Is there a safety net for traditional financial assets? Understand the current development status of RWA assets and representative projects in one article

Author: Mrs Watanabe

Recently, the discussion around RWA in the market has been continuously rising. Many well-known large institutions have also entered this field, indicating that RWA may become the next hot spot in the market.

In fact, data also proves the popularity of RWA. This year, RWA has become the fastest-growing sector in the cryptocurrency field, with a total value locked (TVL) growth rate reaching an astonishing 653%. By October, RWA has become the sixth largest category in DeFi, with a total TVL of up to $57 billion. In addition, the number of RWA token holders is also steadily increasing. Currently, the number of RWA token holders has exceeded 45,000, nearly doubling compared to last year.

RWA Data Growth Situation

So, what exactly are RWA assets? What is their current development status? What are the most representative projects in this sector? The following will introduce them one by one.

1. RWA assets are supported by corresponding real-world assets and are fully recorded on-chain

Real World Assets (RWA) refer to tangible and intangible assets in the physical world (such as real estate, bonds, commodities, etc.). The tokenization of RWA brings these off-chain assets onto the blockchain, opening up new possibilities and potential use cases. Tokenized RWA can be stored and traced on-chain, thereby improving efficiency and transparency while reducing the possibility of human error.

With the rapid rise of the RWA field, various projects have emerged like mushrooms after rain. Currently, more than 20 projects have successfully launched and are operational, with countless more projects on the verge of launching.

However, RWA projects differ from traditional crypto projects. First, RWA projects are backed by real underlying assets. To ensure the authenticity and legality of the assets, every RWA asset tokenization must meet two core elements: representation and ownership, both of which must be recorded on-chain.

Representation means that the asset must exist in reality and cannot be imagined out of thin air. Additionally, other details about the asset, such as whether there is a physical counterpart, whether it will expire, and who the actual holder is, need to be clarified and recorded.

Ownership concerns the legal title of the asset. This means that the ownership of the asset must be written on-chain through legal means, ensuring consensus among asset holders and providing a resolution mechanism for potential disputes.

2. Constraints on the development of RWA assets: incompatibility with traditional financial regulations

Despite the rapid development of the RWA field, it is still in the exploratory stage, and industry standards have not yet fully formed.

Looking back to the 1990s, the U.S. credit market began the securitization process, packaging various assets through a standard called CUSIPs. This standard can reflect the potential risks of assets but cannot fully reflect the ownership of the assets. Now, decentralized ledger technology provides us with a possible solution, becoming the core support for RWA crypto projects.

However, the current issue is that RWA projects still cannot perfectly reflect the risks of assets, nor can they effectively resolve disputes arising from asset risks. When disputes arise in the crypto world today, most issues still need to be resolved through legal means.

In this context, the current exploration direction of RWA mainly has two aspects: countries gradually recognizing RWA asset tokens as legitimate underlying assets and protecting them through existing legal systems. For example, a series of recent measures in Hong Kong seem to be in this direction; project parties directly write assets and protective measures into smart contracts, providing stronger protection within the existing legal framework. This seems to be the development direction in North America where regulation is still unclear.

Overall, although the current RWA market size is relatively small, and its advantages in on-chain settlement and regulation compared to traditional finance have not yet fully emerged, as the market size expands and traditional financial institutions gradually understand new technologies, the advantages of new technologies will gradually become apparent.

3. Tokenized Asset Coalition (TAC) emerges, born to promote RWA assets

On September 7, Coinbase, Circle, Aave, and others jointly initiated the Tokenized Asset Coalition (TAC), with other members including Base, Centrifuge, Credix, Goldfinch, and RWA.xyz. The coalition believes that RWA tokenization is the future of the crypto industry and will work to promote the global adoption of RWA.

