Despite the lack of macro momentum and crypto internal narratives that have caused major market movements to stagnate, the tokenized market, whether driven by traditional finance or various breakthroughs in distribution channels, has pushed the tokenized market to new highs, exceeding US$1.5 billion for the first time.

We can see that after the publicity, popularization and hype from last year to now, tokenized U.S. debt products have continued to deepen into actual use cases, such as collateral for DeFi, treasury reserves, payment currencies, etc. At the same time, OpenEden's tokenized U.S. debt products also received ratings from the world's three major rating agencies for the first time.

In addition, with the continuous deepening of traditional finance and the opening of supervision, tokenization has also attracted the attention of 30% of Fortune 500 companies. The first to land is undoubtedly stablecoins and stablecoin payments. We have also seen the gold-collateralized stablecoin Alloy by Tether launched by Tether, and other aspects are still being actively explored.

1. Macroeconomic data this week

Lack of macro momentum and crypto internal narratives have caused major market moves to stagnate. In fact, Bitcoin 1-month volatility is at a year-to-date low of 35%. Nevertheless, we believe that a series of potential catalysts may occur in Q3 and Q4 2024, including the start of US rate cuts and the US presidential election, as well as the SEC's end of its investigation into ETH, which has now been realized.

The SEC’s withdrawal of its enforcement action against ETH has increased its dominance of the total cryptocurrency market capitalization from 17.5% to 18.8% this week, although BTC’s dominance remains at 55.5% (although it did spike to 56.5% during the sudden market correction on June 17). This suggests that some altcoins have moved closer to ETH in terms of market share.

Moreover, much of the S&P 500’s gains are still driven by technology-driven catalysts, especially artificial intelligence. Nvidia briefly surpassed Microsoft to become the world’s most valuable company, while Apple rose 9% following its WWDC event and announcement of its integration with OpenAI. Cryptocurrency markets have lacked similar broad endogenous catalysts recently, despite a flurry of legislative activity in mid-to-late May, including the SEC’s approval of a spot ETH ETF and the U.S. House of Representatives’ passage of the 21st Century Financial Innovation and Technology Act (FIT21). The market has been relatively quiet for some time since then, as market participants await the launch of trading in a spot ETH ETF — which Bloomberg Intelligence analysts believe could happen in early July.

Stablecoin + US Treasury yield = Interest-bearing stablecoin = US Treasury RWA = Tokenized US Treasury

2.1 Market continues to grow and competition intensifies

On June 4, the total value of the tokenized U.S. Treasury bond market exceeded $1.5 billion for the first time.

The total value of tokenized U.S. Treasury products has increased by 110% since the beginning of 2024. The total value of tokenized U.S. Treasury products has increased by 1,335% since the beginning of 2023. There are now 24 tokenized U.S. Treasury products, up from 18 at the beginning of 2024 and 3 at the beginning of 2023. There are now over 2,000 tokenized U.S. Treasury product holders.

Market growth also brings with it intensified competition.

$BUIDL, jointly launched by Securitize and BlackRock, is the largest tokenized U.S. Treasury product with a market value of $481 million, accounting for about 30% of the market share. Franklin Templeton's $FOBXX is the second largest tokenized U.S. Treasury product with a market value of $340 million, accounting for about 22% of the market share.

Ondo is the largest provider of tokenized U.S. Treasuries, with its two products $OUSG and $USDY having a combined market capitalization of $548 million.

Ethereum remains the network with the largest share of TVL, with a market cap of $1.2 billion and 73% of the market. Stellar follows closely behind with a market cap of $348 million and 23% of the market.

2.2 Differentiated distribution strategies

As we analyzed in the previous issue of Stablecoin / US Treasury RWA Development Trends, the issuers of tokenized US Treasury bonds are currently promoting differentiated distribution channels based on their own characteristics due to intensified competition. For example, we have seen the idea of ​​collateral:

  • On June 17, Superstate, the team behind $USTB (founded by the founder of Compound), announced that their tokens can now be used as collateral to secure transactions on FalconX.

  • On June 19, Ondo Finance, the team behind $USDY and $OUSG, announced that $USDY can now be used to collateralize Drift Protocol’s perpetual contract transactions.

