OKX Ventures: A Deep Dive into the Six Key Asset Markets Shaping Real-World Assets

Author: Esme Zheng, OKX Ventures

In the current market environment, Real-World Assets (RWA) are rapidly emerging as a dominant force. In July of this year, CoinGecko noted in its Q2 2024 Crypto Industry Report that meme coins, artificial intelligence, and RWA were the most popular categories, accounting for 77.5% of network traffic.

Traditional financial giants like Citibank, BlackRock, Fidelity, and JPMorgan have also entered the space. According to Dune Analytics, the RWA narrative has grown by 117% this year, ranking second only to meme. This article provides a comprehensive review of the current state of the RWA sector and its future opportunities.

TL;DR

1. RWA is one of the fastest-growing sectors in DeFi. Throughout 2023, Total Value Locked (TVL) in RWA doubled, and the onchain asset value has already increased by 50% since the beginning of 2024, reaching $12 billion (excluding stablecoins). The fastest-growing and largest segments are private credit markets (accounting for 76%) and U.S. Treasury products (accounting for 17%). The remaining significant portions include gold-backed stablecoins and real estate tokens.

2. Nearly 15 mainstream issuers offer over 32 tokenized U.S. Treasury products with total assets exceeding $2 billion, representing a 1627% increase since the beginning of the year. The combined active loan amount of six major onchain credit protocols — Figure, Centrifuge, Maple, Goldfinch, TrueFi, and Credix — reached $8.88 billion, a 43% YTD increase.

3. Following the successful adoption of stablecoins onchain and the attractive net interest margin achieved by centralized issuers offchain, the next phase of RWA evolution will be driven by the issuance of tokenized U.S. Treasuries. During this phase, token holders gain the largest share of the net interest margin by directly investing in short-term, highly liquid real-world assets backed by the U.S. government.

4. The onchain private credit lending market faced significant challenges following the collapse of bad debts in centralized finance. However, it's now experiencing a revival driven by the RWA narrative. Although onchain credit currently accounts for less than 0.5% of the traditional $1.5 trillion private credit market, the sharp upward trend suggests immense potential for further expansion in the onchain credit sector.

5. The tokenization of real-world assets in traditional financial applications involves a wide range of asset issuance, trading, and other operations. For financial institutions that control core assets, compliance and security are the primary concerns. RWAs need to exist within a framework of 'trusted finance' or 'verifiable finance' and must be 'regulated cryptocurrencies.' Particularly in the context of stablecoins, they still require significant involvement from offchain intermediaries for auditing, compliance, and asset management, all of which require a foundation of trust.

I. Current Status of the RWA Sector

Market Supply and Demand

1. The core logic of RWA is to map the yields of financial assets from the real world — such as U.S. Treasuries, fixed-income securities, and equity assets like stocks — onto the blockchain, thereby obtaining onchain liquidity by collateralizing offchain assets. For physical assets like gold and real estate, RWA introduces these assets onto the blockchain, leveraging blockchain technology to enhance transaction convenience and transparency.

2. Amid the Federal Reserve's ongoing interest rate hikes and balance sheet reductions, high yields significantly impacted risk market valuations, while liquidity was sharply drained from the crypto market, leading to a continuous decline in DeFi yields. During this period, the U.S. Treasury’s risk-free yield, which reached up to 5%, became highly attractive to the crypto market. One of the most notable examples is MakerDAO’s large-scale purchase of U.S. Treasuries as reserve assets. This not only diversified its asset base, stabilized exchange rates, and reduced single-point risk but, most importantly, addressed the crypto market’s strong demand for real-world financial asset yields.

Source: Dune

3. A large amount of stablecoins is circulating in the market, but in a high-interest-rate environment, holders aren't earning any returns, effectively incurring opportunity costs. Centralized stablecoins privatize gains and socialize losses. There's a need for more types of RWA assets to effectively use these stablecoins, generate returns for users, and bring more liquidity to the DeFi market.

4. For large, well-known asset management companies like Franklin Templeton and WisdomTree, tokenization represents a new distribution channel to reach new customer segments. These customers prefer to store assets in digital form on the blockchain rather than in traditional brokerage or bank accounts. For them, tokenized Treasuries serve as their 'beachhead market.'

