list; nothing can be subscribed before this step.
  2. Subscription order before the cut-offThe investor sends $2,000,000, by bank transfer or in a dollar stablecoin the fund accepts, before the daily cut-off stated in the fund documents. An order received after the cut-off is treated as received on the next dealing day and takes that day's price.
  3. Pricing and mintingThe administrator strikes the day's price at $1.250000. The transfer agent mints 1,600,000 tokens to the registered wallet and updates the share register. The manager invests the cash in bills and repo, which settle with the custodian on the government securities market's own cycle.
  4. Holding periodThe price is updated once each dealing day. Weekends and holidays are normally accrued into the next published price. After 30 days the price is $1.254116 and the position is worth $2,006,585.60.
  5. Redemption orderThe investor requests redemption of 400,000 tokens before the cut-off. The transfer agent burns the tokens. At $1.254116 the proceeds are $501,646.40.
  6. Payment of proceedsThe fund pays from its cash and maturing repo, or sells bills. Proceeds arrive by bank transfer on the settlement date stated in the documents, or in a stablecoin where the fund offers that route. The investor keeps 1,200,000 tokens worth $1,504,939.20.
Two timing points deserve attention before you subscribe. The first is the difference between the redemption a fund must honour and the redemption it markets: the legal obligation is the settlement period in the prospectus or the note terms, while an instant facility that pays out in a stablecoin at any hour is typically a separate arrangement with a capacity limit, and it can be suspended while the standard route stays open. The second is that a redemption requested on a Saturday is priced and funded when the government securities market reopens, unless the instant facility absorbs it. A third route out is a secondary sale: transferring the token to another approved holder against payment. It involves no dealing day and no cut-off, but it needs a buyer on the allow list and a price both sides accept, which may be below net asset value when many holders want out at once. ## How is a tokenized treasury different from a stablecoin and from holding bills directly? A tokenized treasury is an investment that pays the yield of its portfolio and can be held only by approved investors; a payment stablecoin is a means of payment that aims at a constant $1.00 and passes no yield to its holder; a Treasury bill held directly is a claim on the government itself with no fund, token or issuer in between. | Criterion | Tokenized treasury | Payment stablecoin | Treasury bills held directly | | --- | --- | --- | --- | | Purpose | Earning short-term government yield onchain | Paying and settling | Earning government yield in a securities account | | Who keeps the interest on the reserves | The holder, after fees | The issuer | The holder, in full | | Value of one unit | Net asset value: rising, or $1.00 with new units | Aims at $1.00 | Market price, rising to face value at maturity | | Who may hold | Allow-listed, eligible investors | Broadly anyone with a wallet, subject to the issuer's controls | Anyone with an account at the Treasury, a bank or a broker | | Your claim | On a fund, a vehicle or an issuer | On the stablecoin issuer | On the United States Treasury | | Getting cash | Redemption on dealing days, or a secondary sale | Transfer at any time; redemption with the issuer for eligible holders | Sale in the market, or wait for maturity | | Costs | Management and operating fees inside the yield | No holding fee; no yield | Bid-offer spread, account or custody fees | On the second line, the Bank for International Settlements puts the contrast plainly: stablecoins aim for a stable value but are generally prohibited from paying interest to holders, whereas tokenized money market funds distribute returns in line with money market rates and are regulated as securities. The two tend to be used together: the yield-bearing token for balances that can wait a day, a stablecoin for the amount that must be paid today. A direct holder owes no management fee and faces no issuer, but must roll each bill at maturity and cannot move the position onchain. A tokenized fund does the rolling and adds a layer of issuer, custodian and smart contract. The choice depends on whether you need the position to be transferable onchain and on what that layer costs in fees. ## How large is the tokenized treasury market, and what is it used for? The market is small next to conventional money market funds but has grown quickly: the Bank for International Settlements measured about $770 million in tokenized money market funds at the end of 2023 and almost $9 billion at the end of October 2025, in a sample of 36 funds. The figure is a dated snapshot from one named study and should be read as an order of magnitude, not as a current total. The same bulletin describes the two uses that drive demand. The first is cash management for firms that already hold balances onchain. The second is collateral: the tokens can be pledged to borrow stablecoins or transferred between approved parties to meet a margin call without redeeming the shares. ## What are the risks of tokenized treasuries? The main risks of a tokenized treasury are not default by the United States government but everything between you and the bills: the liquidity mismatch between a token that moves at any hour and assets that settle on market days, the legal structure of the issuer, the smart contract and its keys, and the leverage other holders build on the token. Each risk has a document or a control that addresses it. - **Liquidity and run risk.** Heavy redemptions on one day can exceed the cash and maturing repo available. The Bank for International Settlements adds that onchain transparency makes redemptions visible to every holder, which can coordinate withdrawals. Control: the fund's liquidity rules, its gates or limits, the size of any instant facility. - **Structure and insolvency.** A fund's portfolio is held by a custodian separate from the manager. With a note, you are a creditor of a vehicle, protected by the security over the bills. Control: the security and custody sections of the offering document. - **Interest rate and price.** The net asset value of a short government portfolio moves very little, but it is not guaranteed, and a money market fund is not a bank deposit. - **Smart contract and operations.** The token contract can contain errors and the issuer's administrative keys can be compromised or misused. Control: independent audit reports, and the list of privileged functions (pause, freeze, forced transfer, upgrade) with who holds them. - **Leverage built on top.** The Bank for International Settlements describes "looping", in which tokens are pledged to borrow stablecoins that buy more tokens, and warns that it could trigger deleveraging spirals. A holder who never borrows is still exposed to forced selling by those who do. ## What should you check in the documents before subscribing? Before subscribing to a tokenized treasury, read the offering document for seven points: the legal form, the eligible investors, the portfolio limits, the fees, the yield method, the redemption terms and the issuer's powers over the token. None of them can be read off the token's page on a block explorer. - **Legal form.** Fund share, note or contractual claim; the governing law; the regulator, if any, of the issuer and of the manager. - **Eligibility.** Investor categories, excluded countries, minimum subscription. - **Portfolio.** Permitted assets, maximum maturity, share of repo, and whether the limits are regulatory or contractual. - **Fees.** Management fee, operating expenses, any redemption charge, any fee for the instant route. - **Yield method.** Accumulating or distributing; the day-count basis; how weekends are accrued; the decimals of the price. - **Redemption.** Dealing days, the cut-off and its time zone, the settlement period the issuer is bound by, any gate or suspension power. - **Powers over the token.** Who can pause, freeze, burn, force a transfer or upgrade the contract, and on which networks the token exists. Then ask the party you intend to pay or pledge to whether it is already onboarded with the same issuer, because the token cannot reach it otherwise.