On-chain finance for financial advisors: a guide

What the category contains

On-chain finance includes crypto-native assets such as ETH, decentralized lending and trading protocols, stablecoins, tokenized fund shares, tokenized Treasuries, private-credit instruments, and the chains that settle them. They settle the same way and carry different risks.

“Digital asset” covers too many exposures to be one allocation. Ask first: what would the client own with the token wrapper set aside?

The institutional side is no longer small. On 2026-09-30 RWA.xyz counted $14.65 billion in tokenized U.S. Treasury funds, across 25 funds and 85,521 holders,¹ and $38.60 billion in tokenized real-world assets of every kind, beside $294.67 billion in stablecoins.² At that size, these products now reach the clients of ordinary advisory practices.

Four distinct exposures

What settlement on a public chain changes

Three properties change when an instrument settles on a public chain, and each has a cost as well as a benefit.

Finality. A transfer settles in minutes and does not reverse. There is no T+1 and no failed-trade break, and also no chargeback, no recall, and no help desk that can unwind a mistaken or induced transaction. Operational error turns straight into loss, which is why the approval workflow belongs in the custody review.

The custody boundary. A conventional security exists on an intermediary’s books, and possession follows the account agreement. Whoever can sign for an on-chain asset controls the position. For tokenized securities a transfer agent stands above the key with allowlist and reissue powers, so “who can move this” has a different answer at every layer. The Atlas records those answers.

Composability. A token in a wallet can be posted as collateral, lent, or pooled in any compatible protocol the same hour, with no transfer-out request. Institutions want that mobility. It also spreads losses: when a widely accepted collateral token fails, the failure spreads into every protocol that accepted it.

DeFi versus tokenized securities

The same chain can settle software-native positions and conventional securities, and their client files should look different. DeFi describes financial functions performed by smart contracts. A tokenized security is a security whose ownership or transfer is recorded on a blockchain. A tokenized fund may interact with DeFi, and a DeFi receipt may wrap a tokenized asset, but the two words mean different things.

Three published memos show how far apart the two files are. BlackRock’s BUIDL is a tokenized security, so the diligence ran through the offering documents: a private fund offered to qualified purchasers under Rule 506(c) and the Investment Company Act §3(c)(7) exemption, a $5 million initial minimum, and transfers only between whitelisted wallets.³ Ketju’s verdict on BUIDL is Not approved, and a typical advisory client does not qualify to hold it; the code barely matters to the answer. Venus is a DeFi position, so the diligence ran through the deployed system’s history: a May 2021 collateral event that cost the protocol about $77 million by its own post-mortem,⁴ a shortfall of about $14.2 million when the LUNA price feed froze in May 2022,⁵ and a price-manipulation attack in March 2026. Ketju’s verdict on Venus is Not approved, based on that history, and there is no offering document to read. Binance Staked ETH looks like DeFi and is neither DeFi nor a tokenized security: it is an exchange claim that moves on-chain. Ketju’s verdict on Binance Staked ETH is Not approved, and the memo needs one paragraph to say why.

One position can combine both, and then the advisor needs both files. On 2026-09-25 Aave v4 on Base began taking tokenized stock certificates as collateral for USDC loans, the first lending market where the collateral is a security. A USDC supplier there depends on the certificate’s issuer and custodian, a price feed that runs only on weekdays, a reserve that pauses for splits and dividends, a liquidation that sells the certificate rather than the share, and an offer made only to non-US persons. The September 2026 tokenized-assets report covers each of these dependencies.

Write every position as one sentence: “The client owns [legal or economic claim], represented by [token], held through [wallet or custodian], deployed in [protocol], settling on [chain].” Any blank becomes a diligence task.

Where the return comes from

Every displayed percentage has a payer. Lending rates are paid by borrowers and float with how much of the pool is lent out. Staking yield is protocol issuance plus transaction fees, paid in the network’s own token. Tokenized cash yield is the underlying portfolio’s income, less fees. Reward yield is a subsidy paid in the protocol’s own token, and it declines on a schedule. Name the payer first. An advisor who compares percentages across different payers can end up sizing a 5% credit position like a 5% Treasury position.

Stablecoin yield: who pays it, and what can break

A token that aims at one dollar can still lose value, and a displayed rate says nothing about the risk that earns it. Start with the law. The GENIUS Act, signed 2025-07-18 and in force by 2027-01-18 at the latest, bars a permitted payment stablecoin issuer from paying holders “any form of interest or yield (whether in cash, tokens, or other consideration) solely in connection with the holding, use, or retention of such payment stablecoin.”⁶ So yield on a dollar token comes from somewhere else: a lending market, a savings wrapper, a fund, or a trading strategy. Each is a separate instrument, with its own issuer, contracts, and terms for withdrawal, stacked on the stablecoin.

