Tokenized T-Bill Yield Mechanics: How On-Chain Treasury Funds Generate and Distribute Returns

How Tokenized Treasury Funds Generate Yield

Tokenized treasury funds produce yield by investing pooled capital in short-term US Treasury bills (typically 4-week to 6-month maturities) and overnight reverse repurchase agreements. The Federal Funds Rate — set by the Federal Reserve at approximately 4.33% as of March 2026 — establishes the theoretical maximum yield for these instruments. Net yields for tokenized products range from 3.51% (BENJI) to 3.45% (BUIDL), with the gap between gross and net representing total fund expenses.

Understanding yield mechanics is essential for evaluating tokenized fund products, comparing them against alternatives like Maple syrupUSDC (4.89% APY from institutional lending) or USDY (3.55% APY from diversified sources), and constructing optimal on-chain yield portfolios.

Yield Distribution Models

Rebase Model (BUIDL, BENJI)

BUIDL and BENJI use a rebase mechanism: each token maintains a target price of $1.00, and yield is distributed by crediting additional tokens to holder addresses. If a holder owns 1,000,000 BUIDL tokens at 3.45% APY, they receive approximately 94.8 new BUIDL tokens per day (1,000,000 x 3.45% / 365).

Advantages: Stable per-token pricing simplifies accounting and NAV tracking. Each token always represents $1.00, making position sizing intuitive.

Disadvantages: Rebasing tokens create complexity in DeFi protocols that track token balances. Protocols must account for balance changes that occur without transfers. This has limited BUIDL’s DeFi composability relative to accumulating tokens.

Accumulating NAV Model (OUSG, USYC)

OUSG and USYC use an accumulating model: the token supply remains fixed for each holder, while the price per token increases as yield accrues. A holder buying OUSG at $105.00 might see the price rise to $105.01 the next day, reflecting daily yield accrual.

Advantages: Fixed token balances work cleanly in DeFi protocols (lending, collateral). Tax treatment may be more favorable in some jurisdictions (unrealized appreciation vs income).

Disadvantages: The changing price per token requires continuous NAV tracking. Position values are not immediately obvious from token counts alone.

The BUIDL vs OUSG comparison evaluates these structural differences in detail.

Fee Architecture

Management Fees

Each fund charges a management fee that reduces gross yield. BlackRock charges approximately 50bps on BUIDL. Franklin Templeton charges approximately 20bps on BENJI but carries higher total expenses due to SEC registration costs. Ondo Finance charges 15bps on OUSG. Hashnote/Circle charges approximately 40bps on USYC.

Platform and Distribution Fees

Beyond management fees, tokenization platforms like Securitize charge infrastructure fees for token issuance, compliance, and transfer agent services. These fees are typically embedded in the total expense ratio.

Gas Costs

Blockchain transaction fees (gas) represent a per-transaction cost not reflected in fund APY. On Ethereum mainnet, claiming BUIDL yield or transferring OUSG costs $2-15 depending on network congestion. Layer 2 chains (Arbitrum, Optimism, Polygon) reduce gas costs to $0.01-0.50. The fee analysis quantifies total cost of ownership including gas.

Fed Rate Relationship

Tokenized treasury yields move in near-lockstep with the Federal Funds Rate. Historical data shows:

• At 5.33% Fed Rate: BUIDL yielded ~4.50%, BENJI ~4.10%
• At 4.33% Fed Rate (current): BUIDL yields ~3.45%, BENJI ~3.51%
• At 3.00% Fed Rate (projected): BUIDL would yield ~2.15%, BENJI ~1.70%

The implication: if the Fed cuts rates significantly, tokenized treasury yields compress, potentially reducing demand relative to non-yielding stablecoins or higher-yield products like syrupUSDC. The yield optimization guide addresses rate-dependent portfolio strategies.

Yield Accrual Timing and Frequency

Understanding exactly when and how yields accrue is important for portfolio accounting and tax reporting.

