Pantera Capital's latest State of Tokenization report has put a number on an uncomfortable truth in digital asset markets: 81% of tokenized US Treasury value is held rather than traded, even as the sector crossed the $12 billion mark.

The Q1 2026 report, which Pantera published as part of its quarterly tokenization research series, surveyed 593 tokenized assets across 11 categories. Total market value reached roughly $321 billion, up 60% from $201 billion in 2024. But the composition of that growth tells a more cautious story than the headline figure suggests.

Of the 542 assets Pantera scored, 77.6% fall into the "wrapper" classification — essentially blockchain receipts for assets that still live off-chain. Only 2.7% qualify as genuinely native tokens. The remainder occupy a middle tier: stamped with a blockchain label, yet dependent on traditional custodians, gated minting processes and intermediary-driven redemption flows.

A new benchmark for on-chain maturity

To quantify how far each product has progressed toward full on-chain functionality, Pantera built what it calls the Tokenization Progress Index, or TPI. The average score across all rated assets came in at 2.04 out of 5.

Issuance and redemption scored worse than any other dimension, averaging 1.82. Most products still require custodian-mediated exits rather than autonomous mint-and-burn mechanisms. That structural bottleneck has direct operational consequences: it caps secondary liquidity, extends settlement friction and keeps these instruments outside the reach of composable DeFi rails.

The 81% held-not-traded figure for tokenized Treasuries follows directly from that design. If redemption requires an intermediary, holders treat the position as a yield-bearing parking spot rather than a tradable instrument.

Stablecoins dominate, Treasuries trail

Stablecoins remain the dominant category by a wide margin. Pantera's data puts them at approximately $293 billion of the $321 billion total — 91.6% of the entire market. They also achieved the highest average TPI of any category, at 2.67, reflecting deeper integration with on-chain infrastructure than any other asset class.

Tokenized US Treasuries rank second at roughly $12 billion, with institutional products from BlackRock and Franklin Templeton driving much of the volume. Pantera's findings indicate these products largely operate as wrappers with restricted secondary market activity, reinforcing the pattern of value that sits idle rather than circulating.

168 new products, mostly wrappers

The issuance pipeline is not slowing. Pantera counted 168 new tokenized assets launched in 2025, a 115% increase over the prior year. Most of these arrived in the wrapper tier, which suggests issuers are prioritizing speed to market over deep on-chain integration — a rational choice while regulatory uncertainty and custody infrastructure remain binding constraints.

Private credit stands out as an exception. DeFi penetration rates across private credit products ranged from 21.4% to 64.3% depending on the specific offering, a meaningfully higher engagement with decentralized protocols than tokenized Treasuries or most other asset classes have achieved.

What it means for market structure

The report sketches a market that has scaled in size without scaling in function. A $321 billion tokenization sector in which more than three-quarters of assets are off-chain wrappers is, operationally, still a distribution channel for traditional finance products — not a parallel on-chain capital market.

For issuers, the gap between the 2.04 average TPI and full on-chain functionality represents the next competitive frontier. Products that solve autonomous issuance and redemption — the weakest measured dimension — would unlock the secondary liquidity that tokenized Treasuries currently lack. For institutional allocators, the 81% held-not-traded figure signals that infrastructure, not demand, remains the limiting variable.

Pantera plans to update the Tokenization Progress Index in subsequent quarterly reports, giving issuers and investors a recurring benchmark for whether the wrapper tier begins to thin out — or whether the market keeps adding digital facades to unchanged processes.