Diligence both parts. The stablecoin has an issuer, a reserve or collateral model, a redemption path, a freeze policy, and a depeg history. The venue adds borrower, contract, oracle, governance, bridge, curator, and liquidity risk. The chain and the custody are further layers, set out in the four-layer test.

In a lending market a high rate can warn that withdrawals are about to stall. Rates climb steeply as a pool empties, and an empty pool is also what stops suppliers from withdrawing; the liquidity section of the due-diligence guide shows the mechanism.

The stablecoin itself can fail, and not only through fraud. On the night of 2023-03-10 Circle said it could not withdraw $3.3 billion of USDC reserves, about 8% of the total, from Silicon Valley Bank. Its minting and redemption ran on U.S. banking hours, so over the weekend redemptions all but stopped, holders who wanted cash had to sell, and USDC traded as low as 86 cents.⁷ Dai, which let holders swap it one-for-one with USDC, lost its peg too, though it held no deposit at the bank.⁷ The peg returned after Treasury, the Federal Reserve, and the FDIC said on 2023-03-12 that all SVB depositors would be protected; by 2023-03-13 Circle reported the $3.3 billion fully available and moved to new banks.⁸ USDC was fully reserved and still traded at 86 cents for a weekend, because holders could redeem only during U.S. banking hours.

A yield venue can fail in two ways. Maple Finance shows the first: credit. Its pools screened near 5%, and the premium paid for lending to trading firms without posted collateral. On 2022-12-05 one borrower, Orthogonal Trading, was sent a notice of default on eight loans totaling $36 million, about 30% of all active loans on Maple, after telling the pool’s manager for weeks that its FTX exposure was about $2.5 million.⁹¹⁰ Press reports put lenders in the worst-hit pool near an 80% loss. Nobody can see on-chain whether a borrower is telling the truth, and no dashboard priced that risk. Ketju’s memo is published in full.

Usual’s USD0++ shows the second: a change to the terms. On 2025-01-09 Usual announced that it would replace the unconditional early one-for-one redemption of USD0++ with a floor of 0.87 USD0, plus a one-for-one route that required a contribution of its USUAL token.¹¹ Its 2025-01-14 update acknowledged that holders’ ability to sell had been heavily impaired and that pool liquidity had stayed below $20 million.¹² No code failed and no price feed broke. Usual’s governance can still set the floor for early redemption. A redeemable token is worth its redemption terms, and governance can change those terms unless they are fixed in code. Ketju’s USD0++ memo is published too.

The minimum monitoring record for a stablecoin yield position:

• base yield and reward yield, shown separately;
• the period measured and the time of the reading;
• withdrawable liquidity and utilization;
• the issuer and who holds the freeze;
• venue, oracle, bridge, and curator dependencies;
• the depeg and redemption conditions that start a new review.

Who controls the token

Two dollar tokens on the same chain show the range. Circle’s USDC is administered: Circle can block addresses under its terms and legal obligations, and it has. Liquity’s LUSD is the opposite: immutable contracts, no admin key, no governance, no blocklist. Both are called stablecoins, and a compliance file treats them as different instruments. Neither finding settles a verdict: a tokenized security needs issuer control. Read who controls a token from its contract and documents; the word “decentralized” does not tell you. The Atlas lists who controls each asset and chain it covers.

What tokenization changes

Tokenization can change settlement speed, programmability, minimums, distribution, collateral mobility, and recordkeeping. It does not change the legal nature, credit quality, duration, fee load, or suitability of the underlying investment. A tokenized Treasury fund remains a fund. A tokenized private-credit vehicle remains private credit.

The first question settles Binance Staked ETH, roughly $7.1 billion at the July 2026 review, in about a minute. The underlying exposure is a claim on a centralized exchange. Binance holds the staked ETH; the token moves on-chain and so appears in dashboards beside non-custodial assets. The wrapper suggests self-custody and protocol risk; the holder has neither, only a claim on Binance. Not approved.

USD.AI’s name misleads in another way. The name suggests a dollar; the yield token, sUSDai, is a share in a credit fund making non-recourse loans to AI infrastructure operators, secured on GPU hardware, redeemable only through 30-day redemption windows. A client who sizes it like cash is in fact holding a credit fund. Not approved; Ketju’s full reasoning is published. Neither case needed a technical audit; each needed an accurate answer to the first question.

The advisor’s sequence

1. Identify the underlying economic exposure.
2. Identify the legal claim and who may hold it.
3. Record who controls custody, transfer, and redemption.
4. Test the protocol, chain, and custody layers.
5. Decide what evidence and monitoring the recommendation needs.

For tokenized products, continue with tokenized assets for RIAs. For DeFi positions, the due-diligence guide takes each layer in turn.