After DeFi Summer, the high annualized yields in the past no longer exist, and the United States has entered an interest rate hike cycle. RWA appeared at the right time. RWA takes advantage of the global characteristics of DeFi to introduce real-world assets into the blockchain, and giants in various fields are also ready to move. With the improvement of regulatory policies, RWA will usher in new developments. Blockchain
introduction
DeFi protocols have made rapid progress from 2020 to 2021, and DeFi’s total locked-up volume (TVL) has surged from hundreds of millions of dollars to hundreds of billions of dollars. The summer of this year is called “DeFi Summer” and enters 2022. , the growth rate has slowed down. In this process, a large amount of money poured into the DeFi field, various innovative DeFi applications emerged one after another, and the market was keen to participate in token airdrops and DeFi mining-related activities, which created one opportunity after another for early participants to quickly obtain wealth. The total locked-up volume of DeFi surged from US$1.1 billion on June 1, 2020 to a peak of US$184.75 billion on December 1, 2021, a growth rate of 250 times. However, after a series of subsequent market fluctuations and panic, the DeFi market began to stagnate. As of October 24, 2023, DeFi's TVL has dropped by 80% from its highest point, and is currently stable at around US$40 billion.
Source: https://defillama.com/
As the crypto market enters a "cold winter", regulatory issues and some CEX issues have led to continued market turmoil. Coupled with the fact that the US dollar has begun to enter an interest rate hike cycle, the previously attractive annualized yields (APR) are no longer what they used to be. Against this background, the market began to seek low-risk investment opportunities to cope with the Crypto Winter. This period coincides with changes in the macroeconomic environment and rising U.S. Treasury yields, which makes Real World Asset Tokenization a very important value capture channel in the current crypto market.
RWA is currently the hottest topic in the Web3 and cryptocurrency markets, and is considered to be the engine driving the next bull market. According to DeFillama data, the RWA track has more than 20 projects, with a total TVL of more than 6 billion US dollars, ranking 6th in the TVL rankings of the DeFi market.
Source: https://defillama.com/categories
RWA overview
RWA, the full name of "Real World Assets", refers to real physical assets that can be tokenized, converted into digital assets and traded on the blockchain. Introducing real-world assets into the DeFi field requires tokenization, that is, converting assets with real value, such as gold, real estate, etc., into digital tokens in order to express their value on the blockchain and in the DeFi protocol used in. In other words, RWA represents the value of real-world assets that are tokenized for use on the blockchain.
Unlike traditional asset securitization, which builds a bridge between traditional capital markets and real assets, RWA tokenization builds a bridge between real assets and encrypted finance. Its purpose is to introduce real-world assets into DeFi and give full play to the global advantages of DeFi, thereby giving real-world assets more liquidity. RWA covers a wide range of underlying asset types, including tangible assets such as gold and real estate, and intangible assets such as government bonds or carbon credits, as well as cash (USD), precious metals (gold, silver, etc.), insurance, consumer goods, credit notes , royalties, etc.
Currently, the stablecoin USDT, which occupies the third largest market value of cryptocurrencies, can be regarded as the most successful RWA token because it maps the U.S. dollar to the blockchain and tokenizes it.
Since the birth of blockchain technology, market participants have been exploring how to introduce RWA onto the chain. Traditional financial institutions such as Goldman Sachs, Hamilton Lane, Siemens, and KKR are actively working to put their real-world assets on the blockchain.
In its research report "Money, Tokens and Games," Citibank predicts that in 2030, up to $5 trillion in funds may be transferred to new forms of digital currency, such as CBDC and stablecoins, about half of which may be based on regional Blockchain distributed ledger technology. The tokenization of real-world assets (RWA) will be the trump card that drives the blockchain industry to a scale of tens of trillions of dollars.
The reason why RWA is so popular
From 2017 to 2018, entrepreneurs in the crypto market were keen on mapping art, real estate or securities to the chain. At that time, the concept of DeFi had not been introduced into the crypto market, and the concept of STO (Security Token Offering) was not mature, and the industry was relatively mature. Empty is more about equity assets, such as company stocks or the issuance of equity assets, and less about bond assets.
In the past, the main sources of income from cryptocurrency and DeFi were trading, leverage, and the issuance of new tokens. After DeFi Summer, the issuance of various governance tokens caused a boom in the market. DeFi income during this period was very considerable, with APR generally above 20%. At the time, U.S. Treasury bond rates were near zero, leaving the market uninterested in asset classes other than cryptocurrencies.