5. The traditional financial sector is increasingly focusing on integrating with DeFi technology, using asset tokenization to reduce costs, improve efficiency, and address inherent problems in traditional finance. Mapping RWAs onto the blockchain not only expands the application scope of distributed ledger technology but also makes asset exchange and settlement more efficient. Beyond exploring new distribution channels, the focus is on the significant efficiency improvements and innovations that technology brings to the traditional financial system.

Market Size

The onchain asset size of RWA is approximately $12 billion, and the total market value of stablecoins exceeds $180 billion. By digitizing traditional financial assets through blockchain technology, transparency and efficiency aren’t only improved, but more users are also attracted to this emerging market. According to reports from 21.co, Citibank, and the IMF, the total value of tokenized assets is expected to grow to $6.8 trillion in a base market scenario by 2030.

Private credit and U.S. Treasuries are the main tokenized assets — these two markets have grown from a few million dollars to a lending market with a total loan value of $8.8 billion (63% annual growth) and a Treasury market of over $2 billion (representing 2100% in annual growth). Tokenized Treasuries remain an emerging field with immense potential, and early leaders in this field include Franklin Templeton, BlackRock, and WisdomTree.

The Federal Reserve's policies have had a direct and significant impact on the expansion and landscape of the RWA DeFi sector:

• In Q3 2022, RWAs backed by private credit accounted for 56% of the total RWA TVL, while those backed by U.S. Treasuries accounted for 0%.

• In Q3 2023, the share of RWAs backed by private credit in total RWA TVL decreased to 18%, while those backed by U.S. Treasuries increased to 27%.

• At the end of August 2024, before the publication of this article, RWAs backed by private credit accounted for 76% of total TVL, while those backed by U.S. Treasuries stabilized at 17%.

Market Drivers

Yield-generating (interest-bearing, fixed-income) RWAs have grown rapidly. Since the beginning of 2024, the onchain value of non-stablecoin RWAs has increased by $4.11 billion, mostly from Treasuries, private credit, and real estate tokens. The current overall growth and ecosystem improvement can be attributed mainly to the following three factors:

1. Institutional Interest and New Products, such as:

2. Institutions like BlackRock and Superstate launching new onchain Treasury products and T-bill funds.

3. Ondo launching USDY, Centrifuge's collaboration with Maker and BlockTower, among others.

2. Infrastructure Improvement, such as:

• M^0 Labs developing institutional-grade stablecoin middleware, which can be used as building blocks for other products.

• Ondo Global Markets creating a two-way system for seamless transfers between onchain tokens and offchain accounts.

3. Integration with DeFi, such as:

• Morpho allowing the creation of non-custodial vaults to pass RWA yields on to DeFi users, plus integration with Centrifuge to support collateralized lending.

• TrueFi launching Trinity, enabling users to deposit tokenized Treasuries as collateral to mint dollar-pegged assets usable in DeFi.

• Diversification of assets held by DAOs (Maker).

Given the latest statements from Federal Reserve Chair Jerome Powell, indicating the first dovish signal since the start of the rate hike cycle, it's clear the focus is shifting from controlling inflation to supporting economic growth and employment. The trend toward a rate-cutting cycle is gradually taking shape, which is expected to stimulate the return of leveraged funds. The Federal Reserve announced a third consecutive rate cut during December 2024T-bills will remain the preferred choice for idle funds under a sustained high-interest-rate policy, while the continuous rate-cutting trend will have a profound impact on the market. On one hand, a low-interest-rate environment may encourage investors to seek higher-yield opportunities, driving funds into high-yield DeFi sectors. On the other hand, the decline in traditional asset yields may prompt more RWAs to undergo tokenization to seek higher returns on DeFi platforms. At that point, the market competitive landscape may shift, with more capital flowing into high-yield RWA applications integrated with DeFi technology, further driving the development of the onchain economy.

