Why regulated on-chain markets are becoming the missing link between cash and return
by Maximilian Hartmann, Senior Marketing Manager & PR at 21X
Stablecoins have solved a fundamental problem in modern finance: liquidity. They settle almost instantly, trade around the clock and move across borders with minimal friction. In volume terms, they now rival established payment rails and form the transactional backbone of on-chain markets.¹
What they have not delivered is yield mobility.
Despite persistent demand for return, a significant share of on-chain capital remains anchored in low-risk, low-yield positions. The constraint is not the absence of yield opportunities. It is the absence of market infrastructure that allows capital to move efficiently along the risk–return curve without sacrificing liquidity, transparency or regulatory integrity.²
Liquidity without a curve
By design, stablecoins sit at the very short end of a digital yield curve. Under European regulation, payment-focused stablecoins are not investment instruments. Interest generated on reserve assets accrues to issuers rather than holders. Stablecoins function as settlement assets, not as yield-bearing exposures.³
This distinction becomes visible when monetary conditions tighten. As yields rise elsewhere, opportunity costs increase and capital migrates toward money market funds and short-dated government securities. Stablecoins remain indispensable for payments and settlement. They are not built to solve portfolio allocation.⁴
Yield comes from risk, not code
On-chain markets often blur this distinction. Technology can accelerate settlement, enhance transparency and compress operational friction. It cannot generate return. Yield is the price of risk, not a feature of code.
In traditional capital markets, this relationship is well understood. The yield curve is built on credit quality and duration. AAA-rated government bonds and money market instruments prioritise capital preservation and liquidity, but offer limited return. BBB-rated corporate bonds compensate investors for higher default risk, balance-sheet leverage and economic cyclicality. The spread between the two is not an infrastructure artefact. It is the market price of risk.⁵
Tokenisation does not change this logic. It improves how risk is issued, traded and settled. It does not transform AAA risk into BBB yield.
Stablecoin yield is intermediation, not interest
Market practice reinforces a basic distinction. Stablecoins do not generate yield by design. Returns arise only once balances are re-intermediated through lending, margin financing or deployment into DeFi protocols that transform a cash-like instrument into a risk exposure.
In centralised “earn” programmes, the dominant risk is often contractual rather than technical. Users typically transfer economic ownership of their stablecoins to the platform, which may re-lend or rehypothecate those assets. In insolvency, holders are commonly treated as unsecured creditors, a structure that became legally explicit in cases such as Celsius and Genesis/Gemini Earn.
Decentralised alternatives remove the single corporate counterparty but introduce mechanism and market-structure risk. Lending protocols depend on price oracles, liquidation incentives and the continuous availability of liquidity. During stress events, stablecoin pools can become highly imbalanced, exits may only be possible at punitive slippage, or liquidity may effectively disappear. Even in nominally stable pairs, impermanent loss can result in underperformance relative to simply holding the assets. These dynamics were observed during the TerraUSD collapse in 2022 and the USDC de-pegging episode in March 2023.
Regulated market infrastructure addresses this risk profile differently. On venues such as 21X, yield exposure is accessed through tradable, legally defined financial instruments with secondary-market liquidity, rather than through opaque intermediation chains. Risk remains explicit – credit, interest-rate and liquidity risk of the instrument – rather than implicit in contractual clauses, pool mechanics or protocol logic. Yield therefore remains what it has always been: compensation for risk, not a function of code.
Tokenised securities as a regulated yield stack
An alternative model is now taking shape. Rather than embedding yield inside protocols or stablecoins, yield is increasingly expressed through regulated, tokenised financial instruments.
Tokenised money market instruments offer cash-like exposure with conservative return. Tokenised bonds introduce duration and credit risk in a familiar legal form. Private credit and real-world asset strategies capture illiquidity premia with improved transparency. Tokenised ETFs and structured products extend this spectrum further.⁸
Stablecoins remain the liquidity rail. Tokenised securities form the yield-bearing layer. What has been missing is a regulated venue that connects the two.
Infrastructure as the missing link
Efficient markets require more than access to assets. They require price discovery, secondary liquidity, reliable settlement and legal clarity. In traditional finance, these functions are provided by exchanges and post-trade infrastructure. On-chain, they have often been approximated through protocol design.