  • In March of this year, $BUIDL, a subsidiary of Securitize & BlackRock, first announced that their tokens could be used as collateral on FalconX.

Other distribution strategies include targeting DAO treasury allocations, such as direct investments of DAO treasury funds into $FOBXX, as exemplified by its use in the Arbitrum STEP program; and $USDY facilitating consumer payment usage by acting as a deposit currency for Zebec debit cards.

In addition to these direct-to-investor (DTC) distribution strategies, tokenized U.S. Treasury products also go directly to other tokenized U.S. Treasury issuers based on their own merits. For example, Ondo Finance is the largest holder of $BUIDL, with approximately 46% of the supply. Another example is Usual's $USD0 USD stablecoin, which is backed by Hashnote's $USYC.

3. Moody’s grants OpenEden’s tokenized U.S. debt product investment rating for the first time

On June 19, Moody's, one of the world's three major rating agencies, awarded OpenEden's tokenized U.S. debt product $TBILL an "A-bf" investment rating. This is the world's first and only tokenized U.S. debt product rated by this credit rating agency.

The "A-bf" rating primarily reflects Moody's expectations of the quality of the credit assets in the portfolio. Moody's Bond Fund Ratings are not credit ratings, but rather opinions on the term-adjusted weighted average credit quality of the fund's portfolio, adjusted in some cases for factors such as fund governance and the management and strategy of the fund manager.

Positive factors contributing to this rating include:

  • Off-chain records: The fund manager and fund administrator (Protege Fund Services Pte. Ltd.) keep internal records of all transactions;

  • The fund’s net asset valuation reports are reconciled and published daily, and OpenEden Labs’ smart contracts are transparent, allowing investors to confirm the number of T-Bill tokens.

  • Adam Eve Capital recently underwent an independent audit by Ernst & Young, which covered various aspects including anti-money laundering, KYC, and custody and valuation of fund assets.

While Moody's sees the weighted average credit quality of the fund's portfolio as being virtually consistent with an Aaa-bf rating, the A-bf rating reflects: 1) the tokenized product's fund manager's lack of track record in managing funds with similar strategies; 2) its small size exposes it to key factor risks; 3) risks such as the inexperience of technology service provider OpenEden Labs: OpenEden Labs is a young startup that could cease operations or experience technology failures, and its technology infrastructure has only been used by one fund for more than a year without any technical issues to date; and 4) Adam Eve Capital and OpenEden Labs share key personnel, raising concerns about potential conflicts of interest or capacity constraints.

IV. The role of regulatory support for tokenization in the industry

Since the approval of BTC ETF, cryptocurrencies have been increasingly recognized by the mainstream. With the advancement of this important issue in the US election process, the demand for financial innovation, and the relaxation of supervision, the focus of traditional financial capital on cryptocurrencies has shifted from the previous passive "speculation" to how to "actively" transform traditional finance.

Following a June 7 hearing by the House Subcommittee on Digital Assets, Financial Technology, and Inclusion titled “Next Generation Infrastructure: How Can Tokenizing Real-World Assets Promote Efficient Market Functioning?” on June 14, SEC Commissioner Mark Uyeda highlighted the potential of tokenization to transform capital markets at a securities market event.

Specifically, Uyeda focuses on the relationship between technology and market efficiency:

“Securities trade settlements used to rely on physical security certificates, checks and other paper documents. Today, technology has changed, and countries in Europe, Asia, Africa and Latin America have stopped issuing physical certificates. Technology allows trades to be settled faster, more cost-effectively and in larger volumes, facilitating the T+1 settlement cycle for U.S. equity securities.”

“New technologies and innovations have the potential to provide further efficiencies for our global markets and investors. Tokenization can provide greater levels of security, transparency, and immutability to transactions. It also has the potential to eliminate the need for most intermediaries, streamlining processes and reducing transaction costs.”

Ayuda stressed the importance of regulatory cooperation as the tokenization industry matures:

“As with any new technology or innovative idea, regulators should understand its costs, benefits and risks. In November 2023, the UK Financial Conduct Authority (FCA) Asset Management Task Force published a report detailing a ‘blueprint’ for tokenization for FCA-authorized funds. In March 2024, a second interim report was published, focusing on the use cases and next phase of development for tokenized funds.”