User Profiles

According to Galaxy Digital's full-year 2023 statistics, most of the onchain demand for RWAs is primarily driven by a small number of native cryptocurrency users, rather than new crypto adopters or traditional financial users transitioning to onchain. These addresses interacting with RWA tokens were mostly active onchain before these assets were created. The following data is based solely on addresses holding tokenized Treasuries and mainstream private credit assets:

• Unique Addresses: As of August 31, 2023, there were 3,232 unique addresses holding RWA assets. By August 26, 2024, there were a total of 61,879 holding addresses, a growth of 1,815%.

• Average Address Age: 882 days (approximately 2.42 years), indicating that these users have been active since around April 2021.

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

• Oldest Address Interacting with RWAs: Traced back to March 22, 2016, with a lifespan of 2,718 days.

• Distribution: Wallet addresses are concentrated around 700-750 days old.

Number of addresses by age group:

• Less than 1 year: 17% (545 addresses)

• 1 to 2 years: 27% (885 addresses)

• 2 to 3 years: 36% (1,148 addresses)

• Over 3 years: 20% (654 addresses)

According to Transak’s report, in mid-2024, the total number of RWA token holders on the Ethereum blockchain alone exceeded 97,000, with over 205,000 unique addresses. These tokens added approximately 38,000 holders over the past year.

Since the beginning of 2024, there has also been a significant increase in overall DEX trading volume for RWA tokens. DEX trading volume was approximately $2.3 billion in December 2023, surging to over $3.6 billion by April 2024.

With the substantial increase in traditional financial institutions adopting RWAs in 2024, we can expect more traditional financial users to gradually enter the crypto space, bringing new growth momentum and incremental capital.

II. Detailed Analysis of Six Core Asset Classes

The tokenized RWA market is divided into six major categories based on asset type, ranked by market capitalization as follows: Stablecoins, Private Credit, Government Bonds (U.S. Treasuries), Commodities, Real Estate, and Equities/Securities.The total market capitalization of onchain RWAs stands at $183.12 billion, while the total market capitalization of offchain traditional assets is $685.5 trillion. If the market capitalization of offchain traditional assets increases by just 1 bps (0.01%) daily, this would bring about an incremental increase of approximately $6.85 billion, which is close to 37% of the onchain assets' market capitalization. From this perspective, even a small growth in offchain assets could significantly drive the growth of onchain assets.

1. Stablecoins

Stablecoins have demonstrated a clear product-market fit (PMF) and created significant monetization opportunities. For example, in the first quarter of this year, despite Tether's managed assets being only a fraction of BlackRock's ($70 billion vs. $8.5 trillion), Tether's profits exceeded BlackRock's ($1.48 billion vs. $1.16 billion).

Market Overview:

• The current market capitalization of stablecoins is approximately $170 billion, with a monthly trading volume of $1.69 trillion. There are over 17 million monthly active addresses and more than 117 million total holders.

• Centralized stablecoins dominate the market:

• USDT holds nearly 70% of the market share, approximately $114.57 billion.

• USDC holds 20% of the market share, approximately $33.44 billion.

• Decentralized stablecoins maintain a stable market share:

• DAI holds 3% of the market share, approximately $5.19 billion.

• Ethena holds 2% of the market share, approximately $3.31 billion.

• Approximately $21.63 billion, or 13.2% of the total supply of stablecoins, is held on centralized exchanges. Around 48.38% circulates on Ethereum and 35.95% on Binance Smart Chain (BSC), with 1%-3% distributed across Arbitrum, Solana, Base, Avalanche, and Polygon chains.

Market Issues:

• Value Distribution Imbalance: Centralized stablecoins often privatize gains while socializing potential losses, leading to uneven distribution of benefits.

• Lack of Transparency: Centralized stablecoins like Tether and Circle suffer from significant transparency issues, forcing users to bear unnecessary risks. For example, during the Silicon Valley Bank (SVB) bankruptcy, the market was left in the dark about whether Circle or Tether had any financial exposure to SVB or where their reserve funds were held. Similarly, Tether has been using part of its reserves for lending and investment activities. According to an audit report by TBO, about 6.5% of Tether’s reserves have been lent out, around 4% invested in precious metals, and another 2.5% classified as other investments. This operational model makes Tether vulnerable to bank runs, with liquidity tightening posing a potential black swan event.

