Real-world asset tokenization is the process of converting claims on physical or financial assets, such as government bonds, real estate, or private debt, into digital tokens that live on a public blockchain. The result is instant settlement, lower administrative overhead, and the ability for these assets to plug directly into DeFi protocols as collateral.
How tokenized Treasuries actually work
An institutional issuer holds short-term government bonds in a regulated custody account with an established bank, and a smart contract mints a digital token, such as USDY or USTB, that represents a 1:1 claim on those holdings. Yield gets passed back to token holders either through daily balance rebasing or through the token's underlying value simply accruing over time. From a holder's perspective, the token behaves like a yield-bearing dollar, but the yield is coming from real Treasury interest rather than from crypto-native trading activity.
Legal enforceability and custody risk
The biggest question with any RWA protocol is whether the token actually has legal force behind it if something goes wrong. A well-structured issuer uses a bankruptcy-remote special purpose vehicle to hold the underlying assets, which keeps investor collateral separate from the issuer's own balance sheet in the event of insolvency. Without that structure, a token holder's claim on the underlying asset can be far weaker than the token's price action suggests.
Redemption liquidity and oracle risk
Redemption liquidity is worth checking before allocating any meaningful size: how long does it actually take to burn tokens and receive a fiat wire from the banking partner on the other end? A protocol that looks fully backed on paper can still leave holders waiting days for redemption during periods of stress. On top of that, smart contracts and oracles need to accurately track real-world valuations and interest accruals, since a mispriced oracle feed can create a gap between the token's on-chain price and the true value of what backs it.