A look at the RWA’s promise of bringing trillions of dollars worth of value to the crypto space.
A new acronym has entered the crypto vocabulary and appears to be firmly establishing itself. RWA, short for Real World Assets, is gaining recognition as one of the most promising use cases in the crypto space now.
The idea is not new: at their core, RWAs are good old tokenized assets, such as tokenized shares of real estate, commodities, art, and even debts, like the US T-bills. Stablecoins, for instance, can be considered a form of RWA as they introduce US dollars (or other fiat) to the blockchain. Synthetic assets, like those issued by Synthetix, achieve a similar goal by tokenizing popular stocks.
However, the RWA acronym has been recently used mostly to describe lending protocols built around these assets. They generate yield by investing users’ stablecoins in off-chain assets. In return, users receive not only passive revenue, but also a sort of IOU token, which can then be used across a variety of DeFi protocols.
The benefits of bringing RWA on the blockchain are plenty: democratizing investment, enhancing asset liquidity, enabling more efficient asset management, unlocking various new use cases within DeFi protocols… etc.
With the potential to bring – literally – trillions of dollars worth of value to the blockchain, this new trend is capturing the attention of an increasing number of crypto investors. However, while some protocols look serious and promising, others raise suspicion.
Let’s see why the RWA is so hyped now, and what protocols stand out.
The potential impact of RWA on crypto finance is enormous. Global real estate is estimated at some $326 trillion, US debt is now $33 trillion, and gold’s market cap is $13 trillion. Such assets make up a huge chunk of traditional finance but are still very modestly represented in crypto.
This simple rationale prompted Citi to declare RWA tokenization the foremost catalyst for crypto adoption. In their report released in March (that we resumed for you here), the bank’s analysts predicted that $1.9 trillion of non-financial debt, $1.5 trillion of real estate funds, $0.7 trillion of private equity, $1 trillion of securities financing, and $1 trillion of trade finance volumes would be tokenized by 2030.
This estimation means bringing over $6 trillion of value to the blockchain. Considering that the current market cap of the entire crypto space is slightly over $1 trillion, this prospect appears nothing short of ground-breaking.
The weight of RWA protocols is constantly growing, reaching a TVL of over $2.3 billion, according to DeFiLlama. However, this figure is certainly much higher in reality, as some already established DeFi protocols are increasingly investing in RWA.
One of the most prominent example of such “conversion” is MakerDAO, a veteran DeFi lending protocol and the issuer of $DAI stablecoin. The DAO is actively remaking itself (read more here), and a growing RWA allocation is likely to be a part of the plan.
As of now, MakerDAO boasts a $2.3 billion RWA portfolio (not included in DeFiLlama’s calculations), including over $1.1 billion of treasury bonds and $500 million of Coinbase Prime yield. That accounts for almost 50% of its funds.
One of the (relatively) early entrants into the RWA-specific space, Ondo Finance has been gaining significant and consistent traction since its launch in January, amassing some $164 million of TVL.
According to the company website, Ondo Finance invests in “multi-billion dollar, highly liquid exchange-traded funds, managed by the world’s preeminent bond managers”, mentioning notably BlackRock and Pimco. The firm also discloses the third-party custodians and auditors responsible for overseeing the funds.
Built on Ethereum and recently extended to Polygon, Ondo Finance invests users’ stablecoins in different funds, issuing them a corresponding token in return. OUSG for BlackRock’s short-term US treasuries (only accredited investors), OMMF for US money market funds (only accredited investors), and USDY for Short-term US Treasuries and bank deposits, plus equity subordination (only non-US citizens).
Depending on risk level, Ondo Finance offers between 4.5% to 7.7% APY. Most importantly, however, the tokens that users receive as proof of their investment in real world assets (US dollars and US debt in this case) can be then used in any DeFi protocol that would list them. This is the main difference from traditional funds, making investments liquid, borderless, and accessible to all.
Launched in July, stUSDT has become the biggest RWA protocol by far, securing a stunning $1.8 billion of TVL (Total Value Locked), of which almost a half was added just last week.
Looks fishy 🐟? That’s what we thought, and indeed, digging into the protocol revealed a number of red flags.
The protocol is built on Ethereum and TRON, the brainchild of the controversial crypto personality Justin Sun 🚩, who is also sitting on the board of Huobi, the crypto exchange.
Mr Sun touted stUSDT as a money market fund, which he hopes someday will become the “web3 alternative to Alipay’s Yu’e Bao”. Users can stake their $USDT on the platform (current yield is around 4% APY), which invests them into “high-grade short-term government bonds”, as outlined on its website. In return, users receive $stUSDT, which they can then use in other financial protocols.
Launched by RWA DAO, stUSDT is operated by JustLend DAO under the custody agreement between the two. Other than this information, little is known about its governance, and the protocol lacks in transparency 🚩
Furthermore, it became known that Justin Sun was behind the sudden increase of the protocols’ TVL. Last Friday, he made a series of strange operations 🚩, which puzzled the crypto space: he minted $815 million of the small-cap stablecoin TUSD, which he then transferred to another address and burned. Coincidentally, almost the same amount of stUSDT was minted, raising brows in the community 🤨
Overall this project is not deprived of interest, but the red flags are too many, and the DeFi space does not stand opacity.
Traditional finance is steadily morphing into CeFi, which in turn acts as a gateway to DeFi. It is a fascinating process to watch, and while the current public opinion still dissociates the crypto and the fiat worlds, in reality, they are merging.
Slowly, then suddenly.