Author: JOE

1. What is RWA? RWA (Real World Assets) ——— Real World Assets refers to assets with actual value that are tokenized through blockchain technology. Owning a token represents ownership of that asset in the real world, allowing you to engage in transactions such as lending, renting, and buying/selling on-chain. The underlying assets that support its value are typically real estate, stocks, bonds, etc. In fact, there have been successful cases of RWA in the crypto industry, with commonly used stablecoins like USDT and USDC being examples of RWA. RWA (Real World Assets) ——— Operational Principles

Crypto-native assets are mostly realized through smart contracts, where the operational logic and business of related assets run through on-chain code. Typical crypto-native assets include public chain tokens, DeFi tokens, etc. In contrast, real-world assets (RWA) are more complex and diverse. RWA can be of any type, and their business and revenue do not come from on-chain assets. For example, wine, cars, (traditional) financial securities, and precious metals can all be classified as RWA. Crypto-native assets define rules through smart contracts, which is often referred to in the crypto community as "code is law." However, for "real-world assets," the realization process is completed through tokenization. Since more asset relationships occur in the real world off-chain, what we commonly refer to as tokenization is not simply the issuance of an on-chain token, but a series of processes, including the purchase of underlying assets, custody, the legal framework linking the underlying assets and tokens, and the issuance of tokens . Through tokenization, combined with off-chain laws and regulations and relevant product operation processes, token holders have a legal claim to the underlying assets. Therefore, especially for financial assets, off-chain laws and regulations are a more important part, and the occurrence of RWA tokenization cannot be separated from the framework of the traditional world.

2. Segmentation of RWA Tracks

The RWA track can be subdivided into four sub-tracks: 1. Credit Lending Market is an extension of over-collateralized loan protocols (such as Maker, AAVE), drawing on traditional financial credit models, aiming to provide convenient financing channels for high-growth SMEs not limited to the crypto circle, while also bringing returns to crypto users providing loans. 2. Tokenization of U.S. Treasury Bonds broadly refers to bringing the investment returns of U.S. Treasury bonds onto the blockchain, rather than the tokenization of the bonds themselves. Although issuing U.S. Treasury bonds on the blockchain can improve settlement efficiency, reduce custody layers, and increase transparency, this activity requires the promotion of the issuer, the U.S. Department of the Treasury. Essentially, it is about selling traditional financial assets to web3 users in a web3 manner. Tokenization is not aimed at the bonds themselves, but at the fund shares holding U.S. Treasury bonds and the SPV debt tokenization established by companies holding U.S. Treasury bonds; tokenization does not mean that investors can directly operate on-chain U.S. Treasury bond transactions through a general Ethereum wallet; wallet addresses need to undergo KYC, and transfers are limited to whitelisted addresses to meet regulatory requirements; for the tokenization of mutual funds, the blockchain is not the official ledger but serves as a secondary bookkeeping, and investors' subscriptions and redemptions need to occur during U.S. working hours. 3. Stablecoins are the RWA we are most familiar with. Ranked by market capitalization, the leading stablecoin projects include USDT, USDC, FDUSD, USDe, etc. 4. Real Estate Related Compared to traditional real estate investment, real estate RWA offers higher liquidity, a more transparent trading process, and lower transaction costs, thereby lowering the entry barrier for investment. For example, Propy's blockchain real estate trading platform, RealT and RealtyX's real estate tokenization projects, and Parcl's real estate tokenization DeFi protocol are all notable highlights in the real estate RWA field. Through blockchain technology, these platforms and projects redefine the way real estate is invested in and managed, making real estate not only a domain for physical investors but also a significant component of the digital economy era.

3. Current Status of the RWA Ecosystem

Rapid Growth of RWA Tokenization Scale

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, more predictable return asset classes. Especially for investors seeking balance between traditional financial markets and cryptocurrency markets, there is a growing inclination to choose products like tokenized government bonds that combine characteristics of both.

Real World Assets (RWA) bring a series of off-chain financial assets onto the blockchain, covering everything from real estate to credit, from treasury bills to green bonds. The tokenization of RWA helps create a programmable, composable, and 24/7 operational global financial infrastructure. According to a report by BCG, as shown in Figure 1.1, by 2030, the tokenization scale of RWA could reach an astonishing $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 Figure 1.1

Current On-Chain RWA Mainly Consists of Private Credit and U.S. Treasury Bond Tokens

In particular, the growth of tokenized government bonds is rapidly accelerating, with over $1 billion issued — almost all in the past year. This surge is primarily driven by rising U.S. Treasury bond yields and the search for stable returns beyond what stablecoins can provide. Source: rwa.xyz Figure 1.2

