OKX Ventures: A detailed explanation of the six core asset markets of RWA track

Author: Esme Zheng, OKX Ventures

In the current market environment, “Real-World Assets” (RWA, real-world assets) are rising rapidly.In July this year, CoinGecko pointed out in its Q2 2024 crypto industry report that Meme Coin, artificial intelligence and RWA became the hottest categories, accounting for 77.5% of network traffic.

Traditional financial giants such as Citigroup, BlackRock, Fidelity and JPMorgan Chase have also entered the market.According to Dune Analytics, RWA narrative has ranked second in growth this year, up 117%, second only to Meme.This article will comprehensively sort out the current development status and future opportunities of the RWA track.

TL;DR

1. RWA is one of the fastest growing DeFi fields, with TVL doubled in 2023 and the value of on-chain assets has also increased by 50% since the beginning of 2024 to date, up to US$12 billion (excluding stablecoins).Among them, the fastest growing and largest proportion are the private credit market (accounting for 76%), US bond products (accounting for 17%), and the remaining larger proportions are precious metal stablecoins, real estate tokens, etc. led by gold, etc..

2. Currently, nearly 15 mainstream issuers provide more than 32 tokenized U.S. bond-related products, with total assets exceeding US$2 billion, an increase of 1,627% compared with the beginning of the year.The six mainstream on-chain credit protocols, Figure, Centrifuge, Maple, Goldfinch, TrueFi, Creditix, etc., have a total active loan amount of US$8.88 billion, an increase of 43% from the beginning of the year.

3. Following successful on-chain adoption of stablecoins and attractive net interest margins for off-chain centralized issuers, the next phase of RWA evolution will be driven by tokenized U.S. Treasury issuance.In the process, token holders acquire the largest share of the net interest margin by directly investing in real-world assets with short maturity, strong liquidity and backed by the U.S. government.

4. The on-chain private credit lending market faces major challenges after the collapse of centralized financial bad debts, and is now experiencing a recovery driven by the RWA narrative, although the total on-chain credit currently accounts for less than 0.5% of the traditional $1.5 trillion private credit market.But the sharp upward trend shows that the on-chain credit field has great potential for further expansion.

5. Real asset tokenization involves a large number of asset issuance, trading and other operations in the application scenarios of the traditional financial field. For financial institutions that master core assets, compliance and security are the main demands.RWA needs to exist in “trusted finance” or “verifiable finance” and needs to be “regulated cryptocurrency.”Especially in the context of stablecoins, they still require a large amount of participation from off-chain intermediaries for auditing, compliance and asset management, which all require a trust basis.

1. Current status of RWA track

1. Market supply and demand

1. The core logic of RWA is to map the income rights of financial assets in the real world (such as interest-generating assets such as U.S. Treasury bonds, fixed income securities, and equity assets such as stocks) to the blockchain, and obtain the on-chain assets through the mortgage chain.Liquidity of assets.For physical assets such as gold and real estate, they are introduced into the chain and blockchain technology is used to improve transaction convenience and transparency.

2. Against the backdrop of the Fed’s continuous interest rate hike and balance sheet reduction, high interest rates have greatly affected the valuation of risk markets, and the balance sheet reduction has greatly extracted liquidity in the crypto market, resulting in the continuous decline in the yield rate of DeFi market. At that time, the US was as high as 5%The risk-free yield of debt has become a hot commodity in the crypto market.The most popular ones are similar to MakerDAO’s large-scale purchase of US bonds as reserve assets. In addition to increasing asset diversity, stabilizing exchange rates, and reducing single-point risks, the most important of which is to meet the unilateral demand of Crypto’s world for the real-world financial asset return rate.

Source: Dune / @steakhouse

1. A large number of stablecoins circulating on the market. In a high interest rate environment, holders cannot get any profit at all, but are actually paying opportunity costs.Centralized stablecoins will privatize profits and socialize losses.More types of RWA assets are needed to effectively utilize these stablecoins, generate returns to users, and bring more liquidity to the DeFi market.

2. For large well-known asset managers such as Franklin Templeton and WisdomTree, tokenization represents opening up new distribution channels to reach new customer bases who prefer to store assets digitally on the blockchain rather thanStored in a traditional brokerage or bank account.To them, tokenized treasury bills are their “beacht market”.

