Decoding RWA: The Most Valuable Wealth Code in a Compliance Context
As the era of Web3 native applications approaches, it is essential to mobilize more real-world assets/capital (RWA) into the crypto market.Source: Jerry, BeeGee, ThePrimediaDAO
"Today, I am pleased to announce the establishment of a new company, Superstate, whose mission is to create regulated financial products that connect traditional markets and the blockchain ecosystem." Robert Leshner, founder of the leading DeFi lending protocol Compound, announced the birth of his new company Superstate on Twitter on June 29.
He is targeting the current hot narrative, entering the realm of real-world asset tokenization (RWA).
This aligns with our judgment: we believe that as the era of Web3 native applications approaches, it is essential to mobilize more real-world assets/capital (RWA) into the crypto market to provide capital support; especially in a compliance context, we believe RWA is the most valuable wealth code in this cycle.
However, in terms of specific data, in the second quarter of 2023, the LSD L2 narrative was the winner, led by new projects such as Pendle, Lybra, and Tenet; Meme 2.0 experienced a typical boom and bust; RWA has yet to unleash its energy. Therefore, our analysis is based on the prediction of crypto narratives and the objective environment.
Past: Why Synthetic Assets Did Not Flourish
Before explaining the predictive logic, it is necessary to trace the history of RWA, exploring its conditions for existence and development history to predict the future.
RWA initially existed in the concept of synthetic assets, which is not a new thing for the DeFi world; even dollar stablecoins can be seen as synthetic assets (RWA). It plays more of a role in linking two worlds and does not show strong investment value. Until January 28, 2021, when retail trading platform Robinhood and several U.S. brokerages announced restrictions on opening positions for stocks like GME and AMC, allowing retail investors only to sell but not buy, synthetic asset protocols became a lifeline with high expectations. Thus, its value extended beyond the pure crypto world into traditional capital markets, including U.S. stocks and foreign exchange.
At that time, people were full of expectations for synthetic assets (RWA). Synthetic assets are tokens that represent financial derivatives in digital form. If derivatives are financial contracts tailored to risk exposure for underlying assets or financial positions, then synthetic assets are a tokenized representation of similar positions. A more intuitive example of synthetic assets is the simulation of some priced assets. For instance, simulating Apple stocks. You can simulate Apple’s stock to create synthetic assets, synthesize all assets on NASDAQ and NYSE, and also synthesize fiat currencies (foreign exchange), gold, BTC, and other assets.
In November 2021, the synthetic asset project Synthetix underwent an Avior version upgrade on Optimism, adding a new WrapperFactory contract that allows for the deployment of new wrapper contracts to support any ERC20 token; the lending and synthetic asset protocol dForce collaborated with the real asset financing platform EntroFi to jointly promote real asset financing (including real estate, bonds, secured loans, acquisition financing, accounts receivable, etc.) through liquidity integration across protocols.
This can be viewed in the context of the DeFi iteration 2.0 process, as adjustments and optimizations made by synthetic asset developers. Since 2019, we have witnessed a tumultuous DeFi landscape, but project developers and industry observers began to examine, reflect, and attempt to iterate into a new era. In May 2021, Vitalik Buterin questioned the bubble nature of the crypto market's market capitalization, stating that the actual achievements of projects like DeFi could not support their popularity and valuations. The efforts of synthetic asset (RWA) projects Synthetix, dForce, and EntroFi in 2021 did not achieve the expected success. Subsequently, the market entered a series of events that caused a collapse in the crypto space in 2022, especially under the U.S. government's regulatory crackdown and the negative sentiment created by the U.S. crypto community, leading to the rejection of synthetic asset (RWA) projects in the U.S. market.
However, as we enter 2023, the RWA narrative is gradually being established. Taking several on-chain government bond projects as examples:
Ondo Finance announced in January this year the launch of a tokenized fund that brings risk-free interest rates on-chain, allowing stablecoin holders to invest in bonds and U.S. Treasury bonds; asset management company Matrixport launched its on-chain bond platform, Matrixdock, which went live with government bond-related services in late January; OpenEden, created by former employees of Gemini, launched tokenized U.S. Treasury bonds in April this year, allowing stablecoin holders to mint TBILL through the OpenEden TBILL Vault to obtain risk-free returns from U.S. Treasury bonds…
Timing: RWA in the Application Ecosystem and Compliance Context
In "Talking About 'Ethereum's Three Transformations': Vitalik's Offense and Defense," we analyzed that in some critical moments of life and death, Vitalik painted a grand vision, saying he wanted to create 1,024 shards to increase performance by 1,000 times; in other critical moments, he talked about dreams, envisioning DeSoc, searching for the soul of Web3… But now, Vitalik can talk about life and death, which is the moment he feels most confident. Vitalik has the confidence to promote key and specific transformation plans, building his decentralized non-monetary application ecosystem on Ethereum.
This will be the strongest fundamental support in this cycle, indicating that Ethereum is entering the application ecosystem era, which inevitably requires mobilizing more real-world assets/capital (RWA) into the crypto market to provide capital. The entry of Ethereum into the application ecosystem will give us confidence in the crypto narrative, but we believe the biggest support at the market level is RWA.
In early June, MakerDAO conducted a nominal survey vote to decide to establish a real-world asset (RWA) Vault named BlockTower Andromeda, managed by BlockTower Capital, which will invest up to $1.28 billion in short-term U.S. Treasury bonds. U.S. Treasury yields are typically viewed by capital markets as risk-free rates. The context at that time was that as U.S. short-term interest rates continued to rise, DeFi rates fell, and the demand for on-chain stablecoins to obtain returns through off-chain markets increased; recent news indicated that the founder of Compound has entered the RWA space. This aligns with our consistent attitude and judgment:
In "Why 'Integration' Becomes the Value Research Theme of the 'Next Bull Market'": The theme of the next bull market "integration" includes three dimensions: the integration of web3 technology with various industries; the integration of crypto economy with sovereign finance; and the integration of DeFi with the web3 industry. In this way, with the crypto economy at its core, the entire world economic system will be reshaped, and the global financial landscape and order will be rebuilt.