The Private Credit Market Also Has Cycles

In a market with a solid trust foundation, borrowers are willing to borrow at reasonable interest rates, and lenders are willing to take on risks to provide funding. As shown in Figure 1.3, after the collapse of Luna and FTX, several lending pools in the private credit market were affected, leading to defaults and a significant drop in TVL, which is currently at a relatively calm bottom cycle. Source: rwa.xyz Figure 1.3

Stablecoin Market Capitalization Rankings and On-Chain Market Capitalization Segmentation

As shown in Figure 1.4, the market capitalization of stablecoins began to experience explosive growth starting in 2021, only to stabilize with slight fluctuations starting in 2023. Source: rwa.xyz Figure 1.4

4. RWA Market Size

Currently, according to protocols tracked by DeFiLlama, as shown in Figure 2.1, the RWA market has become the 11th largest category in DeFi, with a total locked value exceeding $6.5 billion. There are over 100,000 holders of RWA-related protocol tokens on the Ethereum blockchain, more than doubling in the past year. As shown in Figure 2.1, after peaking at $6.272 billion last October, the total locked value of the RWA market has seen a continuous decline in recent months. Meanwhile, the value of the tokenized government bond market has also retreated from $771 million at the end of last November, but since February of this year, the tokenized government bond sector has returned to an upward trend. 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 Figure 2.1

5. RWA User Behavior

As shown in Figure 3.1, 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. 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 Figure 3.1 As shown in Figure 3.2, the number of interactions between RWA token holders and independent wallet addresses has steadily increased. This reflects an enhancement in the recognition and positive expectations of RWA among investors. Additionally, through time series analysis of RWA holders' 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. Source: dune Figure 3.2

6. Future Outlook for RWA

The overall RWA market size is still relatively small. However, the efficiency and cost advantages demonstrated by blockchain have led traditional financial giants to continuously explore the RWA field, such as Franklin Templeton and WisdomTree's attempts to tokenize U.S. Treasury bonds on Stellar. Opportunities: Asset Types: In the short to medium term, RWA assets will still be primarily financial assets, with a focus on relatively scarce fixed-income products on-chain. Market Supply and Demand: RWA assets will compete with crypto-native assets. In the context of high macro interest rates, U.S. Treasury products, which have strong consensus and are considered risk-free assets in dollars, will remain core. During a rate-cutting cycle, the market will favor risk assets, thereby reducing the attractiveness of fixed-income RWA. However, as the crypto world gains a deeper understanding of compliance, there will be more compliant on-chain assets emerging to compete with crypto-native assets. Issuance Models: Currently, the mainstream RWA issuance model is asset-backed, which actually adds an extra layer of counterparty risk and reduces efficiency. In the future, more direct issuance models of RWA assets will emerge to further reflect the efficiency and cost advantages of the on-chain financial system. Risks: Crypto Asset Attributes: Due to the high risks and volatility associated with the permissionless nature of crypto assets, as more financial assets are tokenized and integrated with the crypto asset world, whether extreme market conditions will lead to large-scale redemptions that transmit risks to traditional financial markets, causing unpredictable impacts. Time-Consuming Processes: Tokenizing physical assets involves legal, technical, and operational challenges. Hacker Attacks: Real-world assets are primarily protected against theft, and hackers cannot attack them, while anything on-chain carries the risk of loss, and in certain countries and regions, assets can be confiscated. Regulatory Issues: The regulatory framework for crypto assets and RWA assets is limited. Legal Issues: For example, due to securities/investor laws and KYC/AML procedures, Americans may face certain restrictions. In other countries and regions, it may be outright illegal or non-compliant, not just a matter of restrictions.

7. Recommended Potential RWA Projects

Credit Lending Market

Representative projects include: Centrifuge, Maple, Goldfinch, TrueFi, etc.