“While the FCA is continuing its review of security tokenization, it is important to highlight the depth of their ongoing research to allow for innovation and growth while protecting investors from harm. More importantly, other regulators can review the FCA’s research and consider what steps they might take in relation to tokenization.”

5. 30% of Fortune 500 companies are considering launching tokenization projects

According to Coinbase’s Q2 State of Crypto report, 35% of Fortune 500 companies are considering launching tokenization projects. Executives at 7 of the top 10 Fortune 500 companies are learning more about stablecoin use cases, primarily for low-cost, real-time settlement of stablecoin payments.

86% of Fortune 500 executives recognize the potential benefits of asset tokenization for their companies. 35% of Fortune 500 executives said they are currently planning to launch tokenized projects (including stablecoins), of which they are most interested in:

  • Stablecoins: (1) Instant settlement/low processing time; (2) Payment in stablecoins to reduce fees; (3) Transfers within a company; (4) Fund management/easy exchange; (5) Instant international transfers.

  • Other financial assets: (1) Real-time settlement and reduced transaction times; (2) Cost savings and other operational efficiencies; (3) Improved transparency and traceability of assets; (4) Simplified compliance and regulatory processes; (5) Tokenization of loyalty programs to drive participation.

At the same time, we also believe that encrypted payment will be the first step to achieve Mass Adoption immediately, which is an inevitable trend. The second step is to improve traditional finance, which will be a long process.

6. Tether issues synthetic dollars backed by gold

On June 18, Tether, the world's largest stablecoin issuer, launched a digital asset issuance platform, Alloy by Tether, based on its tokenized gold product Tether gold ($XAUT). The platform allows users to over-collateralize $XAUT in exchange for synthetic US dollars aUSDT.

  • $XAUT is issued by Tether and is an ERC-20 token on Ethereum, backed by physical gold, with each token representing one troy ounce of LBMA gold bar stored in a vault in Switzerland.

  • $aUSDT is anchored to the value of 1 USD, but unlike other stablecoins that use highly liquid, low-risk USD equivalents such as USD cash and US Treasuries as collateral, $aUSDT is over-collateralized by the underlying collateral $XAUT gold.

Interestingly, $aUSDT combines the unit of account characteristics of the U.S. dollar and the store of value characteristics of gold.

Tether CEO Paolo Ardoino said on X: “Alloy by Tether is an open platform that allows the creation of collateralized synthetic digital assets and will soon become part of the new Tether Digital Assets Tokenization Platform.”

The asset class launched by Alloy by Tether is called "Tethered Assets". The goal is to ensure that the value between "Tethered Assets" and their underlying assets (such as the US dollar or gold) remains stable and can operate robustly in the market through stabilization strategies. These strategies include using liquid assets for over-collateralization and setting up secondary market liquidity pools. The Alloy protocol can help promote the growth of Tether $XAUT, enhance the practicality and attractiveness of $XAUT, make it a unique new asset collateral, and help expand into other new DeFi scenarios. $XAUT is the second largest tokenized precious metal product with a market value of more than $388 million. Tether Gold lags behind Pax Gold $PAXG, and its current market value remains at $431 million. The Alloy by Tether project is issued and operated by Moon Gold El Salvador and Moon Gold NA in El Salvador.

In addition to Tether, Ripple also announced that it will work with Meld Gold (powered by Algorand) to launch a tokenized gold product, which will be launched on XRP later in 2024.

VII. EU MICA Stablecoin Regulation

The EU's unified crypto regulatory bill MiCA will be implemented on June 30 regarding stablecoins. MiCA sets unified rules for crypto asset issuers that are not yet regulated by the EU.

MiCA imposes strict requirements on the reserves that back stablecoins. Issuers must maintain sufficient liquid reserves to cover all debts, and these reserves must be protected in the event of bankruptcy. This is to ensure the stability and reliability of stablecoins. Stablecoin issuers are also required to regularly disclose detailed information about the assets that back their tokens, their operational status, and risk management processes.

It is also worth noting that stablecoin issuers will need to obtain authorization from the National Competent Authority (NCA) to offer their stablecoins in the EU. This process will include detailed requirements on governance, capital reserves, and business plans.

