Author: Aylo, author of alpha please; flow, crypto researcher; translation: Jinse Finance xiaozou
We have reached an important moment in the history of Crypto.
In the past few weeks, we have witnessed a 180-degree turn in the US’s stance on cryptocurrencies. Despite the difficulties, all eight Ethereum ETFs were approved by the SEC. In addition, the US House of Representatives not only approved the crypto bill FIT21, but also passed legislation to prevent the formation of central bank digital currencies. But what is even more surprising is that crypto has even begun to become an important topic in the upcoming US presidential election.
So, if you are a large financial institution, the message is clear: crypto is not going away, so if you don’t want to be left behind, you better familiarize yourself with the world of crypto and start exploring its various use cases.
From this perspective, it seems obvious to think that the field of tokenization of real-world assets will have huge growth potential in the future.
But what exactly is this trend, why is it attracting so much attention and hype, and how can you make the most of it? That’s what we’re going to explore in this article. And, you’ll find a lot of alpha opportunities in it.
1. RWA Case
If software is eating the world, then tokenization of real-world assets is eating the capital markets.
In recent years, the RWA (real world asset) space has become one of the most promising use cases for blockchain technology, that is, moving real-world assets to the chain. The RWA case is simple: connecting the stability and value proposition of real-world assets with the innovative features and potential efficiency of blockchain technology and DeFi (decentralized finance).
In fact, many see this space as a fairly significant part of the financial world. Recently, we’ve even seen big names in finance — like BlackRock and Franklin Templeton — take a keen interest in the space and launch their own tokenized funds.
In theory, any real-world asset that can be easily traded can be tokenized and brought on-chain, including tangible and intangible assets, and fungible or non-fungible assets. The figure below is a partial list.
(1) Why is tokenization so important?
If there were no clear advantages to bringing assets on-chain, RWA would not have received so much attention. The following figure lists the main benefits of tokenization.
The core theory behind DeFi is that blockchain can create better standards for seamlessly exchanging different assets. In this sense, RWA simply recognizes the value proposition of DeFi and extends it to all tradable assets to build the next generation of markets - a more transparent, secure, fair and open market.
(2) understand the meta
We are entering the tokenization era of markets. Slowly but surely, all assets will move on-chain, challenging the 30-year status quo of global capital markets. This is especially true given that the RWA meta is at the intersection of two trends shaping the world today: everything will be financialized and digitized.
Financialization: In today's world, finance is borderless, and the economy is becoming increasingly borderless. Individuals can transfer asset ownership all over the world. Everything has a market, everything has a price, and everything can be traded. Therefore, it becomes increasingly meaningful to establish a more efficient, transparent, fair, and open market mechanism.
Digitalization: Our world is increasingly becoming digital. We have connected phones, watches, and soon, connected brains. In this sense, it seems that the next logical step is to move proof of asset ownership onto a blockchain network.
In this sense, RWA can fully seize the opportunities brought by these two trends.
(3) Main challenges
There is no doubt that real-world assets on-chain have very interesting properties, but they also bring many challenges. These challenges mainly revolve around:
Regulation: Currently, there is no clear answer as to where to establish a tokenized asset market without complex regulation. However, as the world’s view on crypto evolves over the years, this may change.
Liquidity: Providing the right market structure for liquidity and market making in real-world assets can be challenging, especially for highly illiquid markets that trade around the clock.
Education: It will take a long time for everyone to understand the true value proposition of bringing real-world assets on-chain, as it may be difficult to grasp blockchain technology and its trade-offs at first.
2. The evolution of RWA
(1) USD-pegged stablecoins
Fiat-backed stablecoins were the first killer use case for tokenizing real-world assets, and the market has grown dramatically in recent years. Today, the two largest fiat-backed stablecoins are Circle’s USDC and Tether’s USDT, with a combined market cap of over $130 billion, up from around $5 billion at the start of 2020.
(2) Commodity-backed tokens
Tokenization of precious metals has also become another popular application of RWA. For example, Tether Gold (XAUT) or PAX Gold (PAXG), which are tokens backed by physical gold. Although this is a relatively new market, it is developing rapidly, and the market capitalization of XAUT and PAXG is about $840 million in total.
