What is the market size for tokenized cash with yield?
- Tokenization Insight
- Apr 8, 2024
- 5 min read
Updated: Apr 13
I have been chewing on the idea of capital efficiency improvement in onchain finance for the past two weeks and had a light bulb moment recently: scaling capital efficiency adoption through yield bearing stablecoin or cash equivalent.
Why? Because it would be much more convincing for capital holders. Who wouldn’t want their capital to do more?
Besides, unlike having to bootstrap a new market, it would already have a sizable market.
There are 3 verticals to the idea of tokenized cash with yields:
stablecoin
trading
lending/borrowing
Let’s dive in.
Tokenized cash with yield
There are 2 very interesting stats about stablecoin you should know:
Total stablecoin supply grew from $130 billion to $153 billion in 2024
Synthetic dollar offering 20%+ yield exploded from $0 to $2 billion in 3 months (of course there are significant risks associated with that sort of return)
What do these stats tell us? Well there is a lot of demand for stablecoin onchain and that people clearly prefer yield bearing stablecoins to the non-yield bearing options.
Corroborating this, remember the explosion in tokenized US Tbills last year? It was ignited by Ondo’s yield-bearing cash equivalent products in large part due to the comparatively high risk-free rate of the products.
The current $150 billion stablecoin or tokenized cash onchain, that is not earning anything, is the first target market waiting to be disrupted. Why hold cash when you can hold cash that is yielding 5% US TBill rate and can be minted or redeemed 24/7/365?
If you need further evidence for this, simply observe the launch of BlackRock’s first natively issued tokenized USD Institutional Digital Liquidity Fund or BUIDL last week. It was targeting $100mil AUM before the launch but garnered over $200mil in a week. I wrote about it here.
Trading Market
However, the stablecoin market is just the most obvious target. Think about this. If you prefer earning 5% to 0%, then you would definitely prefer earning 5% to paying -10%. And that brings us to capital efficiency for trading and specifically for derivatives trading.
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