Daily Accrual Mechanics

All major tokenized treasury products accrue yield daily, but the exact timing and method varies:

BUIDL (Rebase): New BUIDL tokens are minted and credited to holder addresses once per day, typically during a specific accrual window. The number of new tokens equals: (holder balance x daily rate). At 3.45% APY, the daily rate is approximately 0.00948%, meaning a 1,000,000 BUIDL position receives approximately 94.8 new tokens daily.

OUSG (Accumulating): The OUSG NAV per token is updated once per day by Ondo Finance’s pricing oracle. The daily NAV increase equals: (previous NAV x daily rate). At 3.35% APY, a token priced at $107.00 would increase to approximately $107.0098 the next day.

USYC (Accumulating): Similar to OUSG, Hashnote/Circle updates the USYC NAV daily. The accumulating model means yield accrues as price appreciation rather than token issuance.

BENJI (Rebase): Franklin Templeton credits additional BENJI tokens daily, similar to BUIDL’s mechanism. The SEC-registered fund structure requires NAV calculation in accordance with Investment Company Act standards, ensuring pricing accuracy.

Weekend and Holiday Accrual

Unlike traditional money market funds that only accrue yield on business days, tokenized treasury products accrue yield seven days a week. This continuous accrual reflects the 24/7 nature of blockchain operations and means tokenized fund holders earn approximately 2/365 more days of yield annually compared to traditional funds that skip weekends. Over a year, this marginal difference amounts to approximately 2-3 basis points of additional yield — partially offsetting the fee premium charged by tokenized products.

Tax Implications of Accrual Models

The choice between rebase and accumulating NAV has meaningful tax consequences. Rebase tokens generate daily taxable income events in most jurisdictions — each new token credited represents income at fair market value. Accumulating NAV tokens defer taxation until sale — yield manifests as unrealized capital appreciation that becomes taxable upon disposition. The tax implications guide provides jurisdiction-specific guidance.

Yield Sensitivity Analysis: Modeling Future Returns

Investors evaluating tokenized treasury products should model expected returns under different Federal Reserve rate scenarios, since the Fed Funds Rate is the primary driver of tokenized treasury yields.

Rate Scenario Modeling

At a 2.50% Fed Funds Rate, BENJI’s net yield would fall to approximately 1.18% — a level where the tokenization premium (the yield sacrificed versus direct T-bill purchase) becomes a much larger percentage of total return. Investors would forgo approximately half of the gross yield to tokenization costs. The fee analysis tracks fee compression that could mitigate this impact.

Breakeven Analysis

The “breakeven” Federal Funds Rate — below which tokenized treasury products may struggle to justify their fee premium — depends on investor use case:

Pure Yield Seekers: Tokenized products lose attractiveness when net yields fall below 2.0%, which occurs at approximately 3.0% Fed Funds Rate. Below this level, the yield advantage over non-yielding stablecoins narrows enough that the operational complexity of tokenized fund access may not be worthwhile.

DeFi-Integrated Users: For investors using OUSG leverage via Flux Finance or USDY as DeFi collateral, tokenized products retain value even at low rates because the composability benefits are independent of yield level.

24/7 Settlement Users: For institutions requiring round-the-clock settlement (global operations, DAO treasuries), the settlement advantage justifies tokenized fund use regardless of rate environment.

Yield Comparison with Traditional Products

Traditional money market funds (Fidelity Government Money Market SPAXX at 4.19%, Vanguard Federal Money Market VMFXX at 4.24%) yield more than their tokenized equivalents because they avoid blockchain infrastructure costs. The value proposition of tokenized products is not yield maximization but rather 24/7 settlement, programmable composability, cross-border accessibility, and integration with on-chain treasury management. See the tokenized vs traditional yield comparison.