3. The traditional financial field is increasingly paying attention to the combination with DeFi technology, reducing costs and increasing efficiency through asset tokenization, and solving inherent problems in traditional finance.Mapping real-world assets (such as stocks, financial derivatives, currency, equity, etc.) onto the blockchain not only expands the application scope of distributed ledger technology, but also makes the exchange and settlement of assets more efficient.In addition to exploring new distribution channels, we will focus more on the significant efficiency improvement and innovation brought by technology to the traditional financial system.

2. Market size:

• The RWA’s on-chain assets are about 12 billion yuan, plus the overall market value of stablecoins exceeds US$180 billion.Through blockchain technology, digitizing traditional financial assets can not only improve transparency and efficiency, but also attract more users to enter this emerging market.According to reports from co, Citi and the IMF, the total value of tokenized assets in the 2030s is expected to have an opportunity to grow to $6.8 trillion in the underlying market situation.

Source: 21.co, Citigroup, IMF

• Private credit and U.S. Treasury bonds are the main assets of tokenization—the two markets grew from millions of dollars to a borrowing market with a total loan value of $8.8 billion (63% annual growth) and a Treasury bond market with a total loan value of $2 billion, respectively (2100% annual growth).Tokenized Treasury remains an emerging field with great potential – Franklin Templeton, BlackRock and Wisdomtree are early leaders in this field.

Source: rwa.xyz

• The Fed’s policies have a direct and significant impact on the expansion and pattern of the RWA DeFi sector:

• In the third quarter of 2022, private credit-backed RWA accounted for 56% of RWA’s total TVL, while U.S. Treasury-backed RWA shares were 0%.
  In the third quarter of 2023, private credit-backed RWA’s share of RWA TVL fell to 18%, while U.S. Treasury-backed RWA’s share rose to 27%.
  Until the end of this article at the end of August 2024, private credit-backed RWA accounted for 76% of the total TVL, and the share of US Treasury-backed RWA stabilized to 17%.

Source: rwa.xyz

1) Marketing promoters:

RWA is growing rapidly.From 2024 to date, the on-chain value of the non-stable currency RWA has increased by $4.11 billion, mostly from Treasury bonds, private credit and real estate tokens.The current overall growth and ecological improvement are mainly attributed to the following three aspects:

1. Institutional interests and new products, e.g.

1. Institutions such as BlackRock and Superstate have launched new on-chain Treasury bond products and T-bills funds.

2. Ondo launches USDY, Centrifuge’s cooperation with Maker and BlockTower, etc.

2. Complete infrastructure, e.g.

1. M^0 Labs develops institutional-level stablecoin middleware, which can be used as a building block for other products.

2. Ondo Global Markets creates a two-way system to enable seamless transfer between on-chain tokens and off-chain accounts.

3. The combination of DeFi, for example

1. Morpho allows the creation of unmanaged vaults that pass RWA proceeds to DeFi users; in conjunction with Centrifuge to support mortgage lending.

2. TrueFi launches Trinity, allowing users to deposit tokenized US bonds as collateral to mint assets that can be used in DeFi that are pegged to the US dollar.

3. DAO’s holdings diversification (Maker)

In view of the latest statement from Fed Chairman Powell, the Fed has sent a dovish signal for the first time since the rate hike cycle began, indicating that its focus is shifting from controlling inflation to supporting economic growth and employment.The trend of interest rate cut cycle has gradually formed and is expected to stimulate the return of leveraged funds.Currently, CME Fed observation tool shows that the possibility of a 25 basis point cut in September is the most likely.However, CPI and non-farm data in August will be released soon, and if the data exceeds expectations, the probability of a 50 basis point cut in September will rise.

With the continued high interest rate policy, T-bill will remain the first choice for idle funds, and the trend of continuous interest rate cuts will have a profound impact on the market.On the one hand, a low interest rate environment may stimulate investors to seek higher returns opportunities and drive capital into the high-yield DeFi sector.On the other hand, the decline in returns on traditional assets may prompt more RWA tokenization to seek higher returns on the DeFi platform.At that time, the market competition pattern may change, and more capital will flow into high-yield RWA application scenarios combined with DeFi technology, further promoting the development of the entire chain economy.

Source: CME FedWatch

2) Main user portraits:

According to Galaxy Digital’s full-year 2023 statistics, most RWA’s on-chain demand is driven primarily by a small number of native cryptocurrency users, rather than newly entered cryptocurrency adopters or shifting to traditional financial users on-chain.Most of these addresses interacting with RWA tokens are active on the chain before these assets are created.The following data is only analyzed for addresses holding tokenized treasury bonds and mainstream private credit assets:

• Unique Address: As of August 31, 2023, a total of 3,232 UAs held RWA assets.On August 26, 2024, there were a total of 61,879 holding addresses, an increase of 1,815%.

