Original author: AYLO FLOW

Original translation: TechFlow

We are at an important moment in the history of cryptocurrency.

In the past few weeks, we have witnessed a 180-degree turn in the US’s attitude towards cryptocurrencies. Surprisingly, all eight Ethereum ETFs were approved by the SEC. In addition, the US House of Representatives not only passed the Crypto FIT 21 bill, but also passed legislation to prevent the creation of central bank digital currencies. But what is even more striking is to see that cryptocurrencies are even starting to become an important issue in the upcoming US presidential election.

So if you’re a large financial institution, the message is clear: crypto is not going away, and you better get familiar with it and start exploring its different use cases lest you get left behind.

Viewed from this perspective, it seems obvious to think that the real-world asset tokenization space has huge growth potential.

But what exactly is this trend, why is it causing such a stir, and how can you make the most of it? That’s what we’ll explore in this article.

The case for tokenizing real-world assets

If software is eating the world, then tokenization of real-world assets is eating the capital markets.

In recent years, the real-world asset (RWA) space has emerged as one of the most promising use cases for blockchain technology by bringing real-world assets onto the blockchain. The case for RWAs is simple: bridge the stability and value proposition of real-world assets with the innovative capabilities and potential efficiencies of blockchain technology and decentralized finance (DeFi).

In fact, many see this space as the new hotness of the financial industry. Recently, we’ve even seen the biggest names in finance, such as BlackRock and Franklin Templeton, take a keen interest in this space and launch their own tokenized funds.

(Source: Bloomberg)

In theory, any easily tradable real-world asset can be tokenized and put on a blockchain. This includes both tangible and intangible assets, and fungible or non-fungible assets. Below is a non-exhaustive list of some of these assets.

Why is tokenization so important?

RWA would not have gained so much attention if there were no clear advantages to putting assets on-chain. The following table explains the main advantages of tokenization.

The core theory of DeFi is that blockchain can create a better standard for seamlessly exchanging different assets. In this sense, RWA is simply about recognizing the value proposition of DeFi and extending it to every tradable asset to build the next generation of markets - a more transparent, secure, fair and open market.

Understanding RWA Trends

We are entering the era of tokenization of markets. Gradually, all assets will be on-chain, challenging the status quo of global capital markets over the past 30 years. Especially when we consider that the RWA trend is at the intersection of two trends that are shaping the world today: financialization and digitization.

  • Financialization: Today, finance has no borders, and the economy is becoming increasingly borderless, with individuals transferring ownership of assets to each other across the globe. Everything has a market, everything has a price, and everything becomes tradable. Therefore, it becomes increasingly meaningful to establish a more efficient, transparent, fair, and open market mechanism.

  • Digitalization: The world is becoming increasingly digital. We have connected phones, watches, and soon, connected brains. In this sense, it seems a logical progression for proof of asset ownership to migrate to a blockchain network.

In this sense, RWA is well positioned to capture these two trends.

Main Challenges

There is no doubt that putting real-world assets on the blockchain provides very interesting features. But it also brings many challenges. The main challenges revolve around:

  • Regulation: Currently, there is no clear answer as to where to build a market for tokenized assets without running into a complex regulatory landscape. However, this may change as people’s perception of cryptocurrencies continues to evolve.

  • Liquidity: Providing the right market structure for real-world assets to achieve liquidity and market making can be a challenge, especially for highly illiquid markets that trade 24/7.

  • Education: It will take a long time for everyone to understand the true value proposition of putting real-world assets on-chain, as blockchain technology and its trade-offs can be difficult to understand in the early stages.

The development of RWA

Stablecoins pegged to the US dollar

Fiat-backed stablecoins are the first killer use case for tokenizing real-world assets. This market has grown dramatically in recent years. Today, the two largest fiat-backed stablecoins (Circle’s USDC and Tether’s USDT) have a combined market cap of over $130 billion, up from around $5 billion at the beginning of 2020.

Commodity-backed tokens

Tokenization of precious metals has also become another popular application of RWAs. Some examples include Tether Gold (XAUT) or PAX Gold (PAXG), which are tokens backed by physical gold. Although this is a relatively new market, it is growing rapidly, and the combined market capitalization of XAUT and PAXG is about $840 million.