• Limited Scalability of Decentralized Stablecoins: Decentralized stablecoins face scalability challenges as they typically require over-collateralization of significant assets. As market demand for stablecoins grows, relying solely on a single crypto asset as collateral may not meet the demand. Additionally, poorly designed algorithmic stablecoins have repeatedly failed, exposing the risks of under-collateralization and unstable mechanisms.

Key Players:

• Ethena: Offers a relatively high APY, up to 12.2%, with current sUSDe TVL around $1.7 billion. Since its launch earlier this year, its market capitalization has grown by 978%. Ethena employs a Delta Hedge strategy, which is particularly attractive in a bull market environment. When long positions dominate, the funding rate is typically favorable to short holders. This strategy allows Ethena to remain stable while attracting traders who wish to hedge market volatility and make gains from positive funding rates during bull markets.

• Maker (now Sky): Offers a 7.7% APY, with current sDAI TVL around $1.3 billion. Over $2 billion DAI is deposited in the DSR, accounting for 38% of all circulating DAI. Since the founder, Rune, announced an interest rate of up to 8% during August 2024, deposits have increased by 197%, with market capitalization stabilizing at over $5 billion. The collateral TVL stands at $7.74 billion, with a collateralization ratio of 147%. Maker has integrated U.S. Treasuries into its portfolio, diversifying its revenue sources and enhancing income stability. It has also integrated staked ETH (stETH) as collateral to mint DAI, and removed the 15% slashing penalty, promoting stability, and aligning holders' interests with the ecosystem's sustainability.

Source: Dune / @stablescarab

Overview of Major Stablecoins

Future Prospects:

• DAI: DAI's growth has largely been fueled by significant subsidies paid by Curve holders to 3pool, which has created a strong moat. However, as Maker transitions into a more centralized Sky ecosystem, this “pragmatic” strategy has sparked widespread controversy within the community. Many fear that the shift to USDS may cause Maker to lose its original decentralized advantage, potentially leading to its market share being consumed by more reliable alternatives. Whether Maker can realize its vision of rapidly scaling the Sky ecosystem by combining U.S. Treasury bonds with subDAO models remain to be seen.

• Liquity: In contrast, Liquity has taken a completely different path. Its v2 $BOLD stablecoin, backed solely by ETH (and LST), is a fully Ethereum-native stablecoin that, based on its current mechanism, is likely to attract substantial collateral. Whether Liquity's commitment to maximum decentralization and resilient CDP will make it a niche market product is something we await, as users will ultimately vote with their wallets.

• Stablecoins and Low-Volatility Assets: The growing prevalence of low-volatility assets in the stablecoin sector is notable. After the last cycle, the market has become more conservative and rigorous in controlling the underlying risks of crypto financial assets, especially in the selection of collateral and risk control measures for currency issuance. Projects that used highly volatile endogenous assets as collateral, such as the high-risk algorithmic stablecoins represented by LUNA, have largely disappeared.

• Due to the clear and straightforward nature of the business line, regulatory costs are more controllable and consistent. Large financial companies are beginning to target the relatively profitable and easily accessible stablecoin business. PayPal's PYUSD has already reached a circulation of 1 billion, and since its announcement to launch on Solana on May 29, 2024, its market capitalization has grown by 155%, with PYUSD's supply on the Solana blockchain increasing by nearly 4,685%. Similarly, JD.com's planned stablecoin, pegged to the Hong Kong dollar, is also an attempt to capture a share of this market while seeking new growth opportunities in digital finance.

• The industry is still awaiting more legislative guidance, particularly regarding reserve reporting and liquidity requirements. Circle has consistently emphasized transparency and has switched from Grant Thornton to Deloitte for audits to enhance confidence in its reserves. Tether's transparency issues have long been a topic of controversy. While Tether claims that all USDT is backed by equivalent fiat reserves, there’s been a lack of transparency regarding the specific details of its reserves and independent audits. In 2024, U.S. regulators are pushing for more transparency and compliance requirements, and it's expected that Tether will also be subject to these requirements.

