With the rapid development of blockchain and cryptocurrencies, real-world assets (RWA) have become an important topic in the emerging crypto finance space.
Real-world assets (RWA) represent the digitization of tangible assets from the real world, allowing them to be traded and operated on the blockchain. Just like the diverse range of assets in the real world, RWAs include various types.
Let’s delve into the main classifications of real-world assets to reflect the diversity of asset types. These include centralized stablecoins, private lending, public bond markets, cryptocurrency stocks, private equity, real estate, carbon credits, art and collectibles, precious metals, etc.
Centralized Stablecoins: Providing stability to the cryptocurrency world.
Centralized stablecoins play a crucial role in the cryptocurrency space as they are backed by fiat currencies or other tangible assets, serving as stable value mediums in the digital currency market.
These digital currencies aim to offset price volatility in the cryptocurrency market, providing users with a more predictable trading experience.
Different stablecoins occupy different market shares, with the four main stablecoins being USDT, USDC, BUSD, and TUSD. It is noteworthy that the circulating supply of these stablecoins fluctuates over time due to market demand, regulatory policies, and other factors.
USDT (Tether): As a pioneer in stablecoins, USDT has maintained a leading market share. Its current circulation has reached $8.28 billion. However, it is worth noting that the issuance of USDT has fluctuated due to market sentiment and trust factors.
USDC (USD Coin): Another well-known stablecoin, USDC is issued by a centralized entity and backed by USD. Its circulating supply is currently approximately $2.56 billion. Notably, USDC is transparent, and the issuing entity undergoes regular audits to ensure that each token has an equivalent amount of tangible assets backing it.
BUSD (Binance USD): Issued by the globally renowned cryptocurrency exchange Binance, backed by USD, with a circulation of approximately $310 million. However, the issuance of BUSD faces regulatory restrictions that impact its market share.
TUSD (TrueUSD): TUSD is one of the stablecoins backed by tangible assets, with a relatively small market share and a circulation of approximately $287 million. Recently, TUSD's circulation has increased with support from Binance.
In addition, on August 7, 2023, the Web2 payment giant PayPal announced a two-year preparation process to launch a USD-backed stablecoin named PayPal USD (PYUSD).
PYUSD will be supported by USD deposits and managed by Paxos Trust Company, with an exchange rate of 1:1 against the dollar. PayPal's involvement highlights the potential of stablecoins to bridge traditional finance and the world of cryptocurrencies.
Stablecoins in the cryptocurrency space are not just a means of value storage; they are the foundation for realizing financial applications in the cryptocurrency realm, providing users with a more stable trading environment and playing a crucial role in asset circulation.
Private Lending: Exploring efficient decentralized lending using real-world assets.
Peer-to-peer lending is an interesting industry that introduces an efficient and flexible decentralized lending method to the lending market. In the peer-to-peer lending market, only a few reputable borrowers can obtain loans, often without collateral.
Unlike traditional mortgages, peer-to-peer lending does not trigger liquidation due to a decline in the value of collateralized assets.
The borrower and the representative of the agreement sign a contract to ensure responsible lending and allocate capital for low-risk investment channels such as market making.
Peer-to-peer lending injects vitality into the market through effective capital allocation, allowing depositors to earn higher interest during market upswings.
According to data from rwa.xyz, in August 2023, the lending volumes of Maple and TrueFi reached $1.77 billion and $1.73 billion, respectively.
However, the peer-to-peer lending market still faces controversies due to the need for lending licenses and decentralization restrictions. Recent developments in projects like Centrifuge and Goldfinch have brought new opportunities to the peer-to-peer lending sector.
Centrifuge is an innovative platform for tokenizing real-world assets and integrating them into a decentralized financial ecosystem. The platform features its Centrifuge Chain, which is fully collateralized and provides legal recourse to liquidity providers.
Centrifuge achieves this by encoding the borrower's collateralized assets as NFTs off-chain and locking them in smart contracts within the Centrifuge protocol. The NFTs of multiple borrowers are pooled together, and liquidity providers invest in this asset pool to facilitate shared lending.