This is where 21X comes into focus. Licensed under the EU DLT Pilot Regime, 21X is among the first regulated market operators to run both a primary and secondary market for tokenised financial instruments within a single DLT Trading and Settlement System. Trading and settlement are integrated on one supervised infrastructure, moving beyond experimentation toward operational market structure.⁹
For market participants, the implication is practical. Yield positioning becomes a market transaction rather than a protocol workaround. Duration, credit exposure and liquidity can be adjusted without leaving the on-chain environment or compromising regulatory standards.
USMO as a practical illustration
The mechanics become tangible with USMO, a tokenised note issued and traded on 21X’s regulated DLT Trading and Settlement System.
A defining feature of USMO is the presence of an active secondary market. Rather than relying solely on subscription and redemption cycles, the instrument can be traded directly against stablecoins. On 21X, this is reflected in the USMO/USDC trading pair, supported by continuous market making and a highly competitive bid-ask spread of around three basis points, enabling efficient price discovery and execution.¹⁰
This secondary market functionality is more than a technical detail. It allows treasury managers to adjust positions intraday, actively manage liquidity and rebalance portfolios without being constrained by redemption windows. For treasury operations, the distinction is material. Liquidity accessible only through redemptions remains operationally constrained. Tradable positions retain full balance-sheet and control flexibility.
Beyond liquidity mechanics, USMO mirrors the yield profile of its underlying. The UBS (Irl) Select Money Market Fund – USD generated a return of approximately 3.98 % over the past 12 months, based on publicly available fund data.¹¹ This places USMO among the higher-yielding tokenised money market instruments currently accessible to institutional market participants, while maintaining a conservative risk profile and short duration consistent with USD cash-management objectives.
From experimentation to market structure
Tokenisation has long been framed as a technological upgrade. Increasingly, it is becoming a question of market design.
Stablecoins have transformed how liquidity moves. The next phase of on-chain finance will be defined by how efficiently yield can move with it. Regulated on-chain market infrastructure does not eliminate risk. It makes risk tradable, transparent and governable.
In that context, platforms like 21X are not competing with products or protocols. They are addressing the structural gap between liquidity and yield. As that gap narrows, on-chain markets may begin to resemble something familiar: portfolio construction, executed at blockchain speed.
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Further articles for you:
Why the next leap in efficiency is not called tokenization but collateral mobility
Tokenization alone does not create efficiency. What truly matters is that tokenized money market products can move seamlessly as collateral within regulated, integrated markets.
The state of tokenization
Tokenization is no longer an abstract concept but an infrastructural evolution in which assets are implemented as digital, executable market objects on DLT.
The state of tokenization – Part 2
The focus shifts from definition to execution: DLT, smart contracts, and regulated infrastructures demonstrate how tokenization is already being adopted at an institutional level.
Connect with us
LinkedIn: www.linkedin.com/company/21x/
YouTube: www.youtube.com/@21XAG
References
- Federal Reserve Bank of New York (2023) – The Future of Payments and Stablecoins
- BIS Quarterly Review (2023) – Crypto markets: liquidity, leverage and risk transmission
- ESMA (2024) – MiCA and the regulatory treatment of stablecoins
- European Central Bank Working Paper No. 2987 (2024) – Monetary policy shocks and stablecoin demand
- Merton, R. (1974) – On the Pricing of Corporate Debt, Journal of Finance
- Bank for International Settlements, Financial Stability Institute (2025) – Stablecoin-related yields: some regulatory approaches, FSI Brief No. 27
- BIS Bulletin No. 115 (2025) – The rise of tokenised money market funds
- Cornelli et al. (2025) – Why DeFi lending? Evidence from Aave, BIS Working Papers
- European Commission / ESMA (2023) – EU DLT Pilot Regime – Regulatory Technical Standards
- 21X Market Documentation & Trading Data (2025) – USMO/USDC market, indicative bid-ask spread
- UBS Asset Management (2024/2025) – UBS (Irl) Select Money Market Fund – USD, public fund reporting