Centrifuge Name: $CFG Market Cap: $334M Centrifuge is a decentralized asset financing protocol aimed at unlocking the liquidity of real-world assets. It is currently the project with the highest active loan amount in the on-chain private credit space ($290 million). The project has raised a total of $27 million, with notable VCs including Coinbase and IOSG, and has its own parachain developed based on Polkadot. It collaborates with well-known DeFi projects like MakerDAO and AAVE, serving as the underlying technology service provider for expanding RWA assets. Centrifuge is undoubtedly the leader in the RWA credit sub-track. Overall, as a lending platform, Centrifuge's core mission is to connect two parties: one is the funders who want to earn returns through lending, primarily some DeFi protocols in the crypto space, such as MakerDAO and Aave; the other is the borrowers seeking financing, generally startups or organizations with real-world assets like real estate, receivables, and invoices. Centrifuge was born to facilitate the flow of assets between the real world and DeFi. In 2022, as the crypto market entered a deep bear phase, the overall liquidity of DeFi was insufficient, and CeFi experienced a wave of collapses, leading to significant defaults in institutional lending protocols represented by Maple and TrueFi. By 2023, with the rise of the RWA narrative, the on-chain lending space saw a turnaround, and the market landscape underwent significant changes. In addition to the previously leading lending protocols like Maple experiencing a recovery in active loan amounts, Centrifuge, which has remained relatively low-key, has seen rapid growth in its on-chain lending data, surpassing Maple to become the new leader in the credit space. Goldfinch, favored by many well-known capital firms like a16z, has developed steadily without much growth or significant decline. Centrifuge is actually an early on-chain lending protocol, established in 2017. Unlike Maple and TrueFi, which are more focused on crypto financial institutions, Centrifuge emphasizes initiating loans against traditional real-world assets, making it one of the earliest players in RWA. As early as 2020, Centrifuge served as a technology provider to help MakerDAO build an RWA vault backed by real estate development loans through the project 6sCapital. This year, the rapid growth of active loans on Centrifuge is largely attributed to MakerDAO's layout in RWA assets. Among the six lending pools disclosed on Centrifuge's official website, several are related to MakerDAO. For instance, there are pools investing in real estate bridge loans like the NewSilver series, investing in structured credit like the BlockTower series, and based on receivables lending like the HarborTradeCredit series, with MakerDAO as a priority investor in these pools. Currently, the funds related to MakerDAO account for about $200 million, making up 80% of Centrifuge's total TVL (approximately $290 million). MapleFinance Name: $MPL Market Cap: $56M Maple is a lending protocol that allows large centralized institutions to borrow under-collateralized loans from crypto asset lenders. Its unsecured loans focus on institutional lenders and corporate borrowers. In simpler terms, through Maple, you can lend your assets to institutional traders. Currently, Maple is the protocol that has generated the largest total loan amount in the RWA space, with a TotalLoans of $1.8 billion. However, there is a potential bad debt issue here, as one of the risks of under-collateralized loans is bad debts and defaults. Many of these bad debts occurred after the collapse of FTX. For example, Auros owes $18 million, although they have already repaid 55% and restructured the remainder. Similarly, OrthogonalTrading, due to mismanagement, still owes $31 million and cannot repay. In response to these issues, MapleFinance has learned lessons and upgraded to Maple 2.0. In the 2.0 protocol, lenders can withdraw funds at any time (compared to a 30-day lock-up period), and Pool representatives can declare defaults in advance. Moreover, through the new upgrade, Maple hopes to diversify into more real lending areas, such as funding and insurance. Additionally, to further realize the asset tokenization of traditional financial assets, Maple has brought TSLA, AAPL, and U.S. Treasury bills onto the blockchain via Polygon. This way, users can trade these companies' stocks on-chain 24/7. Of course, all these transactions are legal and comply with German regulations (German market). Goldfinch Name: $GFI Market Cap: $115M Founded by former Coinbase employees, Goldfinch entered the market a bit later than Centrifuge but has gained significant funding from well-known institutions due to its innovative model. According to RootData, Goldfinch has completed three rounds of financing, raising a total of $37 million, with investments from a16z, SVAngel, AllianceDAO, Balaji Srinivasan, Ryan Selkis, and others. Goldfinch primarily provides loans to debt funds and fintech companies, offering USDC credit lines to borrowers and supporting the conversion to fiat currency for them. Goldfinch's model is quite similar to traditional banks, but it has decentralized auditors, lenders, and credit analyst pools. The auditors auditing borrowers must hold staked governance tokens (GFI). Goldfinch can offer high yields, and due to low collateral thresholds, its borrowers can pay interest rates of 10-12%, and currently, it has not experienced any bad debts. Earlier this year, Goldfinch announced a pilot project that allows users to obtain credit by utilizing on-chain cash flows on Goldfinch. Additionally, Goldfinch launched a new transaction structure: redeemable loans. This product allows investors to choose to recover their investment before the loan's final maturity date. For the first transaction, the call payment deadline will be set for every three months, requiring 60 days' advance notice for the call, but these parameters are customizable within the product's smart contract. Goldfinch also announced a $2 million transaction with fintech company FazzFinancial, offering users a fixed annual interest rate of 13% USDC, supporting 90-day redeemable loans with 60 days' advance notice. It is worth mentioning that this alternative asset class is not affected by fluctuations in the cryptocurrency or stock markets, and its returns come from real-world economic activities. This issuance will not be registered with the U.S. Securities and Exchange Commission or any state or other jurisdiction's securities regulatory agency under the 1933 U.S. Securities Act, and participants in this issuance are limited to U.S. accredited investors and non-U.S. persons who have completed accredited investor certification through ParallelMarkets. TrueFi Name: $TRU Market Cap: $121M TrueFi is an unsecured credit protocol driven by on-chain credit scoring. Since its launch in November 2020, TrueFi has issued over $1.7 billion in loans to more than 30 borrowers and paid over $40 million in interest to protocol participants. Borrowers include leading cryptocurrency institutions, as well as fintech companies, credit funds, and traditional financial companies. TrueFi has raised over $30 million in funding, with investments from a16z Crypto, BlockTower Capital, Foundation Capital, Distributed Global, ZhenFund, GGV Capital, Jump Trading, Danhua Capital, and others.