2. Private Credit

In traditional finance, private credit represents a massive $1.5 trillion market. Crypto credit protocols have tokenized over $13 billion in loans, with more than $8 billion currently lent to real-world businesses, generating returns for onchain lenders. For onchain traders, private credit is appealing due to its higher yield potential. For instance, lending stablecoins through protocols like Centrifuge can offer an average annualized yield of 8.7%, surpassing the typical 4-5% yield on platforms like AAVE, albeit with increased risk.

In the entire loan portfolio, consumer loans dominate with $218.4 million, reflecting strong demand within the overall lending market. Auto loans follow closely behind at $206.7 million. The Fintech sector's loan amount stands at $87.6 million, which, despite its relatively smaller share, shows rapid growth, indicating the impact of technological innovation on financial markets. Real estate loans — including residential and commercial property financing ($50.7 million) and carbon project financing ($37.3 million) — though smaller in proportion, also play important roles in their respective niches.

The advantages of onchain credit issuance and distribution are most evident in the significantly reduced cost of capital. More operationally efficient institutional DeFi infrastructure can substantially save capital costs and provide new distribution channels for existing and new private credit products. Driven by tightening banking regulations, this is carving out a significant niche within traditional finance. This shift towards non-bank lending presents valuable opportunities for private credit funds and other non-bank lenders, attracting interest from pension plans and endowment funds seeking smoother and higher returns.

As part of alternative assets, private credit has grown significantly over the past decade, and while its current share of the global debt market remains relatively small, it represents a rapidly expanding market with enormous growth potential.

Demand Logic

Financing Needs:

1. Businesses: Many businesses, particularly small and medium-sized enterprises (SMEs), need low-cost financing to support operations, expansion, or short-term cash flow.

2. Financing Difficulties: Traditional financial institutions have complex and lengthy loan processes, making it difficult for businesses to quickly obtain the necessary funds.

3. Tokenizing Credit Agreements:

4. Tokenization: By tokenizing credit agreements, financial institutions can convert debt instruments into tokens that can be traded onchain, representing loans or receivables.

5. Simplified Processes: Tokenization simplifies financing processes, enabling businesses to access funds more quickly and efficiently.

Lender Logic:

• Opportunities:

• High Yield: Investing in private credit typically offers higher yields compared to traditional debt instruments, as businesses are willing to pay higher interest rates for quick financing.

• Diversified Portfolio: Private credit provides diversification opportunities, spreading risk.

• Risks and Challenges:

• Complex Understanding: Users may find it difficult to understand the mechanisms of private credit, especially when involving offchain assets.

• Default Risk: There’s a concern that borrowers may default, particularly if offchain asset audits lack transparency, increasing the risk of default if a borrower uses the same receivables as collateral on multiple platforms.

Key Players:

1. Maple Finance: Provides onchain private credit, offering enterprises rapid financing through tokenized credit agreements while providing lenders with high-yield investment opportunities. Similar models include TrueFi (which, like Maple, also offers U.S. Treasury products) and Goldfinch.

2. Centrifuge: A matchmaking platform that tokenizes accounts receivable and other debt instruments, connecting lenders and borrowing enterprises through an onchain marketplace. This simplifies the financing process, reduces costs, and meets the credit needs of small and medium-sized enterprises.

Use Cases of Onchain Supply Chain Finance:

• Automatic Payments via Smart Contracts: Smart contracts can automatically release payments to suppliers once predefined conditions are met. Clear default handling mechanisms can be set up and triggered automatically by smart contracts to protect user interests.

• Tokenizing Invoices: Invoices can be tokenized to facilitate trading, providing liquidity to suppliers.

• Transparent Auditing: Blockchain offers an immutable ledger, simplifying auditing and due diligence. However, independent third-party audit firms must still conduct rigorous audits of offchain assets to ensure their authenticity and uniqueness, reducing the risk of borrowing across multiple platforms.

• Risk Assessment: Introducing a blockchain-based credit scoring system allows for risk assessment of borrowing enterprises, helping users make more informed decisions.

Problems Solved by Onchain Solutions:

• Slow and Opaque Transactions: Blockchain enhances 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 intermediaries, thereby lowering costs.

