Original source: Deep Tide
Reprint: Koala, Mars Finance
The RWA sector, which is a bit of a "muffled fortune" in this atypical bull market.
When everyone's sentiment is easily driven by memes, if you take a closer look at the data, you will find that the tokens in the RWA track have probably performed better than most tokens in other tracks so far this year.
When U.S. bonds become the largest RWA, the trend of macroeconomic influences on the track will also be more obvious.
Recently, Binance Research released a report titled "RWA: A Safe Haven for On-Chain Earnings?" The long report provides a detailed analysis of the pattern, projects and revenue performance of the RWA track.
TechFlow has interpreted and refined the report, and the key contents are as follows.
Key takeaways:
- The total amount of on-chain RWA reached $12 billion, not counting the $175 billion stablecoin market.
- The main categories in the RWA space include tokenized United States Treasuries, private credit, commodities, equities, real estate, and other non-United States bonds. Emerging categories include air rights, carbon credits, and fine art.
- Institutions and traditional finance ("TradFi") are increasingly participating in RWA, with BlackRock's BUIDL tokenized treasury product being the leader in this category (market cap> US$500 million); Franklin Templeton's FBOXX is the second-largest tokenized Treasury product.
- 6 projects that the report focuses on: Ondo (structured finance), Open Eden (tokenized treasury), Pagge (tokenization, structured credit, aggregation), Parcl (synthetic real estate), Toucan (tokenized carbon credits), and Jiritsu (zero-knowledge tokenization).
- Technical risks that cannot be ignored: centralization, third-party dependencies (especially for asset custody), the robustness of oracles, and the complexity of system design are not worth the benefits.
- Macroeconomically, we are starting a historic cycle of rate cuts in the United States, which could have an impact on many RWA agreements, especially those focused on tokenizing United States Treasuries.
Data fundamentals of RWA
Aggregated RWA definition: Tokenized on-chain versions of tangible and intangible non-blockchain assets, e.g., currencies, real estate, bonds, commodities, etc. Broader asset classes include stablecoins, government debt (dominated by United States government bonds, i.e., Treasuries), equities, and commodities.
Total on-chain RWA reached an all-time high of over $12 billion (excluding the stablecoin market over $175 billion)
Key Category 1: Tokenized Treasury Bonds
- 2024 has experienced explosive growth, from $769 million at the start of the year to $2.2 billion in September.
- Growth is likely to be influenced by United States interest rates at 23-year highs, with the federal funds target rate holding steady at 5.25 - 5.5% since July 2023. This makes United States government-backed Treasury yields an investment tool for many investors.
- Government Endorsement -- Treasuries are widely regarded as one of the safest yielding assets in the market and are often referred to as "risk-free."
- The Fed will kick off a rate cut cycle at the September FOMC meeting later this month, so it will be important to watch how RWA yields evolve when they start to fall.
Key Category 2: On-chain private credit
- Definition: Debt financing provided by a non-bank financial institution, usually a small or medium-sized company.
- The IMF estimates that the space in this market will exceed $2.1 trillion in 2023, while on-chain only accounts for about 0.4%, or about $9 billion.
- On-chain private credit is growing extremely fast, with active loans growing by about 56% over the past year.
- Much of the growth has come from the Figure program, which offers lines of credit secured by home equity.
- Other major players in the on-chain private credit market include Mongolge, Maple, and Goldfinch.
- Despite the recent increase, total active loans are still down about 57% from the same period last year. This coincides with the Fed's aggressive interest rate hikes, with many borrowers being affected by increased interest payments (notably private credit loans with floating rate agreements), resulting in a corresponding decrease in active lending.
Key Category 3: Commodities (Gold)
- The two leading tokens, Paxos Gold ($PAXG) and Tether Gold ($XAUT), have a market share of about 98% in a market of approximately $970 million.
- But the gold-backed ETF has been very successful, with a market capitalization of more than $110 billion. Investors are still reluctant to further boost their gold holdings on-chain.
Key Category 4: Bonds and Equities
- The market is relatively small, with a market capitalization of about $80 million.
- Popular tokenized stocks include Coinbase, NVIDIA, and the S&P 500 tracker (all issued by Backed).
Key Category 5: Properties, Clean Air Rights, etc
- While not yet to the point of mass adoption, the category still exists.
- The ReFi concept of renewable finance goes hand in hand with an attempt to combine fiscal incentives with eco-friendly and sustainable outcomes, such as the tokenization of carbon emissions.
A key component of RWA
Smart Contracts:
- Leverage token standards such as ERC 20, ERC 721, or ERC 1155 to create digital representations of off-chain assets.
