How tokenized treasury bills pay yield
Where the yield on a tokenized bill comes from, how it reaches the token and what net of fees means.
What a treasury bill is
A treasury bill is a short-term debt instrument issued by a government. It is sold at a discount to its face value and repaid at face value on its maturity date, which is typically between one month and one year after issue. The bill does not pay a coupon. The return is the difference between the price paid and the amount repaid.
If a bill with a face value of 100 is bought at 92.50 and repaid at 100 after twelve months, the holder earns 7.50 on 92.50, or about 8.11% for that year. Real yields depend on the auction price and the tenor; the figure here is illustrative only.
How the token holds the bill
A tokenized bill token represents a claim on a pool of bills held by a named custodian in a segregated account. The custodian buys bills at auction or in the secondary market, holds them to maturity, and rolls the proceeds into new bills. The token contract records how many units exist, and the proof of reserve page shows the value of the bills held against those units.
The token does not change what the bill is. It changes who can hold a claim on it, how the claim is transferred, and how often the reporting is published.
How yield reaches the token
Because bills accrete toward par every day, the value of the pool rises as maturity approaches. Most tokenized bill products pass this through in one of two ways: the net asset value per token rises over time (an accumulating token), or new tokens are distributed to holders on a schedule (a distributing token). CenterNetwork assets state which method they use on the asset page.1
The target yield shown on an asset page is the expected annualized return of the underlying bills after fees. Target yield is variable, not guaranteed and shown net of fees. It moves with each auction and with the policy rate of the issuing country.
What net of fees means
Three costs sit between the bill and the holder: the custodian's fee, the manager's fee and the network fee for on-chain transfers. A target yield quoted net of fees has the first two deducted. The third is paid by the holder at the moment of a transfer and is shown before confirmation.
What to check before subscribing
Read the asset page for the tenor policy, the custodian, both audit reports and the redemption schedule. Compare the target yield with the current auction yield published by the issuing treasury, and note the as-of date on every figure.
- The method is stated in the term sheet under Distribution, and repeated in the asset page's Terms section. Back