• Credit Channels: DeFi can provide more democratic financing channels for small and medium-sized enterprises (SMEs), which traditionally have weaker bargaining power.

3. Treasuries

The adoption of tokenized government debt instruments is driven by reduced DeFi yield opportunities (due to lower demand for onchain leverage) and a shift in demand towards short-term cash-equivalent instruments benefiting from U.S. monetary policy tightening. The rise in interest rates has made government bonds an attractive option for crypto investors seeking diversification. This trend is further evidenced by the large inflows of offchain bank deposits into money market funds, driven by low bank deposit rates and unrealized asset loss exposures. The emergence of institutional DeFi infrastructure is expected to further drive global demand for safe, income-generating, and liquid real-world assets.

Source: ETF Trends

Why Choose U.S. Treasury Bills

Short-term U.S. Treasuries generally offer higher yields than AAA corporate bonds and DeFi stablecoin deposits, making tokenized T-bills highly attractive.

The significant shift in the Federal Reserve's monetary policy has raised the benchmark interest rate to its highest level since 2007 (5.33). This has created new demand for certain types of Real-World Assets among native DeFi users seeking higher yields on crypto assets.

U.S. Treasuries are government-backed debt securities that are widely regarded as a relatively safe and reliable type of income-generating asset, with the primary risk being only the U.S. government default. In contrast, corporate bonds are debt securities issued by companies, which may offer higher yields than Treasury bonds but come with greater risk. The global bond market has expanded to approximately $140.7 trillion, a 5.9% year-over-year increase, indicating substantial growth in the global fixed-income market. In just the first two quarters of 2024, U.S. companies issued $1.06 trillion in corporate bonds, surpassing the total of $1.02 trillion issued in the first three quarters of 2023.

Impact of Rising Interest Rates on Tokenized U.S. Treasury Projects

1. Franklin Templeton: Launched the Franklin OnChain U.S. Government Money Fund (FOBXX) in 2021, the first blockchain-based fund registered in the U.S. With a yield of 5.11% and a market cap of $400 million, it's one of the largest onchain U.S. Treasury products.

2. BlackRock (via Securitize): Introduced the BlackRock USD Institutional Digital Liquidity Fund ($BUIDL) on Ethereum in March 2024. Currently leading the market with over $500 million in assets under management (AUM).

3. Ondo: Launched the Ondo Short-Term U.S. Government Bond (OUSG), offering a yield of 4.68% with a market cap of around $240 million. A significant portion of OUSG is invested in BlackRock’s BUIDL. Ondo also offers the USDY yield-stablecoin, with a market cap exceeding $300 million.

Market leaders by market cap

By market cap, the top five protocols are Securitize, Ondo, Franklin Templeton, Hashnote, and OpenEden. The highest issuance by individual product is:

• $BUIDL (BlackRock issued via Securitize) - $510 Million, quarterly growth: 74%

• $FOBXX (Franklin Templeton) - $428 Million, quarterly growth: 12%

• $USDY (Ondo) - $332 Million, quarterly growth: 155%

• $USYC (Hashnote) - $221 Million, quarterly growth: 156%

• $OUSG (Ondo) - $206 Million, quarterly growth: 60%

• $TBILL (OpenEden) - $101 Million, quarterly growth: 132%

Asset ClassificationsActively Managed

• Definition: U.S. Treasury products are actively managed by portfolio managers designated by the company, who are responsible for managing the underlying asset portfolio.

• Characteristics: Uses active investment strategies to optimize returns and manage risks, similar to traditional actively managed funds.

Reledgered

• Definition: U.S. Treasury products are designed to simply represent or mirror certain financial instruments, such as publicly listed ETFs, which aren’t inherently onchain.

• Characteristics: Typically passively managed, with the goal of re-registering existing financial instruments via blockchain technology for onchain trading and management.

