Tokenized Treasuries Shrank US$1.29 Billion in the Month the Fed Hiked. One Wallet Redeemed US$1.1 Billion of It.

Tokenized Treasury funds were supposed to be a beneficiary of higher rates. A rising front-end yield makes a tokenized T-bill fund pay more, and more of that yield flows to the stablecoins and protocols that hold it as collateral: in the words of one market participant quoted by The Block this month, the collateral side of the market is “rate-fed”. In September the category moved the other way. The 24 tokenized Treasury funds measured onchain fell from US$14.73 billion on Aug 31 to US$13.44 billion on Sep 25, a decline of US$1.29 billion, or 8.8%, in the month the Federal Reserve raised its target range by a quarter point to 3.75–4.00%. US$1.1 billion of the decline traces to a single wallet.

One allocator redeemed US$25 million at a time, then US$400 million at once

The wallet is the ALM Proxy of Grove, a capital allocator in the Sky ecosystem, whose address is set out in Sky's governance rulebook. Starting on Aug 24, it redeemed its holdings of two funds in fixed US$25 million tranches: the institutional share class of BlackRock's BUIDL, known as BUIDL-I, and Janus Henderson's JTRSY. Most business days in early September carried one tranche of each. On Sep 16, the day of the Fed's decision, the wallet sent two tranches of each fund in the morning, before the 2:00 p.m. statement, and then, at 4:24 p.m. Eastern, US$200 million of BUIDL-I and US$200 million of JTRSY in a single transaction. Two more tranches of each followed on Sep 17 and one on Sep 21.

Between Aug 31 and Sep 21 the wallet sent US$550 million of each fund for redemption, US$1.10 billion in total, and every tranche was followed by a burn of the fund's tokens. None of it was other investors' money passing through: the wallet received no BUIDL-I or JTRSY from any other holder over the period, only BUIDL's daily yield distributions. Grove held about US$1.53 billion across the two funds on Aug 31; by Sep 24 it held US$429 million. JTRSY, where Grove is by far the largest holder, lost 62.5% of its supply in the month, falling from US$871 million to US$327 million. The category's largest one-day decline in at least six weeks, US$515 million, came on Sep 17, as the redemptions sent on the afternoon of the decision settled.

Outside two funds, the category fell 2%

Outside Grove's two funds the month was a rotation of smaller flows. Circle's USYC lost US$361 million and Superstate's USTB US$101 million, while WisdomTree's WTGXX added US$205 million, almost all of it on Sep 2, and JLTXX and TBILL together added US$114 million. Thirteen funds shrank, ten grew and one was unchanged. Without BUIDL and JTRSY, the category would have fallen US$218 million, or 2.0%.

A category this concentrated measures allocators, not demand

The rate argument treats tokenized Treasuries as a market with a demand curve: raise the yield and more capital arrives. September shows how much of the category is instead a small number of onchain treasuries using these funds as a place to park reserves, in a market where the largest funds are held by a handful of wallets. One allocator moving its reserves decided the month's direction, and its largest single transaction was larger than the category's entire net change over the preceding two weeks. A fund like JTRSY, where one wallet holds most of the supply, can lose more than half its size in a month on one holder's decision. For issuers, that makes reported assets a measure of a few clients' decisions; for anyone reading the category total as a gauge of institutional appetite for onchain Treasuries, it means one allocator's reserve decisions outweighed every other flow in the month combined.

Retreat or restructuring?

Where the US$1.1 billion went is not visible in the funds' own records. The same governance process that allocates its capital points in the other direction: on Sep 25, a change to Sky's rulebook raised the ceiling on Grove's JTRSY exposure through one of its facilities from 50 million to 500 million USDS. That leaves September open to two readings: an allocator stepping back from tokenized Treasuries in the month rates rose, or one rearranging how it holds them. If the capital returns, it could arrive the way it left, from a single wallet, and lift the category total as sharply as it fell. Which of the two it turns out to be will say more about where tokenized Treasuries are heading than the rate decision did: is this a market of investors, or of a few treasuries deciding where to keep their reserves?