• The average age of the address: 882 days (approximately 2.42 years), indicating that these users have been active since around April 2021.

• RWA Average Age: 375 days, indicating that these assets are relatively new to addresses.

• The oldest address for interacting with RWA dates back to March 22, 2016, and has been 2,718 days.

• The distribution shows that the wallet address is around 700-750 days in a concentrated age.

Number of addresses divided by age group:

• <1 year: 17% (545 addresses)

• 1 to 2 years: 27% (885 addresses)

• 2 to 3 years: 36% (1,148 addresses)

• More than 3 years: 20% (654 addresses)

According to the Transak report statistics, the total number of RWA token holders on the Ethereum chain alone exceeded 97,000 in mid-2024, with a total of more than 205,000 unique addresses.The tokens added about 38,000 holders last year.

The overall DEX trading volume of RWA tokens has also seen a significant increase since the beginning of 2024.DEX trading volume in December 2023 was approximately $2.3 billion, and soared to over $3.6 billion by April 2024.

So far from 2024, with the significant increase in adoption of RWA by traditional financial institutions, we can foresee that more and more traditional financial users will gradually enter the crypto field, bringing new growth momentum and incremental funds.

2. Detailed explanation of six core assets

The tokenized RWA market is divided into 6 major categories according to asset categories, and the ranking order is: stablecoins, private credit, government bonds (US bonds), commodities, real estate, stocks and securities:

Source: OKX Ventures, rwa.xyz, Statista, 21.co

The total market value of on-chain real-world assets (RWA) is US$18.312 billion, while the total market value of off-chain traditional assets is US$685.5 trillion.Assuming the total market value of off-chain traditional assets increases by 1 basis point per day (1bps, 0.01%), this will result in an increase of approximately US$6.85 billion, close to 37% of the on-chain assets’ market value.From this perspective, even a slight growth in off-chain assets can have a huge driving effect on on-chain assets.

1. Stable Coin

Stablecoins show clear product market matching (PMF) in the market and create significant monetization opportunities.Take the first quarter of this year as an example. Although Tether manages only a small part of Blackrock’s assets ($70 billion vs. $8.5 trillion), its profits exceed Blackrock’s ($1.48 billion vs. $1.16 billion).

Market situation:

The current market value of stablecoins is about US$170 billion, with monthly transaction volume as high as 1.69 trillion, exceeding 17 million monthly active addresses, and the total number of holders exceeds 117 million.

• Centralized stablecoins still dominate: USDT accounts for nearly 70% of the market share, about US$114.57 billion; USDC accounts for 20%, with a market value of approximately US$33.44 billion;

• The market share of decentralized stablecoins remains stable: DAI accounts for 3%, with a market value of about US$5.19 billion; Ethena accounts for 2%, with a market value of about US$3.31 billion;

• There are about 300 million stablecoins stored in centralized exchanges, accounting for 13.2% of the total supply; the remaining circulating is about 48.38% on Ethereum, 35.95% on Ethereum, and about 1%-3% on BSC, respectively.Arbitrum, Solana, Base, Avalanche, Polygon chain.

Source: CryptoQuant, Artemis

Main market issues:

• Imbalance of value distribution: Centralized stablecoins tend to privatize profits, but socialize potential losses, resulting in uneven distribution of benefits.

• Missing transparency: Centralized stablecoins like Tether and Circle have serious problems with transparency, and users are forced to take unnecessary risks.For example, during the SVB bankruptcy, the market was unable to know whether Circle or Tether had any financial exposure to SVB, nor did it know which banks their reserves were placed in.Similarly, Tether has been using some of the reserves for lending and investment activities.According to an audit report issued by TBO, about 5% of the reserves have been loaned out, about 4% invested in precious metals, and about 2.5% are classified as other investments.This operating model of Tether makes it susceptible to bank runs, and liquidity tightening could become a potential black swan event.

• The scalability of decentralized stablecoins is limited: Decentralized stablecoins face expansion difficulties because they usually require over-collateralization of large amounts of assets.As the demand for stablecoin market grows, relying solely on a single crypto asset as collateral may not meet the demand.In addition, poorly designed algorithmic stablecoins have failed several times, exposing the risks of under-collateralization and instability of mechanisms.