RWA Data Dashboard

According to the tokenized asset dashboard provided by TAC, it is clear that among the current DeFi tokenized asset types, the TVL of private credit is $4.4 billion, with an APR of up to 9.87%;

U.S. Treasury bond TVL reaches $600 million, with an APY of 5.25%

In addition to creating educational content and building the necessary infrastructure to bring different types of assets on-chain, the coalition is also considering establishing relevant and compliant principles to promote the adoption of blockchain technology.

Centrifuge founder Lucas Vogelsang stated, "Through TAC, we are trying to build a market or an entire ecosystem. The more we can standardize and collaborate, the faster the entire industry will reach escape velocity and truly be able to compete."

Regarding how to standardize real-world assets, Lucas said, "I believe KYC will become one of the standards that will emerge sooner or later. Today's KYC credentials are not truly portable; real-world asset DeFi must conduct KYC, and we need to figure out how we can actually collaborate on this."

Next, we will delve into some currently popular RWA projects.

4. Overview of Representative RWA Projects: MakerDao, Pendle, Ondo Finance, Frax, TrueFi

MakerDao is currently the leader in the RWA field and is also the second-ranked DeFi project by TVL. Its RWA business's TVL has reached $3.2 billion, with a growth rate of 400% this year. In March of this year, founder RuneKek proposed the "Endgame" plan, aiming to increase platform revenue by investing in real-world assets and money market funds. Currently, 46% of $DAI is backed by RWA as reserve assets, and 66.9% of Maker DAO's protocol revenue comes from RWA.

MakerDao Protocol Revenue Share Chart

Pendle has been a highly regarded LSDFi protocol in the first half of this year, receiving investment from Binance Labs in August. Subsequently, Pendle announced it would integrate two RWA protocols, Maker DAO's sDAI and Flux Finance's fUSDC, into its core product Pendle Earn. Pendle's co-founder and CEO TN Lee stated that RWA has entered the DeFi space, and Pendle can provide users with various traditional financial tools, such as interest rate derivatives, swaps, and fixed income, to help them manage returns.

Ondo Finance is the top-ranked tokenized securities DeFi protocol by market capitalization. Its investment in U.S. money markets offers an annualized return of 4.7%, while U.S. Treasury bonds OUSG can yield up to 5.5%.

Official Website Screenshot

Frax launched FraxV3 on October 12, allowing users to earn real-world bond yields on-chain through sFrax and FBX. sFrax converts underlying collateral into various RWAs through AMO to generate income. Users can earn weekly $FRAX rewards by staking Frax, with an initial annualized yield of up to 10%. FXB is a type of on-chain zero-coupon bond that users can purchase at a discount and redeem for FRAX at face value after a certain period to earn returns. Within a day of launching FraxV3, over 150 users have invested more than $35 million in the sFRAX staking vault, with a total staking volume of over 11 million sFRAX.

Maple Finance is a B2C on-chain lending platform, ranking first in TVL among unsecured loan protocols. Users can lend funds to Web3 institutions, such as market makers or asset management platforms, earning returns of 4% to 14%.

TrueFi is a primarily B2B unsecured credit platform. It employs an innovative mechanism to connect borrowers, lenders, and professional credit assessors through smart contracts. Currently, only institutions can borrow on the platform, and after a credit assessment by the internal committee, $TRU token holders decide whether to approve the loan. Recently, it launched a U.S. Treasury fund, but the minimum purchase amount is $100,000, making the threshold relatively high.

5. Conclusion: RWA is initiating a critical experiment in the fusion of Crypto and reality

The RWA field, as a convergence point of fintech and traditional assets, is at a crucial stage of development. Although its market share is still limited, and its true potential and advantages compared to traditional financial systems have not been fully realized, we can clearly see that this situation is changing with technological advancements and market maturation.

Traditional financial institutions are gradually recognizing the value of blockchain and decentralized technologies, creating favorable conditions for the further development of RWA. We have reason to believe that over time, RWA will better integrate traditional finance and blockchain technology, bringing unprecedented opportunities and value to investors and market participants. Let us look forward to RWA bringing more transformations and breakthroughs to the entire financial field in the future.