Tokenization of U.S. Treasury Bonds

Major projects include: FOBXX with a scale of $380 million (Franklin OnChain U.S. Government Money Fund), BUIDL with a scale of $300 million (BlackRock USD Institutional Digital Liquidity Fund), USDY with a scale of $120 million (Ondo U.S. Dollar Yield), USTB with a scale of $90 million (Superstate Short Duration U.S. Government Security). Among these four projects, only Ondo has issued tokens, making it the leader in the tokenization of U.S. Treasury bonds.

Ondo Finance Name: $ONDO Market Cap: $1B Founded in 2021, Ondo Finance's team members have rich backgrounds from various institutions and DeFi protocols, including Goldman Sachs, Fortress, Bridgewater, and MakerDAO. Ondo Finance has currently secured $34 million in investments from well-known institutions such as Pantera Capital, Coinbase Ventures, Tiger Global, Wintermute, and others. Earlier this year, Ondo Finance launched a tokenized fund that allows stablecoin holders to invest in bonds and U.S. Treasury bonds. Ondo Finance currently supports four types of investment funds — U.S. Money Market Fund (OMMF), U.S. Treasury Bonds (OUSG), Short-Term Bonds (OSTB), and High-Yield Bonds (OHYG), marking these investment funds as RWAs (referred to as "fund tokens"). After participating in the KYC/AML process, users can trade fund tokens and use these fund tokens in permitted DeFi protocols. The Ondo Finance team has also developed a decentralized lending protocol called Flux Finance, which specifically invests in BlackRock's iShares Short-Term Treasury ETF (SHV). This protocol provides various tokens for lending, such as USDC, DAI, USDT, and FRAX, with OUSG as the only collateral asset. KYC-compliant OUSG holders can deposit into Flux Finance for lending, while lenders can provide stablecoins to earn returns. Earlier this year, Flux Finance went live on the Ethereum mainnet.

Real Estate Related

Projects to watch: PROPS, (Aptos real estate leader) RealT (currently with a TVL of $100 million), Homium raised $10 million in funding on April 17, Parcl received over $10 million in investments from numerous well-known VCs. Currently, among these four protocols, only PROPS and Parcl have issued tokens, with Parcl being a real estate derivatives protocol currently valued at $64 million. Propbase Name: $PROPS Market Cap: $82M Propbase is a cutting-edge real estate tokenization platform that leverages the power of the Aptos blockchain to provide users with a new and exciting way to invest in real estate. The $PROPS native utility token powers the entire ecosystem and provides a unified method for all smart contract interactions, property transaction fees, and access to new listings on the Propbase DApp. Propbase facilitates the tokenization of real estate assets, enabling owners to convert physical properties into digital tokens that can be easily traded, transferred, and managed on the blockchain. By breaking down traditional barriers to real estate investment, Propbase democratizes real estate investment and expands opportunities for diversified investment. PROPS tokens can be used on the platform to purchase virtual goods, services, and content to meet user needs. As the platform ecosystem continues to grow and develop, the application scenarios for PROPS tokens will become more extensive, further enhancing their value. However, the project also has disadvantages: Market Acceptance: Although Propbase adopts blockchain technology, the concept of tokenization in the real estate industry may still face challenges in market acceptance and will require time for promotion and popularization. Regulatory Risks: The real estate industry is subject to strict regulations, and Propbase, as a platform involved in real estate transactions, may face regulatory challenges and risks, necessitating cooperation with regulatory agencies to ensure compliance. Parcl — Solana Name: $PARCL Market Cap: $429M Parcl is a real estate investment platform on the Solana blockchain, aiming to bring the world's most popular real-world assets into the ecosystem through blockchain technology. Its uniqueness lies in allowing users to invest in entire communities and cities rather than being limited to specific buildings. The platform's index represents the residential real estate market of cities, similar to a real estate investment trust (REIT) index system. As shown in Figure 4.1, this is the cover of Parcl's official website.

Source: https://app.parcl.co/ Figure 4.1 Parcl's protocol combines traditional AMM and perpetual contract decentralized exchanges, providing a trading market for real estate indices in the DeFi space, meeting users' speculative or hedging needs. Thus, it can be seen that Parcl's RWA trading not only offers higher returns but also comes with higher risks.

Disclaimer: Readers are advised to strictly comply with the laws and regulations of their location; this article does not constitute any investment advice.