Popular contestants

• Ethena: Provides relatively high APY, up to 12.2%, and the current sUSDe TVL is about 1.7 billion; its market value has increased by 978% since its launch at the beginning of the year.The Delta Hedge strategy adopted by Ethena is particularly attractive in a bull market environment.In cases where long positions dominate, the capital rate is usually favorable for short holders.This strategy allows Ethena to attract traders who want to hedge market volatility and profit from positive capital rates during a bull market while staying stable.

• Maker (now Sky): APY 7.7%, sDAI TVL is about 1.3 billion; DAI deposited in DSR is more than 2 billion, which is 38% of all DAIs circulating on the market. Since last August, founder Rune announced that it will provide up to 8%Since the yield rate, deposits have increased by 197%, and the market value has stabilized at over $5 billion.The collateral TVL is US$7.74 billion, with a collateral rate of 147%.Maker integrates U.S. Treasury bonds into its portfolio, diversifying its revenue streams and enhancing revenue stability.Integrate pledged stETH and use it as collateral to mint DAI.The 15% reduction penalty for pledges was also lifted, promoting stability and aligning the interests of holders with the sustainability of the ecosystem.

Source: Dune / @stablescarab

A list of mainstream stablecoins

Source: OKX Ventures

Future Outlook:

• The reason DAI is able to flourish is largely dependent on the huge subsidies paid by Curve holders to 3pool, providing a strong moat.As Maker transforms into a more centralized Sky ecosystem, this strategy, while pragmatic, has caused widespread controversy in the community.Many people are worried that the USDS shift will cause Maker to lose its original decentralized advantage and eventually be consumed by more reliable alternatives.It remains to be seen whether it can realize its vision of combining US debt and subDAO models to quickly increase the scale of the Sky ecosystem in the future.

• Correspondingly, Liquity chose a completely opposite path.Its v2 $BOLD, a fully Ethereum-native stablecoin supported only by ETH (and LST), will attract a lot of collateral by current mechanisms.Will CDP sticking to maximum decentralization and resilience make it a niche niche product?We look forward to users making a vote with their real money.

• The increasing popularity of low-volatility assets in the stablecoin field.After the previous cycle of education, everyone has become more conservative and rigorous in the underlying risk control of crypto financial assets, especially in the selection of collateral and risk control measures behind the currency issuance. The previous cycle has obtained high volatility and endogenous assets.Most high-risk algorithmic stablecoin projects represented by LUNA have disappeared.

• Because of the clear and simple business line, the regulatory costs are more controllable and consistent.Large financial companies are beginning to target relatively profitable and easy-to-enter stablecoin businesses.Paypal’s PYUSD has reached 1 billion issuance, and its market value has increased by 155% since its announcement on May 29, and PYUSD’s on-chain supply has also increased by nearly 4685%.Similarly, JD.com plans to launch a stablecoin pegged to the Hong Kong dollar is also trying to get a share of the pie here and seek new growth points for digital finance.

• Circles are still awaiting more legislative guidance, especially in terms of reserve reporting and liquidity requirements.Circle has always emphasized transparency and has turned from Grant Thornton to Deloitte for audits to strengthen confidence in its reserves.Tether’s transparency issue has long been controversial.While Tether claims that all of its USDTs are backed by equivalent fiat currencies reserves, there has been a lack of transparency regarding specific details and independent audits regarding its reserves.In 2024, U.S. regulators are pushing for more transparency and compliance requirements, and Tether is expected to be bound by these requirements as well.

1. Private Credit:

Through credit agreement tokenization, financial institutions provide loans to businesses through debt instruments.

In traditional finance, private credit is a huge market worth $1.5 trillion.The crypto credit protocol has tokenized more than $13 billion in loans, and currently more than $8 billion is lending to real-world businesses, creating returns for on-chain lenders.For on-chain traders, private credit is attractive due to its higher yield potential.For example, lending stablecoins through protocols such as Centrifuge can obtain an average annualized rate of return of 8.7%, which exceeds the usual 4-5% annualized rate of return on platforms such as AAVE, and of course the risk also increases.

Source: rwa.xyz

Consumer-class loans account for $218.4M in the entire loan portfolio, showing strong demand in overall loans.Automotive industry loans followed closely with a sum of $206.7M.The loan amount in the fintech industry is $87.6M, although it accounts for a relatively small proportion, but it shows rapid growth and reflects the impact of technological innovation on the financial market.Real estate – including residential and commercial real estate financing ($50.7M) and carbon project financing ($37.3M) account for a smaller proportion, but also play an important role in their specific areas.