In "Using 'Civilization Stops' to Discuss the Value Logic of 'Bear Market Bottom'": In the crypto economic system, when the energy released by the integration of DeFi and the web3 industry blossoms, it will elevate the narrative of the crypto world to a higher-level process. If the growth logic of traditional financial capital markets can only come from the main line of economic growth, DeFi can match the excess number of users and user funds in both depth and breadth, demonstrating unprecedented economic development on an exponential level.
In "Don't Panic! Opportunities and Challenges Under 'U.S. Regulation and Hong Kong's New Policies'": Hong Kong needs to integrate the role of a "financial center" into the narrative of Web3/crypto economy, transforming the restless energy of speculative trading in the crypto space into capital that supports the development of the Web3 native market. The key point here is how the Hong Kong government can effectively utilize the capital allocation role of native DeFi within the crypto economic system. Of course, the Hong Kong government's current choice to bring on-chain (RWA) assets worth trillions is a relatively wise choice—in the next one or two bull-bear cycles, Hong Kong will focus on promoting the integration of crypto economic virtual assets with the real-world financial system as its main battlefield, allowing for both offense and defense.
Therefore, compared to MakerDAO's BlockTower Andromeda and the founder of Compound's Superstate, we are more focused on the $200 million digital notes issued by Bank of China International through UBS for the Hong Kong market in mid-June, which is RWA. We believe this is a successful practice of RWA—UBS Group stated that this transaction marks the first such product in the Asia-Pacific region that complies with Hong Kong and Swiss laws and is tokenized on the Ethereum blockchain. However, some have raised opinions and suggestions—UBS's original mention of using the "main Ethereum blockchain" actually refers not to the Ethereum mainnet, but to a centralized consortium chain deployed using Ethereum's open-source code.
Under the uncontrollable risks of policy compliance, regulation, and trading efficiency, traditional institutions still have a long way to go to deploy businesses on public chains in a meaningful sense.
In "Decoding RWA: Can 'Dubai WEB3 New Trends' Serve as a Reference for 'Hong Kong Crypto Narrative'?," we introduced BG Trade as a case study with a more native crypto gene, truly deploying business on public chains. However, how it operates and how its mechanisms are set up, whether the functions and services covered by the BG Trade ecosystem can serve as a practical reference for Hong Kong's crypto narrative: BG Trade aims to integrate multi-dimensional asset investments on a single platform, providing efficient connection opportunities for traditional stock markets and the cryptocurrency world, planning to build an ecosystem that backs tokens and traditional stocks 1:1, breaking down barriers between the crypto space and the stock market.
Issuance Platform: BG Trade's issuance platform provides a convenient way for RWA projects to issue tokens and conduct initial decentralized offerings (IDO). By providing this platform, BG Trade facilitates fundraising for RWA projects and attracts potential investors' attention.
Over-the-Counter Trading: BG Trade implements over-the-counter trading functions, providing privacy protection for OTC trading and minimizing market impact, offering solutions for participants with large trading volumes.
Asset Swap: The BG Trade platform achieves integration from Web2 to Web3 assets, ensuring users can convert between different asset classes, providing a trading experience across different asset categories.
ve-Governance: BG Trade empowers users to participate in decentralized governance and decision-making processes, striving to ensure a fair and transparent ecosystem by involving the community in important decisions.
Staking Mining: Participants can stake their BGT tokens on the BG Trade platform, contributing to the platform's stability and growth as liquidity providers and earning rewards.
zkDID: BG Trade utilizes zkDID technology, allowing users to manage self-sovereign identities without disclosing personal information to third parties. This functionality ensures privacy and data security while enabling real data mining.
During the writing of this article, we hesitated because the RWA (synthetic assets) track existed in the previous cycle but did not flourish. Why do we judge that it can become the most valuable wealth code in this cycle? Therefore, we constantly pay attention to industry dynamics, and we encountered BG Trade through the theme forum "Exploring Release: Web3 and RWAs" and used it as a case analysis; our confidence in this thematic judgment increased with the entry of the founder of Compound into the RWA space.
As mentioned earlier, we judge that the application ecosystem of Ethereum and other public chains will be the strongest fundamental support in this cycle, but it provides us with confidence. At the market level, we believe the biggest support is RWA—RWA includes "any real-world asset with a clear monetary value," including tangible assets like gold and real estate; or intangible assets like government bonds or carbon credits. However, the uncertainty and cost pressure of certifying hundreds of trillions of off-chain assets make it impossible to achieve comprehensive realization in the short term; but the Hong Kong government's move to bring on-chain assets worth trillions could become the foundation of Hong Kong's crypto narrative in the next decade; while traditional institutions like Citibank and BCG (Boston Consulting Group) estimate that the RWA market will reach tens of trillions or $16 trillion by 2030, this has already begun, mainly in already digitized and structured assets, including BlockTower Andromeda, Superstate's main business in the on-chain Treasury bond market, and BG Trade's crypto-stock market.
As the application ecosystem era in the crypto world approaches, RWA is becoming a bridge between traditional finance (TradFi) and decentralized finance (DeFi). We look forward to gaining insights in this new cycle, whether in ecological construction or market investment.
Note: This article was collaboratively completed by TheprimediaDAO, with major collaborators including Jerry (@ThePrimedia), the initiator of TheprimediaDAO, and BeeGee (@BeeGeeETH), Builder of TheprimediaDAO and Investment Head of TigerVCDAO.
