Interpretation of the Current Status and Six Major Trends of Government Bond RWA Projects

On-chain asset tokenization is becoming an important long-term trend with immense potential. Among these, government bond RWA is emerging as a significant branch. This sector achieved nearly 7 times growth in 2023, and after a brief pullback at the end of 2023, it quickly returned to an upward trajectory.

This Bing Ventures research article will discuss the current state and important development trends of government bond RWA and the entire RWA sector.

Current State of the RWA Ecosystem

In the current market environment, relatively low DeFi yields combined with rising real interest rates have jointly driven the growth of tokenized government bonds and other RWA assets. This phenomenon reflects an increasing preference among investors for stable and more predictable asset classes. Investors seeking a balance between traditional financial markets and cryptocurrency markets are increasingly inclined to choose products like tokenized government bonds that combine characteristics of both.

According to a BCG report, by 2030, the global market size for tokenized non-liquid assets is expected to reach $16 trillion, accounting for 10% of global GDP. This includes both on-chain asset tokenization and the existing traditional asset fractionalization (such as ETFs and real estate investment trusts). For the crypto industry, even capturing a small share of this enormous market represents a significant growth opportunity.

Source: Boston Consulting Group

Ecosystem Participants

RWA Infrastructure

RWA infrastructure, also vividly referred to as RWA Rails, provides the necessary regulatory, technical, and operational conditions for RWA, forming the foundation of the entire ecosystem. The construction of this infrastructure is crucial for the sustainable development of RWA.

Asset Providers

Additionally, there are asset providers. They focus on creating various RWA demands, including real estate, fixed income, stocks, etc., contributing to the diversity and breadth of the RWA market.

RWA Market Size

Currently, according to protocols tracked by DeFi Llama, the RWA market has become the 11th largest category in DeFi, with a total locked value exceeding $4 billion. According to the Dashboard created by @j1002 on the Dune Analytics platform, there are over 67,000 holders of RWA-related protocol tokens on the Ethereum blockchain, more than doubling in the past year. In a specific track, according to data from the RWA track monitoring platform RWA.xyz, as of March 21, 2024, the value of the tokenized government bond market has grown from approximately $379 million a year ago to $719 million, with an average annualized yield of about 5%.

Source: RWA.XYZ, Bing Ventures

However, in fact, after peaking at $6.272 billion last October, the total locked value of the RWA market has seen a continuous decline over the past few months. At the same time, the value of the tokenized government bond market has also retreated from $771 million at the end of November last year, although it has returned to an upward trend since February this year. The reason may be that with the overall recovery of the cryptocurrency market, some investors have begun to shift towards higher-yielding DeFi lending and liquidity re-staking areas.

Source: DeFiLlama, as of Feb 28, 2024

User Profiles and Behavior

We attempt to analyze the profiles and behaviors of RWA users to gain clearer insights into the changes in user demand behind these market shifts. In fact, most RWA users in DeFi are native users of the cryptocurrency ecosystem, indicating that early adopters of RWA are not transitioning from traditional investment avenues. This can be confirmed by the following trend: the average creation date of user addresses interacting with RWA tokens predates the introduction of RWA assets on the blockchain. These signs suggest that RWA currently represents a natural evolutionary step within the cryptocurrency community, rather than a sudden influx of traditional investors into this asset. RWA users tend to have a strong grasp of blockchain technology, with many having entered DeFi long before RWA became popular.

Source: Dune Analytics @j1002, as of Feb 27, 2024

Using the number of RWA token holders as a reference indicator, we can indirectly measure the adoption of RWA. It can be seen that although the overall TVL of the RWA sector has recently declined, the number of RWA token holders and independent wallet address interactions has steadily increased. We believe this reflects an increase in awareness and positive expectations among investors regarding RWA.

Source: Dune Analytics @j1002, as of Mar 6, 2024

Through a time series analysis of RWA token holder wallet addresses, we find that most addresses have a long history of use and various blockchain activity records. This indicates that participants in the RWA space come from a very healthy base of long-term crypto users.

At the same time, we also see some growth in new addresses. This may indicate that with the entry of traditional financial institutions like Franklin Templeton and Wisdom Tree, the RWA sector is penetrating more traditional user bases.

RWA bridges the crypto world and traditional finance, but it also carries inherent risks and limitations from the real world. Most RWA interactions require checks from traditional financial systems, such as KYC/AML, credit checks, and minimum balance requirements. These prerequisites limit the potential of RWA to expand financial inclusion.

