NAV is the true value of the underlying Treasuries, computed by the issuer from the bonds it holds; the on-chain price is the token's traded price on a secondary market, set by supply and demand. Normally the two stay close because arbitrageurs correct the gap — if the token trades below NAV, someone buys to capture the spread and pushes it back. The problem is under stress: when everyone rushes to sell and arbitrage capital is insufficient or unwilling, the on-chain price falls below NAV into a discount. The practical meaning: the "market value" you see may not be the price you can actually sell at — especially when you most want out. Judging a tokenized Treasury means watching how stable its premium/discount stays in normal times.
"T+0 redeem anytime" is mostly an illusion for tokenized Treasuries. The reason: the token is on-chain 24/7, yes, but the primary redemption action — swapping tokens back to real dollars — must go through the issuer, who is bound by off-chain rules: KYC to verify identity, processing only on US banking business days, settlement often at T+1 or T+2. In other words, Friday night, weekends, US holidays — you can hit redeem but you wait until the next business day. If you urgently need cash in that window, the only exit is the secondary market, where the price may be discounted. So treating a tokenized Treasury as "cash you can liquidate instantly" is a dangerous assumption; it behaves more like short-term debt that needs settlement time.
A redemption rush is the RWA version of a bank run. The trigger is usually market panic or shaken confidence in the issuer, with many holders wanting to convert tokens to cash at once. The issuer doesn't sit on equivalent cash; it must sell underlying Treasuries to fund the redemptions, and if that selling pressure meets broader market illiquidity, two problems appear: the issuer may have to sell Treasuries at a discount and stretch payout times; and those rushing out turn to the secondary market and dump, pushing the on-chain price below NAV. In March 2020 even the US Treasury market briefly seized up, showing that the "safest underlying" can still develop liquidity cracks in extremes. So evaluating a tokenized Treasury means asking whether the issuer's redemption buffer and cash management are robust enough.
When posting tokenized Treasuries as DeFi collateral, the oracle (the price feed) is the most overlooked trigger. The protocol knows what your collateral is worth only via the oracle. With a NAV oracle, it reports the underlying Treasuries' net value — accurate normally, but if the secondary market is already discounted and you actually need to sell, you can't get that price, so your collateral value is overstated. With a market-price oracle, a temporary stress discount can instantly worsen your collateral ratio and trigger liquidation, even though the underlying Treasury is perfectly fine. Each feed carries risk; there's no perfect answer. So before using tokenized Treasuries as collateral, advanced users must verify which oracle the protocol uses and whether it has a premium/discount buffer — otherwise a brief market convulsion could liquidate you needlessly.
Tokenized Treasuries get called "the safest yield on-chain." That's half true. "Safe" refers to the underlying asset — the US government won't fail and Treasury default risk is near zero. What it doesn't tell you: the token in your hand is not guaranteed to sell at NAV whenever you want. This piece covers the side advanced investors must understand but marketing won't mention — price depeg and redemption risk.
NAV is the true value of the underlying Treasuries, computed periodically by the issuer from the bonds it holds. On-chain price is the token's traded price set by supply and demand on a secondary market (a DEX or between counterparties). Normally, arbitrageurs keep the two close — if the on-chain price falls below NAV, someone buys to capture the spread. But under stress that arbitrage can break down, and the on-chain price trades at a discount to NAV, sometimes by a meaningful amount.
Many assume "on-chain 24/7" means redeem anytime. It doesn't. Most tokenized Treasuries' primary redemption (swapping back to dollars with the issuer) comes with conditions: KYC, US business days only, settlement at T+1 or T+2. On weekends and holidays the primary channel is closed. During that window you can only sell on the secondary market, where the price isn't guaranteed to equal NAV. "Redeemable anytime" is bounded by off-chain banking and settlement hours.
This is the key stress scenario, essentially a money-market-fund run. When markets panic and many holders redeem at once, the issuer must sell underlying Treasuries for cash to pay them. If secondary-market liquidity is thin at the same moment, those rushing to sell push the on-chain price below NAV, widening the discount. In March 2020, even the safest US Treasury market briefly saw liquidity strain — a reminder that a safe underlying asset doesn't guarantee liquidity in extreme conditions.
The deeper lesson is that two different liquidity systems are stapled together here. The token lives in a 24/7, instant-settlement on-chain world; the underlying bonds live in a banking-hours, T+1/T+2 off-chain world. In calm markets the seam between them is invisible. In stressed markets the seam is exactly where the price gaps open, because on-chain sellers can move instantly while the issuer's ability to raise cash from the bonds cannot. Knowing where that seam sits — and that it only shows up under pressure — is what separates someone who treats the token as cash from someone who treats it as a settlement-bound instrument.
For advanced use (posting tokenized Treasuries as DeFi collateral), the oracle is a hidden trigger. If a protocol feeds price via a NAV oracle (reporting underlying value) while the secondary market is already discounted, your collateral ratio looks healthy on paper but you can't actually sell at that price. Conversely, a market-price oracle can trigger liquidations during a stress discount that shouldn't have happened. Each feed has its own risk — a genuine design trade-off.
Before treating tokenized Treasuries as "on-chain cash," confirm four things. One, the redemption terms — minimum size, processing time (what T+), business-days-only or not. Two, don't assume T+0 instant liquidity — on weekends and under stress you may only sell at a discount on the secondary market. Three, check the product's secondary-market depth; thin order books hurt most when you need cash urgently. Four, if posting as DeFi collateral, learn whether the protocol uses a NAV or market-price oracle. Tokenized Treasuries are still an excellent low-risk tool, but "low risk" isn't "zero friction" — understanding this layer keeps you from getting stuck by liquidity exactly when you need the money.