The advantages of on-chain credit issuance and distribution are most clearly reflected in significantly reduced capital costs, with more operational efficiency institutional DeFi infrastructure capable of significantly saving capital costs and providing new distribution channels for existing and new private credit products..Driven by the tightening of banking business, an important niche market is being opened up in the traditional financial sector.This shift to non-bank lending provides good opportunities for private credit funds and other non-bank lending institutions, attracting interest in seeking smoother and higher returns on pension plans and endowments.

Private credit, as part of alternative assets, has grown significantly over the past decade and although it currently accounts for a relatively small proportion of the global debt market, it has huge room for growth as an expanding market.

Requirement side logic

1. Financing Requirements:

1. Enterprises: In the real world, many businesses (especially SMEs) need low-cost financing to support operations, expansion or short-term capital turnover.

2. Financing Difficulties: The loan procedures of traditional financial institutions are complex and time-consuming, making it difficult for companies to quickly obtain the funds they need.

2. Credit Agreement Tokenization:

1. Tokenization: By tokenizing credit protocols, financial institutions can convert debt instruments into tokens that can be traded on-chain.These tokens represent debt instruments such as loans or accounts receivable for the business.

2. Process Simplification: Tokenization simplifies the financing process, allowing businesses to obtain funds faster and more efficiently.

Lending Party Logic

1. Related Opportunities:

1. High Yield: Investing in private credit can often yield higher returns than traditional debt instruments because businesses are willing to pay higher interest rates in exchange for fast financing.

2. Diversified portfolio: Private credit provides users with diversified opportunities to diversify risks.

2. Risks and Challenges:

1. Difficulty in understanding: It may be difficult for users to understand the operating mechanism of private credit, especially the parts involving off-chain assets.

2. Default risk: Users are worried that the borrower may run away, resulting in a loan default.Especially if off-chain asset audits are opaque, borrowers may use a receivable voucher to borrow money on multiple platforms, increasing the risk of default.

Source: OKX Ventures

Representative items:

1. Maple Finance: Provides on-chain private credit, providing fast financing for enterprises through tokenized credit agreements, and providing lenders with high-yield investment opportunities. A similar model also includes TrueFi (like Maple also provides US Treasury products)and Goldfinch.

2. Centrifuge: matching platform; tokenize accounts receivable and other debt instruments, match lenders and borrowers through the on-chain market, simplify financing processes, reduce financing costs, and meet the credit needs of small and medium-sized enterprises.

Use cases of on-chain supply chain finance:

• Automatic payment of smart contracts: After the predefined conditions are met, the smart contract can automatically make payments to the supplier.Set a clear default handling mechanism to automatically trigger smart contracts to protect user interests.

• Invoice Tokenization: Invoices can be tokenized to facilitate their transactions and provide liquidity to suppliers.

• Transparent Audit: Blockchain provides an immutable ledger that simplifies auditing and due diligence.However, it is still necessary to conduct strict audits of off-chain assets through independent third-party audit institutions to ensure the authenticity and uniqueness of assets and reduce the risks of multi-platform borrowing.

• Risk Assessment: Introduce an on-chain credit scoring system to conduct risk assessments for borrowing companies and help users make smarter decisions.

Problems solved on the chain:

• Slow and opaque transactions: Blockchain improves transparency in supply chain finance and speeds up transactions, benefiting all participants.

• High transaction costs: Smart contracts can automate many processes in supply chain finance, reducing paperwork and middlemen, thus reducing costs.

• Credit Channels: DeFi can provide more democratic financing channels for SMEs (SMEs) that have traditionally weaker bargaining power.

1. Treasury bond products:

Tokenized government debt instruments.Referring to the concept of ETF, this type of asset can be compared to BTF (Blockchain Transfer Fund).The RWA U.S. bond product tokens on the chain represent the right to earnings generated by holding and distributing these debts, rather than ownership of the Treasury bonds themselves, which involves more deposits and withdrawals and compliance issues.

In a high interest rate environment, some cryptocurrency players have begun to focus on traditional financial assets to achieve diversification of allocation.As interest rates rise, demanders seek safe and stable returns, products like Treasury bonds naturally become their choice.