1.DeFi asset yields fall and U.S. Treasury bond yields soar
As the crypto enters a bear market and the United States enters an interest rate hike cycle, the return rates on various assets have inverted. For example, the APY of Curve pools and loan-type APYs such as Compound is less than 1% (referring to income without additional subsidies). In contrast, the interest rate on U.S. Treasury bonds has reached 5.5%, which is also much higher than Ethereum's LSD yield. DeFi, which is in a bear market, can no longer meet the needs of some institutions in terms of yield and stability. Various factors have led to many funds no longer choosing to stay in DeFi, but preferring to return to the U.S. dollar to purchase government bonds.
Source: https://dune.com/lido/lido-morning-coffee-dashboard
2. BTC spot ETF is expected to pass
If the Bitcoin spot ETF is approved, this will bring long-term benefits to the RWA track. This helps large financial companies such as BlackRock promote the tokenization of real-world assets. After experiencing the bear market, the blockchain industry is also in urgent need of new narratives to ignite market sentiment and explore the next direction of the encryption market. At present, the adoption of BTC spot ETF is just around the corner, so some people believe that RWA+ETF has the potential to trigger the next round of cryptocurrency bull market, so RWA is regarded as the next important development narrative in the DeFi field.
3. Giants in various fields accelerate the layout of the RWA track
For example, Goldman Sachs launched GS Dap to tokenize traditional assets, and Siemens used RWA to issue $60 million in bonds. Citi even pointed out in its report "Money, Tokens, and Games" that RWA will be the trump card to drive the blockchain industry into a scale of tens of trillions of dollars, because almost any asset that can be expressed in value can be Tokenization, and it is optimistically expected that the scale of RWA will reach US$4 trillion by 2030.
According to data from rwa.xyz, as of October 24, the total number of loans under RWA's credit agreement was 1,771, with a total loan amount of more than 4 billion.
Source: https://app.rwa.xyz/
What RWA projects currently exist?
1.MakerDAO
MakerDAO is a decentralized mortgage lending platform established on Ethereum in 2014. It achieves over-collateralized lending by locking crypto-assets such as ETH in smart contracts and minting DAI, a stable currency pegged to the US dollar.
MakerDAO has raised the DSR (DAI deposit rate) several times this year, and it has recently been raised to 8%, which is much higher than the U.S. bond yield. Driven by high deposit interest rates, MakerDAO's deposit size has increased significantly.
According to Dune data, as of October 24, 59% of MakerDAO’s total assets were RWA, and more than 65% of its revenue came from RWA.
Source: https://dune.com/steakhouse/makerdao
Source: https://dune.com/steakhouse/makerdao
The on-chain U.S. debt issued by MakerDAO (MKR) and its stable currency DAI are currently one of the common use cases of RWA.
2.Maple Finance
Maple Finance was founded in 2020 and officially launched in May 2021. Maple Finance is an institutional capital network that has launched a licensed KYC loan-guaranteed loan project since 2021, providing credit experts with the infrastructure to conduct lending operations on the chain and connecting institutional borrowers and lenders. Rather than using the standard DeFi staking model, which relies on collateral assets being slashed in the event of underpayments, Maple Finance enables users to provide low-collateral loans to reputable companies based on reputation.
As you can see from the chart below, Maple Finance launched a cash management pool for U.S. Treasuries in May, with protocol revenue gradually increasing thereafter.
Source: https://dune.com/maple-finance/maple-finance
3.Ondo Finance
Founded in 2021, Ondo Finance is a company focusing on blockchain services. Its main mission is to create and manage institutional-grade financial products, such as U.S. Treasury bonds and money market funds, and build DeFi protocols based on these financial products. Ondo's goal is to develop decentralized and composable protocols and provide tailor-made services to meet the different needs of organizations, DAOs (Decentralized Autonomous Organizations) and high-net-worth individuals. The platform’s vision is to bridge the gap between traditional finance and decentralized finance by introducing real-world assets (RWAs) into the DeFi space.
According to Dune data, as of October 24, Ondo Finance held $176 million in short-term U.S. government bond funds.
Source: https://dune.com/steakhouse/ondo-finance
Summarize
When the DeFi market collapsed, RWA took over the important task of restoring market confidence. It is a compelling narrative that brings the value of various real assets into the DeFi ecosystem, removing barriers between the traditional finance and crypto worlds, and its rise is also one of the signs of innovation in the crypto field. But what cannot be ignored is that it also has multiple risks, such as regulatory risks, the traditional financial system makes the settlement process too cumbersome, DeFi's own security issues, etc. Overall, RWA is still the development trend in the financial field in the future. With the improvement of supervision and changes in the market environment, more international financial giants will participate in this trend.
Author: Snow
Translator: Sonia
Article reviewer: Edward, Wayne, Elisa, Ashley He, Joyce
Copyright: Gate.io