The Tokenization Premium Explained

The yield gap between traditional and tokenized products — the “tokenization premium” — ranges from 73 bps (BUIDL vs Schwab SWVXX) to 123 bps (BENJI vs Vanguard VMFXX). This premium decomposes into several cost components:

• Management fees: 15-50 bps (similar to traditional funds)
• Tokenization platform fees: 10-30 bps (Securitize, Ondo platform costs)
• Blockchain infrastructure: 5-15 bps (node operation, smart contract maintenance)
• Compliance overhead: 10-40 bps (on-chain KYC, whitelist management, transfer restrictions)
• Operational margin: 5-20 bps (issuer profit and operational buffer)

As the market scales from $10B to $25B+ and beyond, platform fees amortize across larger asset bases. Competition among issuers compresses management fees. Blockchain infrastructure costs decline as chains become more efficient. The net result should be fee compression from 87-132 bps toward 40-60 bps — narrowing the tokenization premium and making tokenized products more competitive with traditional alternatives. The fee analysis projects this compression trajectory.

How Treasury Auction Results Affect Tokenized Fund Yields

The US Department of the Treasury conducts regular auctions of T-bills (weekly for 4-week, 8-week, 13-week, and 26-week maturities) and the Treasury publishes results immediately. Tokenized fund portfolio managers participate in these auctions — either directly (for SEC-registered transfer agents like Securitize) or through prime brokers — to replenish maturing positions.

Auction results directly affect portfolio yield. Higher auction rates (reflecting market expectations of continued tight monetary policy) increase the yield on newly purchased T-bills, which improves fund yield as maturing lower-rate positions roll into higher-rate new issuance. Conversely, lower auction rates reduce fund yield. For products with short weighted average maturities (30-60 days for BUIDL and USYC), the portfolio yield adjusts to new auction rates within 1-2 months.

This mechanical relationship between Treasury auctions and tokenized fund yields creates high predictability for investors. Unlike equity funds, credit funds, or cryptocurrency investments, tokenized treasury product returns are essentially deterministic given the Fed Funds Rate and the fund’s expense ratio. The risk metrics framework recognizes this low yield volatility in its scoring. The AUM growth analysis tracks how auction rate trends correlate with inflow patterns across the tokenized fund market, demonstrating the direct relationship between Treasury market conditions and tokenized product demand.

SOFR and the Benchmark Rate Connection

The Secured Overnight Financing Rate (SOFR) — published daily by the Federal Reserve Bank of New York — serves as the primary benchmark for short-term interest rates and directly reflects repo market conditions. Tokenized fund yields track SOFR closely because the funds’ underlying portfolios consist of instruments (T-bills, overnight repo) whose rates are directly tied to SOFR.

As of March 2026, SOFR trades at approximately 4.30-4.33% — nearly identical to the Federal Funds Rate target of 4.33%. Tokenized fund yields of 3.01-3.45% (net of 87-132 bps in fees) represent SOFR minus the tokenization premium. If SOFR declines (reflecting Fed rate cuts), tokenized fund yields decline mechanically. The yield curve analysis maps the relationship between benchmark rates and on-chain product yields.

Duration Risk and Yield Sensitivity

Tokenized treasury fund portfolios carry minimal duration risk due to their short weighted average maturities (30-60 days). However, understanding duration sensitivity matters for institutional allocators modeling yield scenarios. A portfolio with a 45-day weighted average maturity has an effective duration of approximately 0.12 years — meaning a 100 basis point parallel shift in the yield curve changes the portfolio value by approximately 0.12%. For a $100M BUIDL position, this translates to approximately $120,000 in mark-to-market movement — negligible for institutional portfolios.

The more significant yield sensitivity is to the Federal Funds Rate itself. Since tokenized fund yields are mechanically linked to the Fed Funds Rate minus expenses, a 25 basis point Fed rate cut reduces annual income by $25,000 per $10M invested. The SEC requires registered products like BENJI to disclose interest rate risk in their prospectus, while offshore products like BUIDL address rate sensitivity in their offering memoranda. The risk metrics framework incorporates rate sensitivity into composite scoring, and the broader RWA market tracked by RWA.xyz at $20 billion reflects aggregate sensitivity to Fed policy across all tokenized yield products.

For ongoing yield data, see performance tracking. For product selection guidance, see the fund comparison matrix. For the yield optimization guide, see strategies for maximizing returns. For the yield curve analysis mapping the full on-chain rate structure, see the yield products section. For TVL data, see the TVL tracker. For yield data, see the yield monitor. For the fee analysis, see cost decomposition.