- The key feature is the automatic revenue accumulation mechanism, which distributes off-chain earnings on-chain. This is achieved through either a rebase token (e.g., stETH) or a non-rebase token (e.g., wstETH).
Oracles:
- Key Trend: RWA-specific oracles. Legal compliance, accurate valuation, and regulatory oversight are all issues that generalized oracles may not be able to fully solve.
- For example, in private credit, a lender might issue an RWA mortgage on-chain. Without a high-quality oracle to communicate how the funds will be spent, borrowers may not honor loan agreements, take risks, and may even default.
Identity/Compliance
- Emerging technologies for authentication, such as soulbound tokens ("SBTs"), while zero-knowledge SBTs ("zkSBTs") offer a promising way to verify identities while protecting sensitive user information.
Asset custody
- A combination of on-chain and off-chain solutions to manage:
- On-chain: Secure multisig wallets or multi-party computation ("MPC") wallets are used to manage digital assets. Off-chain: Traditional custodians holding physical assets are integrated in accordance with the law to ensure proper ownership and transfer mechanisms.
The entry of traditional financial institutions
BlackRock (AUM $10.5 trillion)
- The U.S. Dollar Institutional Digital Liquidity Fund ("BUIDL") is the market leader with over $510 million.
- It was launched only in late March and quickly became the largest product in the field.
- Securitize is BlackRock's valued partner at BUIDL and acts as a transfer agent, tokenization platform and placement agent.
- At the same time, BlackRock is the largest issuer of spot Bitcoin and spot Ethereum ETFs.
Franklin Templeton ($1.5 trillion AUM)
- Their on-chain United States Government Money Fund ("FOBXX") is currently the second-largest tokenized Treasury product, with a market cap of over $440 million.
- 贝莱德的BUIDL在以太坊上运行,但FOBXX在Stellar,Polygon和Arbitrum上很活跃
- Benji, a blockchain-integrated investment platform, adds more features to FOBXX. Allows users to browse tokenized securities while also investing in FOBXX.
WisdomTree Investments（资管规模 1100亿美金）
- Originally a global ETF giant and asset management company, it has gone one step further and launched a number of "digital funds". The total AUM of all these RWA products is more than $23 million.
Project analysis
- The projects highlighted in the report are Ondo (structured finance), Open Eden (tokenized treasury bonds), Pagge (tokenization, structured credit, aggregation), Parcl (synthetic real estate), Toucan (tokenized carbon credits), and Jiritsu (zero-knowledge tokenization).
- The business model and technical implementation of each project are described in detail in the report, and are not detailed here due to space limitations.
- The comprehensive comparison and characteristics of each project are as follows:
Overall results and outlook
- RWA can bring benefits, but whether the technical risk VS benefit is worth it is a matter of opinion. The technical risks are as follows:
Centralization: There is a higher degree of centralization in smart contracts or monolithic architectures, which is inevitable considering regulatory requirements
Tripartite dependence: There is a large dependence on off-chain intermediaries, especially asset custody
- Some new technology trends:
The advent of RWA-specific Oracle protocols. Established companies like Chainlink are also increasingly focusing on tokenized assets.
Zero-knowledge technology is emerging as a potential solution for balancing regulatory compliance with user privacy and autonomy.
- Does RWA need its own chain?
Benefits: Easier to launch new protocols on these chains without having to build your own KYC framework and cross regulatory hurdles, facilitating the growth of more RWA protocols; Traditional institutions or Web2 companies looking to adopt certain blockchain features can ensure that all of their users are KYC/meet the necessary regulatory requirements.
Disadvantage: Facing the problem of "cold start"; It is difficult to channel new chains with liquidity and ensure adequate economic security; Higher barriers to entry, users may need to set up a new wallet, learn new workflows, and become familiar with new products
- The outlook for the next rate cut expectations
What does the market expect to start the rate cut cycle at the Fed's next meeting on September 18, what does this mean for RWA projects thriving in a high-interest rate environment?
While yields on some RWA products may decline, they will continue to offer unique benefits such as diversification, transparency, and accessibility, which may continue to position them as attractive options in a low interest rate environment.
- Concerns about the legal environment
Many protocols still maintain significant centralization, and there is a lot of room for improvement in various technologies, including ZK.
decentralization while still maintaining regulatory compliance; It may also require some changes to the traditional compliance regime to recognize new forms of verification.
Most RWA protocols still have some way to go before they can truly preserve financial products for professional investors and enable permissionless access.