Euro-denominated stablecoins currently only account for about 1.1% of the entire stablecoin market. Remember, this is an all-time high. A few years ago, it was basically zero.

Patrick Hensen, senior director at Circle, believes that euro-denominated stablecoins will see an uptick in momentum. His prediction hinges on a potential increase in liquidity and trading volume for euro stablecoins following the implementation of MiCA. In contrast, Tether CEO Paolo Ardoino worries that MiCA’s “requirements will not only make the work of stablecoin issuers extremely complicated, but will also make EU-licensed stablecoins extremely vulnerable and more risky to operate.”

Binance has yet to clarify whether Tether’s $USDT (or any other stablecoin) meets the MiCA requirements. Any stablecoin that does not meet the requirements may be deemed an “unauthorized” stablecoin and delisted by Binance at the end of the month.

8. RWA market hot spots and project investment and financing

Franklin Templeton announced that its tokenized fund shares $FOBXX support the use of USDC stablecoins for redemption. Previously, Securitize and BlackRock's $BUIDL also achieved 7/24 redemption through USDC, but BlackRock's tokenized funds are more targeted at institutional investors, while Franklin Templeton may be more targeted at retail investors. It is launching BENJI App, a digital currency trading platform for retail investors;

Alloy and Obligate partner to bring on-chain bonds to institutional portfolio management;

Clearpool expands to Avalanche, launching exclusively as credit vault;

Securitize on RWA transactions in Spain via Avalanche;

Russia will start using CBDC for cross-border payments in 2025;

Paxos cuts 20% of its staff despite having $500 million in reserves;

Bitcoin Suisse issues tokenized bonds on Polygon;

Ledgible launches tokenized real asset tax solution;

Diamond Lake Minerals partners with Horizon Fintex to build upstream tokenized securities exchange;

Asymmetry Ampleforth launches Ethena competitor;

Brickken selected to participate in European blockchain regulatory sandbox;

Ondo partners with Helio Pay for payments for Shopify merchants;

Figure launches FTX claims market;

MakerDAO votes on whether to drop Monetalis for violating reporting covenants;

Japanese major retailer Marui issues direct digital green bonds through Securitize;

Infineo issues the world’s first tokenized life insurance policy on Provenance;

Circle increases staff by more than 15% and launches “credit program”;

CBDC Survey Shows Expected Decline in Retail CBDC Issuance;

Ondo’s $USDY is now available for payment on Shopify via Helio Pay;

BVNK adds Swift payments for stablecoin and fiat transfers;

UK and ECB to trial FX, DLT interoperability;

Spiko, the first MMF provider to receive an AMF license, raised €4 million in a pre-sale;

Index Coop RWA Index pre-sale is now live;

Nomura’s Laser Digital finally receives Abu Dhabi digital asset license;

Brickken has been selected to participate in the European Blockchain Regulatory Sandbox.

[1] FCA, UK Fund Tokenisation, A blueprint for Implementation

https://www.fca.org.uk/firms/cryptoassets-our-work/fund-tokenisation

[2] FCA, Further Fund Tokenisation, Achieving Investment Fund 3.0 Through Collaboration

https://www.theia.org/sites/default/files/2024-03/Further%20Fund%20Tokenisation%20-%20Achieving%20IF3%20Through%20Collaboration%20%20Mar24.pdf 

[3] Coinbase, The State of Crypto: The Fortune 500 Moving Onchainhttps://www.coinbase.com/blog/the-state-of-crypto-the-fortune-500-moving-onchain 

[4] Alloy by Tether, Tethered Assets

https://docs.alloy.tether.to/ 

[5] McKinsey & Co., From ripples to waves: The transformational power of tokenizing assets

https://www.mckinsey.com/industries/financial-services/our-insights/from-ripples-to-waves-the-transformational-power-of-tokenizing-assets 

[6] Chainlink, How CCIP Programmable Token Transfers Unlock Cross-Chain Innovation

https://blog.chain.link/ccip-programmable-token-transfers/ 

[7] New paper alert: Atomic and fair data exchange via blockchain

https://a16zcrypto.com/posts/article/new-paper-alert-fair-data-exchange/