The wave of adoption of tokenized Treasury bonds is driven by two factors: a decrease in DeFi earnings opportunities (because of lower demand for on-chain leverage); and a shift in demand from traders for short-term monetary instruments that benefit from U.S. tightening monetary policy.This trend is also reflected in the flow of large amounts of off-chain bank deposits into money market funds, driven by low bank deposit rates and long-term unrealized asset loss exposure.The emergence of institutional DeFi infrastructure is expected to further drive the growing global demand for secure, revenue-generating and liquid real-world assets.

The shape of the current yield curve indicates that short-term interest rates are higher and long-term interest rates are lower.Most products choose to hold treasury bills for 1-month to 6 months, and some even hold overnight reverse repurchase and buyback securities in search of higher returns.

Why the U.S. Pageant:

1. Yield: Short-term US Treasury bonds > AAA Corporate Bonds > DeFi stablecoin deposits (Treasury bonds are highly attractive)

Source: Galaxy Research

1. The previous sharp shift in the Federal Reserve’s monetary policy has pushed benchmark interest rates to its highest level since 2007 (5.33).Bringing new demand for certain types of RWA for native-DeFi users seeking higher returns on crypto assets

Source: fred.stlouisfed.org

1. U.S. Treasury bonds are government-backed debt securities (which are widely considered to be relatively safe and reliable type of income assets with only the risk of the U.S. government default).Corporate bonds, by contrast, are debt securities issued by companies that may provide higher yields compared to Treasury bonds, but also have higher risks.The global bond market size increased to about US$7 trillion, a year-on-year increase of 5.9%, indicating that the global fixed income market is still growing significantly.In the first two quarters of 2024 alone, U.S. companies issued $1.06 trillion in corporate bonds (more than 1.02 trillion in the total of the first three quarters of 2023).

Source: SIFMA Research

Rising interest rates have stimulated the launch of projects tokenized U.S. Treasury bonds, such as:

• Franklin Templeton: In 2021, the Franklin On-Chain U.S. Government Money Fund (FOBXX), the first public chain fund registered in the United States.The fund has a yield of 5.11%, with a market value of up to US$400 million, ranking among the largest on-chain US bond products.

• BlackRock (Securitize): Launched BlackRock USD Institutional Digital Liquidity Fund ($BUIDL) on Ethereum in March 2024.Currently, it leads the market with an asset management scale of over $500 million.

• Ondo: Launched the Ondo Short-term U.S. Government Treasury (OUSG), which provides channels to buy short-term U.S. Treasury bonds, yields 68% and has a market value of approximately $240 million.A large portion of OUSG invests in BlackRock’s BUIDL.Ondo also offers USDY earnings stablecoins with a market capitalization of over $300 million.

Interest rates have risen and U.S. Treasury yields have become more attractive, and this category has seen a significant increase.Other projects include Superstate, Maple, Backed, OpenEden, etc.

Market value and market share:

Source: rwa.xyz

According to market value, the top 5 agreements are Securitize, Ondo, Franklin Templeton, Hashnote and OpenEden; while the highest single product issuance is:

• $BUIDL (BlackRock Fund issued through Securitize), $510 Million, a quarterly increase of 74%;

• $FOBXX (Franklin Templeton), $428 Million, quarterly increase of 12%;

• $USDY (Ondo), $332 Million, quarterly increase of 155%;

• $USYC (Hashnote), $221 Million, quarterly growth of 156%;

• $OUSG (Ondo), $206 Million, quarterly growth of 60%;

• $TBILL (OpenEden), $101 Million, quarterly growth of 132%.

Asset Classification:

Actively Managed

• Definition: US bond products are actively managed by the company’s designated portfolio manager, who is responsible for managing the investment portfolio of underlying assets.

• Features: Optimize returns and manage risks through active investment strategies, and the management method is closer to traditional active management of funds.

Reledgered on the chain

• Definition: U.S. bond products are designed to simply represent or mirror certain financial instruments, such as publicly listed ETFs, which themselves are not on the chain.

• Features: It is usually passively managed, with the purpose of re-registering existing financial instruments through blockchain technology to enable them to be traded and managed on the chain.