Competitive Analysis

We conducted an in-depth comparison of different projects' market shares, growth rates, pricing costs, and user experiences to assess the competitive landscape. In the government bond RWA market, Franklin Templeton, with its deep roots and brand advantages in traditional finance, holds the largest market share. Ondo Finance and Matrixdock show different market strategies and user groups. Emerging companies like Hashnote and Superstate, although with smaller market shares, are growing rapidly, demonstrating the market's vitality and diversity.

In terms of pricing, different projects have varying management fee rates, reflecting their different strategies for market positioning and cost control. For example, Franklin Templeton and Ondo Finance have lower management fees, which helps attract large institutional investors. In contrast, Matrixdock and Maple Finance have relatively higher management fees, possibly to compensate for the revenue pressure from smaller market shares.

Regarding user experience, due to the nature and complexity of government bond RWA products, providing a clear, intuitive, and user-friendly interface is crucial for attracting and retaining users. Additionally, as market competition intensifies, improving service quality and customer support will become key factors for projects to differentiate themselves.

In summary, government bond RWA projects are in a rapid development phase, with significant differences in market share, growth rates, pricing strategies, and user experiences among different projects. The future development of these projects will be largely influenced by the global economic environment, regulatory policies, and technological innovations. To remain competitive, these projects need to continuously optimize their product features, enhance user experiences, and adapt to the ever-changing market and regulatory landscape.

Leading Government Bond RWA Projects

1. Franklin Templeton

Franklin Templeton is a global asset management company based in the United States, managing over $1.3 trillion in assets. As a traditional investment firm actively focused on the blockchain industry, Franklin has previously launched venture capital and equity funds focused on blockchain.

• Market Share: 48.6%

• Government Bond Product Market Value: $350,077,608

• Management Fee: 0.15%

• Market Share Change Over the Past Quarter: -5.51 percentage points

1. Ondo Finance

Ondo Finance has launched three tokenized U.S. government bond and bond products, namely the U.S. Government Bond Fund (OUSG), Short-Term Investment Grade Bond Fund (OSTB), and High Yield Corporate Bond Fund (OHYG), managed by institutional giants like BlackRock and PIMCO.

• Market Share: 17.01%

• Government Bond Product Market Value: $122,511,877

• Management Fee: 0.15%

• Market Share Change Over the Past Quarter: -6.69 percentage points

1. Matrixdock

Matrixdock is an on-chain government bond platform launched by Singapore's asset management platform Matrixport. STBT is Matrixdock's first product, introducing a risk-free rate based on U.S. government bonds.

• Market Share: 10.78%

• Government Bond Product Market Value: $77,674,902

• Management Fee: 0.3%

• Market Share Change Over the Past Quarter: -2.11 percentage points

1. Backed Finance

Backed Finance is a Swiss-based company dedicated to bringing real-world assets on-chain. The company has issued blB01, a tokenized short-term U.S. government bond ETF, on Coinbase's Layer 2 Base.

• Market Share: 6.73%

• Government Bond Product Market Value: $48,485,006

• Management Fee: 0%

• Market Share Change Over the Past Quarter: -0.4 percentage points

1. Hashnote

Hashnote is a company regulated by the CFTC and CIMA, providing a fully regulated, institution-grade DeFi asset management platform that offers comprehensive service support, zero counterparty risk, and customizable risk/return strategies.

• Market Share: 5.92%

• Government Bond Product Market Value: $42,613,396

• Management Fee: 0%

• Market Share Change Over the Past Quarter: +0.2 percentage points

1. Superstate

Superstate is a blockchain-based asset management company. Last November, it raised $14 million through venture capital to develop regulated on-chain fund products for U.S. investors. In February of this year, it launched its first tokenized U.S. government bond fund on the Ethereum blockchain.

• Market Share: 4.16%

• Government Bond Product Market Value: $29,985,969

• Management Fee: 0.15%

• Market Share Change Over the Past Quarter: +4.16 percentage points

1. Open Eden

Open Eden is a crypto startup founded in early 2022 by Jeremy Ng, former head of Asia Pacific at Gemini, and Eugene Ng, head of business development.

• Market Share: 3.24%

• Government Bond Product Market Value: $23,328,886

• Management Fee: 0%

• Market Share Change Over the Past Quarter: -1.12 percentage points

1. Maple Finance

Maple Finance is an institutional capital network that provides infrastructure for credit experts to operate on-chain lending businesses. Maple Finance is one of the market leaders in the private credit sector. In April 2023, it launched a new fund management pool allowing non-U.S. accredited investors and entities to invest directly in U.S. government bonds using USDC.