Tokenized Treasury Bonds

The latest big trend in RWAs is the tokenization of US Treasuries. According to 21co, we notice a rapid growth in the market capitalization of this sector, exceeding $1.3 billion. But what is more interesting is that traditional financial institutions are entering this market. For example, the BENJI token represented by Franklin Templeton has accumulated about $370 million in deposits, while BlackRock's BUIDL token has received more than $380 million in deposits.

The beginning of the next chapter

This tokenization trend has just begun and is expected to continue to grow rapidly. According to Boston Consulting Group, the global market for tokenization of financial assets is estimated to reach $16 trillion by 2030, which may eventually become the bridge between traditional finance and DeFi that we have been waiting for, building the next generation of markets.

Looking ahead, we can envision a future where not just purely financial assets, but almost any asset that is easily monetizable, from luxury watches to art to real estate, will be tokenized on the blockchain. This is the future of finance.

take this opportunity

After reading all this, I’m sure you’re now asking yourself: “Okay, I get it, but how can my portfolio take advantage of this new trend?” Don’t worry, I’ve got a RWA watchlist for you (+ a BONUS).

But before we dive in, a word of caution. There is currently significant speculation in the cryptocurrency market, so great caution must be exercised. So what follows is not a prediction, just some thoughts. And as data becomes more available and time passes, ideas can change significantly.

This is not an exhaustive list, just some of the projects I've looked into in depth that I think are worth keeping an eye on. There are many other projects in this category, and I've obviously left out a lot.

RWA Project

Ready? Now let’s explore some projects you might want to add to your watchlist:

  • Chainlink（$LINK）

In short: Chainlink recently updated their description of the network to call it “a universal platform for creating the future of global markets on-chain.” By bridging the gap between real-world data and blockchain, Chainlink is key to enabling the tokenization of real-world assets.

This tweet I wrote a while ago is still very relevant today. Chainlink is actively working with Swift, The DTCC, and some of the largest banks in the world. These are not hype partnerships. Very real pilots and case studies have been conducted to prove the viability of the technology, and it’s only a matter of time before we see full settlement of RWAs on-chain.

(See the tweet here)

In the long run, I am very bullish on Chainlink.

  • Ondo Finance（$ONDO）

In short: Ondo is building the next generation of financial infrastructure to improve market efficiency, transparency, and accessibility. It allows retail and accredited investors to access the bond market on-chain through products such as USDY (tokenized notes backed by US Treasuries) and OUSG (short-term US Treasury bonds).

Here are some things you need to know about ONDO:

(See tweet for details)

ONDO is one of the best performing new tokens of 2024. I think this project is very interesting and has a lot of momentum lately. But it is probably a bit overhyped and overvalued right now. Nonetheless, it is definitely worth adding to your RWA watchlist.

  • Pendle Finance（$PENDLE）

In short: Pendle is a decentralized finance protocol that allows users to tokenize and sell future earnings. It is an innovative tokenization model solution that provides users with flexible and dynamic earnings management options.

It’s also a good deal to earn points.

  • TrueFi （$TRU）

In short: TrueFi is a modular on-chain credit infrastructure that connects lenders, borrowers, and portfolio managers through smart contracts and is governed by $TRU.

  • Mantra Network（$OM）

In short: Mantra is a security-first RWA level-one blockchain designed to comply with real-world regulatory requirements.

Dive deeper into the project in this tweet:

  • Polymesh Network ($POLYX)

In short: Similar to Mantra, Polymesh is an institutional-grade permissioned blockchain purpose-built for regulated assets.

If you want to learn more about why this project is important, check out this tweet:

  • Centrifuge ($CFG)

In short: Centrifuge provides the infrastructure and ecosystem to tokenize, manage, and invest in a complete, diversified portfolio of real-world assets. The asset pool is fully collateralized, investors have legal recourse, and the protocol has no restrictions on asset classes. The asset pool includes structured credit, real estate, U.S. Treasuries, carbon credits, consumer finance, etc.

  • Dusk Network ($DUSK)

In short: Dusk is a permissionless, ZK-friendly, first-level blockchain protocol focused on tokenizing real-world assets.

You can learn more about Dusk here:

  • Clearpool ($CPOOL)

In a nutshell: Clearpool is a decentralized finance ecosystem dedicated to creating the first permissionless, institutional liquidity marketplace.

  • Polytrade ($TRADE)

In short: it’s a marketplace for real-world assets. It brings together tokenized treasuries, credit, stocks, real estate, commodities, as well as collectibles, art, intellectual property, creator royalties, luxury goods, and more, from all chains onto one platform.

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