Source: rwa.xyz

Ondo Finance, Backed and Swarm are all mapping BlackRock/iShares short-term Treasury ETFs.Ondo is purchased from the U.S. issuer on Nasdaq (CUSIP: 464288679), while Backed and Swarm are purchased from the Irish issuer/UCITS (ISIN: IE00BGSF1X88).To put it simply, Ondo does not actively manage the Treasury Investment Portfolio.Instead, it “outsources” management to SHV, which in turn is managed by BlackRock/iShares.Companies like Ondo will act as BlackRock distributors because the DeFi protocol will not directly interact with asset managers.This is easier for BlackRock, which does not have to manage compliance for thousands of projects that want to reach its funds.

Source: OKX Ventures, rwa.xyz

For products under each agreement, institutions and qualified investors can make corresponding decisions based on three most important criteria: 1) principal protection; 2) profit maximization; 3) convenience.

Principal Protection:

• Some large institutional products operate in regulated jurisdictions, ensuring minimum legal and compliance risks; they rely on regulated fund managers and custodial service providers, providing greater transparency and investor protection.Some other products rely more on investment managers to perform their management responsibilities, and investors need to carefully evaluate the legal environment and regulatory status of the jurisdiction in which these products are located.

Yield Maximization:

• Actively managing products relies on fund managers’ investment strategies and execution capabilities to optimize investment portfolios and maximize returns.These products are mainly concentrated in short-term Treasury bonds and repurchase agreements, which are in line with the current yield curve pattern.Re-registered products are more outsourced to ETF managers. Investors can directly view the historical performance of these managers and choose products that match their earnings goals and risk preferences.

Convenience:

• Some large institutional products provide access through official mobile apps, enhancing the user experience, simplifying the investment process, and being suitable for self-managed retail investors.Some other products have relatively complex processes, involving multiple steps of manual operations, and require high learning costs.

In the future, proactively managed products may weaken the competitive advantage of re-registered products on the chain by compressing their pricing.In addition, users should also consider whether these U.S. Treasury tokens are merely used as certificates of their investment holdings, or whether they can also be used as payment tokens or collateral to expand usage scenarios and increase revenue sources.

1. Commodity

Natural resources tokenization represents the rights and interests of actual commodities.The current total market value of the commodity token market is close to $1 billion, with precious metals (especially gold) receiving the most attention.Gold-backed stablecoins such as PAX Gold (PAXG) and Tether Gold (XAUT) account for nearly 98% of the market capitalization of the tokenized commodity market.With gold prices exceeding $2,500 per ounce, the total market value of global gold has exceeded $13 trillion, which also provides a huge market space for tokenization of gold and integration in the DeFi platform.

Source: rwa.xyz

Other metals that occupy market share include silver and platinum.As the RWA tokenization field matures, we may see tokens for other commodities such as crude oil and even crops.Farmers in Uganda, for example, can use the same financial tools as New York traders to operate their coffee crops, thereby expanding market access.Global trade has the opportunity to turn more to blockchain.

1. real estate

Tokenize physical assets such as residential, land, commercial buildings and infrastructure projects.Tokenization makes real estate tradable on-chain introduced a novel investment model that improves accessibility, achieves partial ownership and potentially increases liquidity.Nevertheless, the inherent lack of liquidity in real estate limits the pace of adoption on its chain.The long-term nature of real estate transactions and small buyer size make it challenging to connect sellers to buyers on-chain, especially given that the industry has traditionally operated on traditional systems.

Difficult challenges:

1. Market demand:

1. Real estate market situation: The success of tokenized real estate projects depends largely on the health of the real estate market.In some areas with a sluggish real estate market (such as some parts of Japan and Detroit), the lack of speculative value and investor interest has made it difficult for tokenized projects to attract enough buyers and investors.

2. Long-term rental income distribution:

1. Continuous Management: Tokenized real estate involves the distribution of long-term rental income, which requires ongoing property management and maintenance.This increases the complexity and cost of operations and requires the support of a professional team to ensure the stability of rental income and the preservation of the property.

2. Operation friction: The difficulty of deposit and withdrawal of the fiat currency and redistribution of rent, verification and information of whether the rent is actually paid is transparent.

3. Insufficient liquidity:

1. Transaction Challenge: Although tokenization increases accessibility and partial ownership of real estate investments, the inherent lack of liquidity in real estate limits its on-chain adoption.The long-term nature of real estate transactions and the small size of buyers make it challenging to connect sellers to buyers on-chain.

2. Traditional Operations: The industry has traditionally operated on traditional systems, and switching to a blockchain platform takes time and adaptation, especially for market participants who are accustomed to traditional trading models.