(3) Tokenized government bonds are growing rapidly
The last big trend in RWA is the tokenization of US Treasuries. According to 21co data, we noticed that the market capitalization of this field has grown very fast, reaching more than $1.3 billion. But what is more noteworthy is that large TradFi institutions are entering this market. For example, Franklin Templeton's BENJI token has accumulated about $370 million in deposits, while BlackRock's BUIDL token has received more than $380 million in deposits.
(4) The beginning of the next chapter
This tokenization trend is just beginning and is expected to continue to grow rapidly. According to Boston Consulting Group, the global market for tokenization of financial assets will reach $16 trillion by 2030, which may eventually become the long-awaited bridge between TradFi and DeFi, creating the next generation of markets.
We can envision a future where not just purely financial assets, but almost any asset that is easily tokenizable — from luxury watches to art to real estate — will be tokenized on the blockchain. This is the financial world of the future.
3. Seize opportunities
At this point, 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 list of RWAs that should help.
But I will caution you: the crypto world is highly speculative at this point and caution must be exercised. So, as always, what follows is not a prediction, just my thoughts. Thoughts can change a lot as data becomes more accessible and noise is isolated over time.
Please note that this is not an exhaustive list, just some of the projects I think are worth keeping an eye on. There are many more of these projects, and I obviously missed a lot of them.
Ready to go? Let’s take a look at a few projects you might want to add to your watchlist:
（1） Chainlink（LINK）
Chainlink recently updated their description of the network, calling it a “universal platform for the future of global on-chain markets.” As a bridge between real-world data and blockchain, Chainlink is key to enabling the tokenization of real-world assets.
I wrote the following tweet a while ago, but it rings truer today than ever before. Chainlink is actively working with Swift, The DTCC, and some of the world’s largest banks right now, and these aren’t hyped partnerships. Very real pilots and case studies prove the technology is already being implemented, and it’s only a matter of time before you see full-scale on-chain RWAs.
Long term, I remain very bullish on Chainlink.
（2）Ondo Finance（ONDO）
Ondo is building the next generation of financial infrastructure to improve market efficiency, transparency and accessibility. It allows retail and accredited investors on the chain to enter the bond market through products such as USDY (a tokenized note backed by U.S. Treasuries) and OUSG (short-term U.S. Treasury bonds).
ONDO is the best performing emerging coin for 2024. I think this project is very interesting and has a lot of momentum lately. But it may be a bit overhyped and overvalued right now. Nevertheless, it is definitely worth adding to your RWA watchlist.
（3）Pendle Finance（PENDLE）
Pendle is a decentralized financial 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.
This is also a very good deal for earning points.
（4）TrueFi（TRU）
TrueFi is a modular infrastructure for on-chain credit that connects lenders, borrowers, and portfolio managers through smart contracts governed by TRU.
（5）Mantra Network（About）
Mantra is a security-first RWA L1 chain designed to comply with real-world regulatory requirements.
（6）Polymesh Network（POLYX）
Similar to Manta, Polymesh is an institutional-grade permissioned blockchain built specifically for regulated assets.
（7）Centrifuge（CFG）
Centrifuge provides infrastructure and ecosystem for tokenizing, managing and investing in a complete and diverse portfolio of real-world assets. The asset pool is fully secured, investors have legal recourse, the protocol is asset class agnostic, and the asset pool covers structured credit, real estate, U.S. Treasuries, carbon credits, consumer finance, etc.
（8）Dusk Network（DUSK）
Dusk is a permissionless, ZK-friendly, L1 blockchain protocol focused on the tokenization of real-world assets.
（9）Clearpool（CPOOL）
Clearpool is a decentralized finance ecosystem that aims to bring the first-ever permissionless marketplace for unsecured institutional liquidity.
（10）Polytrade（TRADE）
This is a real-world asset marketplace that brings together tokenized treasuries, credit, stocks, real estate, commodities, collectibles, art, intellectual property, creator royalties, luxury goods from all chains onto one platform.
The easiest way to participate in this trend:
If you don’t want to spend too much time researching and monitoring different projects, you have another option: RWA Thematic by SwissBorg.
You can think of it as a basket of RWA tokens, and the token selection and token allocation is automatically rebalanced for you based on market conditions. It's like an ETF, but for the RWA space.
It’s a quick and easy way to gain exposure to the entire RWA universe with just one click.
These are your alpha opportunities.