Companies such as Ondo Finance, Backed, and Swarm mirror BlackRock/iShares short-term Treasury ETFs. Ondo purchases from a U.S. issuer on NASDAQ (CUSIP: 464288679), while Backed and Swarm purchase from an Irish issuer/UCITS (ISIN: IE00BGSF1X88). To illustrate, Ondo doesn’t actively manage the Treasuries product portfolio. Instead, it outsources management to SHV, which is managed by BlackRock/iShares. Companies like Ondo act as distributors for BlackRock, as DeFi protocols don't interact directly with asset managers. This simplifies matters for BlackRock, which doesn't need to manage compliance for thousands of projects seeking access to its funds.

Decision-Making Criteria for Institutions and Qualified Investors

1. Principal Protection:

2. Large institutional products operate in regulated jurisdictions, minimizing legal and compliance risks, with greater transparency and investor protection through regulated fund managers and custodians.

3. Some products rely more on the investment manager's responsibility, requiring investors to carefully assess the legal environment and regulatory framework of the jurisdiction.

4. Yield Maximization:

5. Actively managed products focus on fund managers' strategies to optimize portfolios, primarily investing in short-term Treasury bills and repurchase agreements aligned with the current yield curve.

6. Re-ledgered products outsource portfolio management to ETF managers, allowing investors to review historical performance to match their yield targets and risk preferences.

7. Convenience:

8. Some large institutional products provide access via official mobile apps, enhancing user experience and simplifying the investment process for self-directed retail investors.

9. Other products involve more complex, manual processes with multiple steps, requiring a higher learning curve and effort to manage.

In the future, actively managed products may reduce their pricing to undermine the competitive edge of onchain re-ledgered products. Additionally, users should consider whether these tokenized Treasuries serve solely as proof of ownership in their investments, or whether they can also be used as payment tokens or collateral, thus expanding their use cases and increasing revenue streams.

4. Commodities

The tokenization of natural resources represents ownership of actual commodities. The current total market capitalization of the tokenized commodities market is close to $1 billion, with precious metals, particularly gold, receiving the most attention. Gold-backed stablecoins such as PAX Gold (PAXG) and Tether Gold (XAUT) account for nearly 98% of the tokenized commodities market capitalization. As gold prices surpass $2,500 per ounce, the total global market capitalization of gold has exceeded $13 trillion, providing a vast market space for the tokenization of gold and its integration into DeFi platforms.

Other metals taking market share include silver and platinum. As the tokenizing RWA matures, we may see tokens for other commodities such as crude oil or crops. For example, farmers in Uganda could use the same financial tools as traders in New York to manage their coffee crops, thereby expanding market access. There's an opportunity for global trade to move more to blockchain.

Source: rwa.xyz

5. Real Estate

The tokenization of physical assets such as residential properties, land, commercial buildings, and infrastructure projects introduces a novel investment model, making real estate tradable onchain, improving accessibility, enabling fractional ownership, and potentially increasing liquidity. However, real estate’s inherent liquidity constraints limit the pace of its adoption onchain. The long-term nature of real estate transactions and the smaller pool of buyers make it challenging to connect sellers and buyers onchain, especially given that the industry traditionally operates within conventional systems.

Challenges

Market Demand

• Real Estate Market Conditions: The success of tokenized real estate projects largely depends on the health of the real estate market. In regions with sluggish real estate markets, a lack of speculative value and investor interest makes it difficult for tokenized projects to attract enough buyers and investors.

Long-Term Rental Income Distribution

• Ongoing Management: Tokenized real estate involves the distribution of long-term rental income, which requires ongoing property management and maintenance. This adds operational complexity and costs, requiring the support of professional teams to ensure the stability of rental income and the preservation of property value.

• Operational Friction: The difficulty of handling fiat rent payments and redistributions, as well as verifying whether rent has been truly paid, along with transparency of information, pose additional challenges.

Liquidity Constraints

• Trading Challenges: While tokenization improves accessibility and enables fractional ownership in real estate, the inherent liquidity constraints of the real estate market limit the speed of onchain adoption. The long-term nature of real estate transactions and the smaller pool of buyers make it difficult to link sellers and buyers onchain.

• Traditional Operations: The real estate industry traditionally operates within conventional systems, and transitioning to blockchain platforms requires time and adaptation, especially for market participants accustomed to traditional transaction methods.

