Tokenised treasury funds become the preferred collateral in on-chain credit
Lending markets now hold more short-duration government paper than long-tail tokens, changing their risk profile.
Tokenised short-duration government funds now account for a larger share of collateral in the biggest on-chain credit markets than volatile long-tail tokens, according to protocol dashboards reviewed by DC10AUDIO.
The shift changes the failure mode. Price risk falls sharply, but the collateral inherits redemption mechanics, transfer restrictions and issuer credit — risks that on-chain liquidation engines were never designed to price.
Several protocols have introduced separate collateral tiers with distinct oracles and liquidation paths for these assets, acknowledging that a fund share cannot be dumped into an automated market maker at 3am.
Whitelisting is the practical constraint. Most tokenised funds restrict transfers to approved addresses, which limits which liquidators can take possession of seized collateral.
Risk contributors say the honest answer is that the wind-down process for a defaulted position backed by restricted collateral has not yet been tested at scale.
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