WHAT ARE RWA VAULTS AND HOW DO THEY ACTUALLY WORK? If you've ever been involved in DeFi, you've certainly heard of "vaults"—profit vaults, lending vaults, strategy vaults… But today we're talking about a more specialized type: RWA vaults—vaults backed by real-world assets. First, what is a vault in DeFi ? Imagine it as a "smart savings jar" 🏦. You deposit money. Smart contracts automatically invest that money according to pre-programmed rules. You don't need to call anyone or sign any paperwork. When you want to withdraw, you simply withdraw. Most modern vaults use the ERC-4626 standard – similar to a common electrical outlet, allowing vaults to operate according to the same standard, making integration and construction easier. So how is an RWA vault different? The difference lies in the source of profit. Traditional DeFi vaults monetize through crypto-native activities: lending on AAVE, providing liquidation on Uniswap, farming, etc. Profits come from other crypto users. RWA vaults, on the other hand, generate profits from the real world 🌍: government bonds, corporate credit, trade finance, real estate debt, etc. The operation is very simple: - You send stablecoins (USDC, Dai, etc.). - You receive Token representing your ownership stake in the vault. The manager used that money to buy real-world assets. - Assets that generate interest (bond coupons, loan interest, etc.). - Profits are returned to the vault, increasing the value of your Token . - When you withdraw, you receive Capital plus profit. Imagine a group of friends pooling their money to buy government bonds. When the bonds pay interest, the whole group gets to enjoy the increase 📈. The Vault is that shared pot. "Why don't I buy bonds myself?" That's a great question. Because: - Accessibility: Not everyone in Nigeria, Brazil, or Vietnam can easily purchase a US T-bill. - Minimum purchase amount: Many products require $100,000 or more. - Automation: Vault handles buying, selling, custody, and reinvestment. - Combinational nature: Token vaults can be used as collateral, for borrowing, or to generate compounded profits 🔁. However, here's the important point: the RWA vault isn't entirely "decentralized". The on-chain part is handled by the smart contract. But the off-chain part requires: - A legal entity (SPV) holds the assets. - The custody unit is managed. Oracle updates asset data to the blockchain. - The person responsible for handling bankruptcy cases. In other words, the element of trust still exists 🤝. Not all RWA vaults are the same: Government bonds: 4–5% → low risk. > Private credit: 8–15% → higher risk. > Real estate debt: 6–10%. > Diversifying assets: spreading risk. The higher the profit, the greater the risk. Always ask yourself: Where does the profit come from? What if the borrower doesn't repay? Before sending money, ask yourself these 5 questions: - Who manages the vault? Is it managed and audited? - What are the underlying assets? Are they verifiable? - How is custody handled? Is there a SPV? - Is there a lock-up or withdrawal option at any time? - Does the profit actually come from real-world assets? RWA vault is where DeFi touches the real economy 💡. Instead of making money from other crypto traders, you're profiting from bonds, loans, and real-world assets – but under the guise of smart contracts. And this is perhaps one of the clearest bridges connecting crypto to the real world today. (As Chia by @ZeusRWA)