Platforms like RealT and Parcl are working to inject liquidity into the market by simplifying property division, allowing sellers to easily split assets and receive tokenized shares. Additionally, the Parcl platform allows users to speculate on the value of real estate in different locations through its onchain trading mechanism, further expanding investment channels within the real estate market.

6. Equities, Securities, and Funds

Security Token Offering (STO) essentially tokenizes parts of a company's assets or equity that are difficult to take public through traditional IPOs, allowing users to invest in corporate securities by purchasing these tokens via blockchain technology. However, the STO space has been around for quite some time, and many listed companies involved in STOs are traditional firms that often lack novelty and high growth potential, making them less attractive to investors. Additionally, STOs typically only allow users who have completed KYC verification to participate in trading, which imposes high entry thresholds and increased transaction complexity. Furthermore, STOs face significant compliance and regulatory challenges, making it difficult to adhere to laws across different jurisdictions.

Source: Tiger Research

Projects like Swarm and Backed have made regulatory breakthroughs, allowing onchain trading of global stocks and funds, such as U.S. market COIN and NVDA, and core S&P 500 index funds. Solv Protocol can create FNFTs representing stocks and funds, trading them on DeFi markets, and providing compliance tools to ensure regulatory compliance through smart contracts and onchain identity verification (such KYC/AML).

Challenges

The business model of tokenizing existing securities could be insufficiently competitive and attractive in the long term, especially with the entry of global financial giants into the market, it will face significant challenges. When competing against large asset management companies, the initial profit model based on charging service fees may become unsustainable. The market may enter a price war, compressing profit margins.

For example, if tokenizing existing securities (such as Tesla stock) profits by charging users a service fee (say 5 bps), these fees are collected by the tokenization service providers for handling and managing these tokens. However, if this service becomes very popular and attracts a large number of users, global asset management giants (like Blackstone) might enter the market. These large companies have stronger capital and resources and can offer the same services at lower fees. As more companies enter the market, the fees for tokenization services will gradually decrease, potentially triggering a race to the bottom where competitors continuously lower fees to attract more clients. This will make the initial profit model based on service fees unsustainable, as higher fees will be replaced by lower ones, leading to thin or even disappearing profit margins.

III. Future Outlook

1. DeFi and RWA Integration: The integration of DeFi protocols with tokenized assets is one of the major trends for the future. By combining DeFi protocols with tokenized assets, such as allowing Treasury tokenization for collateral and lending, more financial products will achieve composability and instant liquidity without redemption. This will stimulate the flywheel effect in the DeFi space. Particularly, the combination of permissioned leveraging permissionless products will create broader use cases and drive TVL (Total Value Locked) growth. This innovation will not only attract institutional clients but also a broader range of crypto users, especially in the payments and financial services sectors, where tokenized assets may replace some centralized stablecoins.

2. Emerging Services and Specialized Needs: As asset tokenization progresses, new service providers will emerge to meet the demand for specialized skills and knowledge. Key roles will include smart contract legal experts, digital asset custodians, onchain financial managers, and blockchain financial reporting and monitoring providers. These roles will drive further market maturity. Additionally, improving institutional compliance and regulatory frameworks will provide higher market entry and trust for these service providers. It's debated whether anonymity might become an increasingly scarce asset in the future due to rising demands for institutional involvement and regulatory transparency.

3. Cross-Border Transactions and Global Markets: The cross-border transaction capabilities of blockchain technology will further drive the entry of tokenized assets into international markets, simplifying traditional international asset trading processes. This is particularly important for emerging markets, allowing them to attract global capital and drive economic growth. In the future, RWA projects that facilitate seamless interoperability between different blockchain platforms, especially those offering a wider range of asset options and optimized liquidity, will have a significant competitive advantage.

4. Technological Advancements and Process Optimization: The success of RWA tokenization largely depends on efficient and secure technology. With advancements in blockchain technology, particularly in scalability, security, and standardized protocols, RWA tokenization will become more efficient. The development of new protocols will simplify the tokenization process, enhance interoperability between platforms, and provide a better user experience. These technological advancements will continue to drive the adoption rate of RWA across various industries, ultimately reshaping the global financial landscape.