Seven Major Outlooks for Financial Reform RWA in 2024

Author: Sanjay@Roofstock, Vice President of onChain
Compiled by: Qin Jin, Carbon Chain Value

Stablecoins, tokenized government bonds, decentralized private credit, physically-backed NFTs, climate and regenerative finance DeFi - these are just some of the trends that will reshape capital markets in the coming year.

In the ever-changing financial landscape, the past two years have presented us with a series of unique challenges. The most significant of these has been inflation in the United States, which reached a staggering 9.1% in June 2022, prompting the Federal Reserve to implement a series of aggressive interest rate hikes (which are still ongoing).

At the same time, the cryptocurrency industry has also weathered its own storms, with major projects like Terra/Luna, Celsius, Voyager, and FTX, as well as banks like Silvergate, Signature, and Silicon Valley Bank, all collapsing.

Amidst this turmoil, blockchain builders have continued to forge ahead, with the realm of real-world assets (RWA) becoming a beacon of innovation and resilience. At its core, the tokenization of real-world assets involves creating an investment instrument on the blockchain that is associated with tangible assets such as real estate or cars, or any other item that may exist in physical form. Once ownership is recorded on the blockchain, the asset can be traded, divided, or securely held.

As we enter 2024, the following seven RWA outlooks will reshape the financial landscape:

1. Stablecoins: The Cornerstone of Programmable Money
With federal regulation on the horizon, stablecoins - the epitome of programmable money - are on the verge of transformative growth, fundamentally changing our perception of currency. In the U.S., two issuers dominate this space - Circle (issuing USDC as a multi-chain solution) and Paxos (providing token solutions like PayPal's PYUSD). Globally, the market capitalization of stablecoins is approximately $125 billion, forming the foundational layer that powers the value internet. Stablecoins offer stability and flexibility, poised to revolutionize global payments, remittances, e-commerce, trade finance, and more.

2. Tokenized Government Bonds: A Bridge Between Traditional and Decentralized Finance
Tokenized government bonds represent a true fusion of traditional finance and decentralized finance. As risk-free short-term government bond yields have risen from nearly zero in early 2022 to about 5.4% in October 2023, companies like Franklin Templeton, Ondo, Backed, Maple, Open Eden, and Superstate have taken the lead in tokenizing short-term U.S. government bonds and bank deposits. According to data from the token and analytics platform RWA.xyz, this new asset class currently has a market capitalization of $700 million. Tokenized government bonds are breaking down barriers and providing new avenues for investment and financial inclusion.

3. Private Credit: Empowering SMEs Through DeFi
The U.S. private credit market is valued at $1 trillion, while the global private credit market is worth $1.7 trillion, but small and medium-sized enterprises have long struggled to access this market. DeFi lending protocols like Centrifuge, Goldfinch, Credit, Maple, and Huma are changing the game, opening the floodgates for debt capital from public markets, the banking system, and traditional private credit issuers.

Private credit initiators. RWA.xyz focuses on specific industries or regions, currently estimating that the market has about $550 million in active loans, with continued growth expected in the coming months.

4. NFTs: Revolutionizing Collectibles Financing
Global annual art sales exceed $65 billion (with $30 billion in the U.S. alone), highlighting the immense business opportunities within the art market. However, the traditional art and collectibles market lacks liquidity and incurs high fees (auction houses typically charge an additional 15-20% on small items). The global collectibles market (coins, stamps, books, comics, art, toys, etc.) is estimated to be around $400 billion, also suffering from a lack of liquidity. Market platforms like eBay and some smaller custom markets cater to this industry's needs, while lending options are generally limited to high-interest pawn shops.

Fortunately, decentralized protocols like 4K and arcade.xyz are changing this model. By bringing physical collectibles onto the blockchain, lending against assets like Supreme T-Shirts and comic books has become a reality. These initiatives democratize lending, allowing collectors worldwide to access loans.

5. Consumer Brand NFTs: Enhancing Customer Engagement
Leading consumer brands, including Nike, Adidas, Louis Vuitton, and Coca-Cola, are embracing NFTs. From Starbucks on Polygon to rumored efforts by Amazon on a private blockchain, big brands are leveraging blockchain to enhance their digital footprint, customer engagement, and entertainment experiences. Whether on public blockchains (like Starbucks on Polygon) or private blockchains (surrounding Amazon rumors), these brands are shaping the future of consumer interaction by integrating gaming and metaverse elements.

6. Climate and Regenerative Finance DeFi
As environmental, social, and governance (ESG) issues gain increasing attention, blockchain technology is driving positive changes in the $2 billion and growing carbon market. Companies like Flowcarbon are harnessing the potential of blockchain to enhance transparency in this critical market. To achieve the goals of the Paris Agreement, this market must grow 15-fold by 2030. The accuracy and transparency of blockchain at every stage of the carbon lifecycle are indispensable for promoting a sustainable future.

7. Tokenized Deposits and Wholesale Banking Settlements: Transforming Cross-Border Transactions
Blockchain technology is reshaping how banks handle tokenized deposits and wholesale settlements. While central bank digital currency (CBDC) may not be an urgent issue in the U.S., especially if private issuers can be regulated at the federal or state level, some banks are experimenting with blockchain technology for tokenized deposits and intra-bank or inter-bank wholesale settlements. Pilot programs by industry giants like Citibank and JPMorgan have demonstrated the potential for instant cross-border transactions. In the coming months, this area will continue to expand, enhancing the efficiency of global finance.

These RWA trends herald the arrival of a new financial era, providing solutions to long-standing challenges. While their market capitalization may seem modest now, their transformative potential is immeasurable. Stablecoins, tokenized treasury bonds, decentralized private credit, physically-backed intangible assets, consumer brand intangible assets, climate and regenerative finance DeFi, and tokenized deposits/wholesale banking settlements are not just trends; they are the cornerstones of a more inclusive, efficient, and sustainable financial future. In 2024, these innovations will undoubtedly lead the way, offering unparalleled opportunities for businesses and individuals alike.