What are Real World Assets (RWA)?
RWA (Risk-Weighted Assets) refers to the result of tokenizing off-chain real-world assets. In other words, RWAs involve leveraging blockchain technology to tokenize traditional assets, allowing various real-world assets to interact with the crypto-financial system. The goal of RWAs is to bring more liquidity to real-world assets, thus leveraging the advantages of decentralized financial systems to bring greater benefits and possibilities to these assets. The underlying assets covered by RWAs are extensive, including but not limited to stocks, bonds, real estate, cash, artwork, precious metals, receivables, insurance, and investment funds. Currently, USDT, the third-largest stablecoin by market capitalization, can be considered one of the most successful projects in the RWA field because it maps the US dollar onto the blockchain and tokenizes it.
Market Status of Real World Assets
The RWA market is in its early stages of development but has shown signs of growth, with Total Value Locked (TVL) also increasing. According to Defillama, as of July 2024, the total TVL of the DeFi market exceeds $90 billion, with RWA networks accounting for $6.25 billion. It is expected that RWA integration projects will occupy a significant market share, with TVL projected to reach $10 billion by 2025. Currently, apart from meme tokens, RWA is the only crypto narrative that has seen an increase in the past three months.
Market Outlook for Real World Assets
According to a report by the Boston Consulting Group, the market size of tokenized assets is expected to reach $16 trillion by 2030. This would represent 10% of global GDP by the late 2030s, a significant increase from $310 billion in 2022. This estimate includes the tokenization of on-chain assets (more relevant to the blockchain industry) and the fractionalization of traditional assets (e.g., ETFs, REITs). Given the potential market size, capturing even a small portion of this market could have a significant impact on the blockchain industry. Even at $16 trillion, tokenized assets would still be only a small fraction of the current total global asset value, estimated at $900 trillion (less than 1.8%, without considering future growth in total global asset value). It can even be argued that the true potential market is the entire global asset market, as anything that can be tokenized can be represented on-chain as RWAs.
BlackRock's Concept of Real World Assets
Despite the broad range of assets covered by RWAs, tokenized U.S. Treasury bonds have become the most popular RWA product since BlackRock entered the market, growing nearly tenfold within a year from around $100 million at the beginning of 2023 to nearly $1 billion by early 2024.
Unlike tokenized assets like gold or real estate, tokenized U.S. Treasury bonds are not directly backed by the U.S. Treasury but are typically introduced to the market through money market funds. Therefore, issuers of tokenized U.S. Treasury bonds are licensed fund managers responsible for creating and managing money market funds and issuing fund units as tokenized treasuries to holders. However, money market funds are regulated capital market products, and investors' investments are subject to related rules and regulations, meaning investors must undergo KYC procedures before purchasing. Additionally, because the fund's assets must be held by custodians, fund managers must work directly with custodians for new user onboarding, net settlement, reconciliation, and other operational tasks. The custodian will maintain a complete and updated ledger of holders and their balances.
The BUIDL fund, issued by BlackRock in March of this year, is such a tokenized money market fund. It invests all its assets in cash, U.S. Treasury bonds, and repurchase agreements, and BlackRock pays the daily accrued dividends directly to investors' wallets in the form of new tokens, allowing investors to earn returns while holding tokens on the blockchain.
Securitize, BlackRock's partner in this initiative, has long focused on the RWA sector and has served many large-scale asset securitization companies. After obtaining SEC transfer agent registration in 2019, Securitize secured $48 million in funding in 2021, led by Blockchain Capital and Morgan Stanley. In September 2022, the team helped KKR, one of the largest investment management firms in the U.S., tokenize part of its private equity fund on Avalanche. The following year, also on Avalanche, Securitize issued equity tokens for the Spanish REIT Mancipi Partners, becoming the first company to issue and trade tokenized securities under the EU's new digital asset pilot regime.
Notable Real World Assets Ecosystem Projects
Maple Finance
Maple Finance is an institutional capital network providing infrastructure for on-chain lending businesses to credit experts, connecting institutional borrowers and lenders. Maple Finance has three main stakeholders: borrowers, lenders, and pool delegates.
- Institutional borrowers can access financing options on Maple Finance.
- Lenders can earn returns by lending assets to borrowers.
- Pool delegates are credit professionals who assess, manage, and underwrite loans.
While Maple Protocol initially focused on unsecured crypto loans, it has increasingly ventured into RWA-based lending. Previously, unsecured crypto loans left Maple with over $50 million in bad debt due to last year's centralized exchange collapses impacting Maple's crypto-native borrowers. Currently, Maple Finance is one of the market leaders in the private credit space, with over $332 million in outstanding loans.
MakerDAO
As the protocol behind the DAI stablecoin and the third-largest DeFi protocol, MakerDAO is a familiar name to many in the crypto space. Borrowers deposit collateral into MakerDAO's vaults and can take out debt denominated in DAI accordingly. MakerDAO's attempt to integrate RWAs dates back to 2020 when it voted to allow borrowers to collateralize RWA-based assets in its vaults. Since then, MakerDAO's RWA vaults have grown to $2.3 billion, with most of this growth occurring in the past year, accompanying the rise in real-world yields.
Ondo Finance
Ondo Finance offers institutional-grade blockchain investment products and services. The company, led by former Goldman Sachs employee Nathan Allman, is backed by prominent investors such as Peter Thiel's Founders Fund, Coinbase Ventures, and Tiger Global. Ondo provides four RWA products, offering investors access to a range of cash management products and bond funds. In the process, investors can deposit USDC and convert it to USD to purchase assets like ETFs or funds. In return, new liquidity providers receive a custody certificate that can be used further in other protocols.
Conclusion
For blockchain technology, the tokenization of real-world assets presents a powerful potential application, capable of attracting more users into the cryptocurrency space. By offering greater transparency and efficiency, tokenization becomes an attractive alternative, addressing inefficiencies in existing mechanisms. Traditional financial institutions have already begun exploring tokenization technology, which may solve inefficiencies in current solutions. The proliferation of tokenized real-world assets is also a positive development for crypto investors, who now have access to more opportunities outside the crypto ecosystem. Furthermore, the introduction of tokenized real-world assets brings more stable assets to decentralized finance (DeFi) and increases the diversity of collateral.
Looking ahead, we anticipate continuous innovation and development in the field of tokenized real-world assets, bringing more use cases and driving widespread adoption of cryptocurrencies.
For more analysis, please follow Aibit's media account for real-time updates! This article is for reference only, does not represent any position, and is not intended as investment advice. Investment is risky, caution should be exercised.
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