RWAs are the new Shiny Object that Everyone is watching.
An Observation of the RWA Sector from Token2049
The convergence of TradFi and DeFi is inevitable, and Real-World Asset (RWA) tokenization sits at the epicenter of this fusion. As capital markets evolve, the digitization of traditional securities promises not only to democratize access to assets previously accessible only to institutional behemoths but also to reshape the very fabric of global financial markets.
Note: This post is for educational purposes only and should not be construed as financial advice. Always conduct your own research and due diligence before making any decisions related to the content provided herein.
Overview
RWAs are tangible assets tokenized on the blockchain, with the sector seeing a valuation of approximately $2.3B on-chain.
In a report by Boston Consulting Group (BCG), the RWA sector is primed to hit $16T in size by 2030.
Major platforms like Centrifuge, OndoFinance, and TangibleDAO are pioneering RWA tokenization in areas like private credit, public credit, and real estate.
What Went Down at Token2049
RWAs have been a hot topic in the DeFi space, especially with their substantial growth in recent weeks. Token2049 was abuzz with discussions about RWAs.
TLDR of the DeFi Economics Speech:
There's a growing emphasis on sustainable yields in the DeFi space. Traditional yield drivers, like token emissions and APR dumps, are becoming less favorable.
TBill tokens, which offer around 5% APY, can be combined with other DeFi and RWA strategies to achieve up to 20% APY.
Despite the potential, integrating RWA with DeFi faces challenges, especially due to regulatory concerns and the disparity in growth rates
What are Real World Assets
RWAs refer to tangible assets that are tokenized and represented on the blockchain. These can include:
Equity & Debt
Real Estate
Commodities
Art
Carbon Credits
Tokenizing these assets offers several advantages, such as transparency, reduced costs, and the elimination of intermediaries.
Sector Growth
The RWA sector has seen a valuation of approximately $2.3B on-chain. Recent developments like PayPal's launch of PYUSD, Visa's on-chain commission payment solution in fiat, and experiments by SWIFT and ANZ have further propelled the sector's growth.
In BCG’s heavily quoted RWA report, the sector is expected to hit a size of $16T by 20230.
Ecosystem Components
RWA Rails: Provide the necessary regulatory and infrastructure framework. These are the blockchains or tokenization protocols supporting lenders / borrowers / third parties.
Asset Providers: Focus on originating demand across various asset classes. These are your lenders and borrowers who provide RWA in exchange for stables and vice versa.
Third Parties: Though not included in the diagram above, I’d like to include third parties along the likes of MakerDAO into the equation. Third parties are those who create and manage vaults to allow retail/institutions to lend/borrow stables against RWA collateral.
On-Chain Statistics
Notably, yield-bearing RWAs, which include assets such as Treasuries, Money Markets, Real Estate and Private Credit currently represent 61% of the total RWA market cap.
Gold and Precious Metals however are leading the pack, accounting 37.3% of tokenized RWAs.
Spotlight on Key Players
Private Credit
Lending platforms allow you to receive a loan in crypto secured by RWA or borrow tokenized assets by providing real securities as collateral. Platforms like Centrifuge allow users to receive crypto loans secured by RWAs. With a TVL of $240M, Centrifuge's Parachain stands out in this market.
Public Credit
Users can trade RWA and receive payouts at a set interest rate, having access to government bonds on the blockchain. Platforms like OndoFinance enable users to trade RWAs and receive set interest rate payouts. They recently released $USDY, a tokenized note secured by short-term US Treasuries.
Real Estate
Tokenize and trade ownership of residential or non-residential buildings, fungible tokens, and NFTs are actively used in this sector. Platforms like tangibleDAO offer a marketplace for tokenized RWAs using RealUSD, a stablecoin backed by real estate. Another notable platform is RealTPlatform, which enables fractional ownership of real estate assets.
Synthetic Assets
Synthetic assets are a combination of crypto and traditional derivative assets. In other words, they are tokenized derivatives. Platforms like mauve_org are leading the way as the first DEX compliant with traditional finance regulations.
Big Players
Algorand
lofty_ai is a fractionalized real estate platform on Algorand that lets you buy a fraction of cash-flowing rental properties starting for just $50. All properties have a property manager in place and investors start earning rental income on day one. The owner of the property can now list a portion of their properties, while the rest is tokenized for the investors. The protocol uses AI to predict neighborhood growths around the world and they are backed by Nvidia.
Avalanche
The Avalanche Foundation has allocated $50M via its "Avalanche Vista" initiative to dive deeper into the RWA tokenization scene. They're casting a broad net to tokenize various assets across equity, credit, real estate, and commodities.
Polygon
Polygon has perhaps one of the best BD out there, recently closing a partnership with @Courtyard_NFT and Mirae Asset Securities. Courtyard offers tokenization & trading of RWAs. Mirae Asset Securities is the largest investment banking company by market capitalization in South Korea.
Chainlink & Matrixdock
Matrixdock (Matrixport’s RWA initiative) provides institutional and accredited investors with transparent access to tokenized real-world assets.
Matrixdock’s Short-term Treasury Bill token (STBT) allows stablecoin holders to gain exposure to US Treasury bond positions with an Avg APY of 5.13%.
Chainlink's Proof of Reserve (PoR) ensures the transparent minting and issuing of tokenized assets on Matrixdock. Their recent partnerships with SWIFT and ANZ further underscore the importance of RWAs in the DeFi space.
Closing Thoughts
RWAs remain one of the hotter mid-term trends amidst what felt like an eternal bear market, behind LSDs. Plenty of narratives have been pushed in the bear perhaps in a bid of hopium or mini deadcat bounces, though many are capitulating from Memecoining to TG Bots. But I don’t think RWAs are purely a palpable thirst for a new compelling use case to reignite enthusiasm.
Total market cap has been crabbing since last June, hovering just above or below the $1T line. Volume has stayed relatively the same. Stablecoin market caps are smoothening, particularly USDC, while USDT’s continues to inch up. A potential indication of sidelined capital waiting for a catalyst to happen while the market consolidates.
Bull Case
BTC/ETH ETF approvals likely to happen in 2024
The bounce in June earlier this year was attributed to back-to-back filings for Bitcoin ETFs from major multibillion-dollar asset management firms. Many of the filings were delayed, and the 3 upcoming ones this October from VanEck, Widsomtree and Fidelity, are likely getting delayed too to 2024.
ETFs have to be backed by, obviously, holding the underlying BTC/ETH, which many of these funds either already scooped up, or are pushing prices lower for better entries. I’m leaning toward the latter as a possibility. Nonetheless, a huge influx of capital brought about by ETFs could see liquidity spilling over to the RWA space making it more attractive for RWA suppliers to borrow from.
BTC Halving in April 2024
I won’t dive too much into the details of halving cycles, but CT is filled with plenty of bullposting regarding the Halvening. And evidently, as Sassal0x mentioned, “Fresh year bullish energy + Q1 ETF launch + halvening in April = recipe for a great narrative to officially start the bull market”
Bear Case
Regulation
An RWA tokenized in one jurisdiction might not be recognized or may even be considered illegal in another. This inconsistency can create significant barriers to global adoption and liquidity of tokenized RWAs.
When a loan is taken on-chain using tokenized RWAs as collateral, the transaction itself isn't inherently tied to a specific country. However, the participants in the transaction, the platform facilitating it, and the underlying RWA are all subject to specific jurisdictions. Which country's laws apply? How do you ensure that the rights of the token holder are upheld in the asset's home jurisdiction?
The above are simply my 2cents on how RWA adoption might play out. Let me know what you think.
That's all I have for you!
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