• Market Share: 1.45%

• Government Bond Product Market Value: $10,428,616

• Management Fee: 0.5%

• Market Share Change Over the Past Quarter: -3.23 percentage points

Future Trend Predictions

We believe that six major trends will drive the development of the government bond tokenization sector within the RWA market. These trends will bring profound changes to the government bond RWA market and provide new opportunities for investors.

1. Deep Integration of On-chain and Off-chain for Better User Experience

The future government bond RWA market will witness a deep integration of on-chain technology with traditional financial assets. This trend will lead to more efficient asset tokenization processes and tighter synchronization of on-chain and off-chain data, significantly enhancing transaction efficiency and transparency. For investors, this means a faster and more trustworthy trading experience, likely attracting more capital into the government bond RWA market.

2. Regulatory Technological Innovations Leading to Higher Compliance

As regulatory agencies increasingly focus on the digital asset space, government bond RWA projects will have to strengthen compliance. We expect to witness more blockchain-based compliance innovations, such as using smart contracts for compliance checks to meet increasingly stringent regulatory requirements. This will instill greater confidence among investors and encourage more institutions to participate in this market.

3. Enhanced Cross-chain Operability Leading to Better Accessibility

Advancements in cross-chain technology will enable government bond RWA products across different blockchain platforms to achieve seamless interoperability, thereby enhancing overall market liquidity and accessibility. This will provide investors with more choices and flexibility while reducing market risks. Additionally, enhanced cross-chain operability will promote the integration of international markets, creating more global investment opportunities.

4. Launch of Customized and Personalized Financial Products

Government bond RWA projects are expected to launch more customized and personalized financial products to meet the specific needs of different investor groups. This includes precise targeting of risk preferences and investment goals, allowing investors to better achieve their financial objectives. This will provide investors with more diverse investment options.

5. Dual Enhancement of Transparency and Security

Future government bond RWA projects will place greater emphasis on transparency and security, leveraging the traceability and immutability of blockchain technology to enhance investor trust and peace of mind. This will attract more risk-sensitive investors to participate in the market and help reduce the risk of market manipulation.

6. Integration of Cutting-edge Financial Technologies

The application of artificial intelligence for market analysis and predictions, as well as the generation of automated investment strategies, will become an important direction for innovation in the government bond RWA market. The development of these innovations will enable investors to fully understand market conditions, empowering them to seize market opportunities better. This will enhance the intelligence of investment decision-making, helping investors better grasp market opportunities.

Types of Future Potential Projects

Based on the above insights, we believe the following five types of projects are worth paying attention to.

1. Strong Compliance Projects

In an environment of increasingly stringent regulatory requirements, projects that can fully meet compliance demands and provide high transparency will be more likely to win favor in the market and among investors. These projects will establish a credible reputation in the market, attracting more investors.

2. Technology-driven Innovative Projects

Projects that fully leverage cutting-edge technologies such as blockchain, artificial intelligence, and big data, especially those that can provide efficient trading and investment strategies, are likely to secure a place in the market. These projects will deliver a faster and smarter investment experience.

3. Cross-chain Compatible Projects

Government bond RWA projects that can achieve seamless interoperability across different blockchain platforms, especially those offering a wider range of asset choices and optimized liquidity, will have a distinct competitive advantage.

4. User-friendly Platforms

Government bond RWA platforms that are easy to operate and provide comprehensive customer support and educational resources will be more popular, particularly among non-professional investors.

5. Low-cost High-efficiency Solutions

Projects that excel in cost control and operational efficiency, such as those offering low management fees and high automation services, will secure a place in the competitive market.

In conclusion, against the backdrop of the Federal Reserve raising interest rates, investors are increasingly inclined to seek higher-yielding investment opportunities. The growth of the RWA market indicates that despite facing macroeconomic pressures, the potential high returns it offers have attracted significant capital. With the improvement of regulations and advancements in technology, we expect the government bond RWA market to continue to grow, especially in the context of the widespread application of digital currencies such as stablecoins and CBDCs.

However, government bond RWA projects may face stricter regulatory requirements in the future, particularly concerning anti-money laundering (AML) and know your customer (KYC) measures. As the regulatory environment stabilizes, these projects are expected to better integrate into the traditional financial system while providing investors with new investment channels and risk management tools.

To offset the inherent risks associated with RWA products, we believe that issuers of government bond RWA should adopt decentralized mechanisms for governance decisions, similar to the DAO mechanisms employed by many private credit issuers. This mechanism increases transparency, ensures better assessment and mitigation of risks, and helps reduce compliance pressures.