Platforms such as RealT and Parcl are committed to injecting liquidity into the market by simplifying property division, allowing sellers to easily split assets and acquire tokenized shares.In addition, the Parcl platform also allows users to speculate on the real estate value of different locations (such as different American cities) through its on-chain transaction mechanism, further broadening investment channels in the real estate market.

1. Stock Securities:

Security Token Offering essentially uses blockchain technology to tokenize some assets or equity that traditional companies are difficult to IPO, allowing users to invest in corporate securities by purchasing these tokens.However, the STO track has existed for quite some time. At present, many listed companies in STO projects are traditional companies, and often lack novelty and high growth potential, so they are not attractive to investors.In addition, STOs usually only allow KYC-verified users to participate in transactions, with high investment thresholds and high transaction complexity, and face compliance and regulatory obstacles, and it is very difficult to comply with cross-jurisdictional laws.

In contrast, direct crypto tokens transactions are more flexible and active, and often provide more profitable opportunities.Therefore, it is much more attractive to many users than STO.

Operation mode, Source: Tiger research

Some projects such as Swarm and Backed have also broken regulatory restrictions, allowing global stocks and funds to be traded on-chain, such as COIN and NVDA in the U.S. market, as well as index funds such as the Core S&P 500.By tokenizing equity and fund earnings rights, Solv Protocol can also create FNFTs representing stocks and funds, allowing these assets to be traded on the DeFi market; and also provide compliance tools for these assets, through smart contracts and on-chainIdentity verification (such as KYC/AML) to ensure that all transactions comply with regulatory requirements.

Difficult challenges:

However, if it is just tokenized, the business model of existing securities is not sufficiently competitive and attractive in the long run, especially after global financial giants intervene in the market.Because when faced with competition from large asset management companies, the initial profit model of charging service fees is difficult to maintain, the market will enter a price war and the profit margin will be compressed.

Assume that tokenizing existing securities (such as Tesla stock) can make a profit by charging users a service fee (assuming 5 basis points).These fees are charged by the provider of tokenized services to process and manage these tokens.However, if such services become very popular and gain a large number of users, large global asset management companies (such as Blackstone, etc.) may enter this market.These large companies have stronger capital and resources to provide the same services for lower fees.As more companies enter the market, the expenses of providing tokenized services will gradually decrease, which may eventually trigger a price war, where competitors continue to reduce fees to attract more customers.This will make the initial profitable model by charging service fees unsustainable, as higher fees will be replaced by lower fees, ultimately resulting in meager profits or even disappearance.

3. Future prospects

The convergence of DeFi and RWA: The combination of DeFi protocols and tokenized assets is one of the main trends in the future.By integrating DeFi protocols with tokenized assets, such as allowing US bond tokens to be collateralized and borrowed, more financial products will achieve composability and redemption-free instant liquidity, which will stimulate the flywheel effect in the DeFi field.In particular, the combination of licensed products that leverage licensed products will bring a wider range of application scenarios and drive TVL’s growth.This innovation will not only attract institutional customers, but also a wider range of crypto users, especially in the payment and financial services sectors, where tokenized assets are expected to replace part of the role of centralized stablecoins.

Emerging Services and Professional Requirements: With the advancement of asset tokenization, new service providers will emerge to meet the needs of professional skills and knowledge.For example, smart contract legal experts, digital asset custodians, on-chain financial managers, and blockchain financial reporting and monitoring providers will become key roles to promote the further maturity of the market.At the same time, the improvement of institutional compliance and regulatory framework will bring higher market access and trust to these service providers.It is controversial that anonymity may become an increasingly scarce asset in the future, as institutional participation and regulatory transparency requirements will continue to increase.

Cross-border transactions and global markets: The cross-border transaction capabilities of blockchain technology will further promote tokenized assets to enter the international market and simplify the traditional international asset transaction process.This is especially important for emerging markets, allowing them to attract global capital and drive economic growth.In the future, RWA projects that can help achieve seamless interoperability among different blockchain platforms, especially those that provide a wider range of asset selection and optimize liquidity, will have a clear competitive advantage.

Technological progress and process optimization The success of RWA tokenization depends largely on efficient and secure technologies.With the advancement of blockchain technology, especially in scalability, security and standardized protocols, RWA tokenization will become more efficient.The development of the new protocol will simplify the tokenization process, enhance interoperability between platforms, and provide users with a more friendly experience.These technological advancements will continue to drive the growth of RWA adoption in all walks of life, ultimately reshaping the global financial industry landscape.