Additionally, liquidity pools are divided into junior and senior parts, where junior investors may achieve higher returns but bear initial losses; senior investors have lower risks and can enjoy stable returns, catering to different risk preferences.
Centrifuge creates favorable conditions for establishing credit-supported loan pools, such as secured debt instruments, microloans, and consumer loans. Centrifuge consolidates all these different debt products into a decentralized market called the Tinlake real-world asset pool.
Goldfinch primarily supports businesses in emerging markets, helping them borrow cryptocurrencies without providing crypto collateral. Goldfinch was founded by former Coinbase employees and has maintained a zero-default record.
Key participants in Goldfinch include borrowers, loan providers (LP), and the credit committee. Borrowers submit loan applications detailing the amount, purpose, and necessary repayment plans.
The credit committee approves loan applications and monitors repayment plans, including users holding Goldfinch platform tokens ($GFI). LPs provide funding for Goldfinch's liquidity pool and can choose to fund individual or senior lending pools.
Senior funds allocate capital across multiple loans and are protected by the core fund pool.
In addition, there are notable decentralized lending protocols, such as Brú Finance, which specializes in agricultural mortgages, and Credix Finance, which offers unsecured loans.
The decentralized lending landscape, including the private credit market, continuously explores innovative and practical solutions. This advancement not only opens new possibilities for the crypto world but also better serves the diverse needs of market investors.
Public Bond Market: Utilize stablecoins to earn profits in the bond market.
With the decline of DeFi yields and the rise in U.S. Treasury yields due to Federal Reserve interest rate hikes, shifting stablecoins from the cryptocurrency market to the highly liquid public debt market is a promising option.
MakerDAO is one of the first projects to allocate funds to the bond market and remains one of the largest DeFi projects by investment scale. MakerDAO allows borrowers to collateralize assets in a 'vault' (smart contract) to borrow the stablecoin DAI.
As long as the asset value remains above a certain level, borrowers can have full control over their collateralized assets.
Conversely, if the value of the collateralized asset declines and does not meet requirements, the vault automatically liquidates the collateral through an auction process to ensure mutual repayment.
So far, over $680 million has been deposited in MakerDAO's vault. Interestingly, about $500 million of that is U.S. Treasury bonds managed by Monetalis as collateral, while one vault borrowed $7 million using tokenized AAA-rated bonds valued at €40 million as collateral. Currently, 58.6% of MakerDAO's revenue comes from RWA.
Projects like Ondo Finance and BondbloX are dedicated to providing organized financial services to the public, utilizing stablecoins to offer various bond investment opportunities and achieve value appreciation.
Ondo Finance is a project aimed at providing organized financial services for everyone, offering four bond investment opportunities: U.S. Money Market Fund (OMMF), U.S. Treasury Bonds (OUSG), Short-Term Bonds (OSTB), and High-Yield Bonds (OHYG). When users invest USDC, Ondo converts USDC to USD and purchases ETF or fund units to issue fund tokens to users.
Investment profits are automatically reinvested, and when users redeem assets, the tokens are burned, and users receive more USDC in return. Among these, OUSG is the most widely used. When users invest in U.S. Treasuries, they receive OUSG tokens, which can also be used as collateral in Flux Finance to borrow stablecoins like USDC, DAI, and USDT.
The tokenized bond market has grown to $600 million, with Ondo Finance's OUSG token holding a significant share since its launch in January, valued at $140 million. As of July 2023, Ondo’s OUSG token is one of the largest tokenized bond products, managing $134 million in assets on the Ethereum blockchain.
BondbloX is a bond trading platform established and operated by Bondevalue, a recognized market operator (RMO) approved by the Monetary Authority of Singapore. Users must complete KYC before trading on BondbloX.
BondbloX splits bonds, offering trading in smaller denomination bonds. Users can purchase bonds with a minimum amount of $1,000, even though the initial denomination may be $200,000, thereby lowering the trading threshold for bonds. Blockchain-based trading on BondbloX allows for real-time settlement and incurs fixed trading and platform access fees. BondbloX's bond trading platform offers 57 different RWA corporate bonds.
Conclusion
As the cryptocurrency financial landscape continues to evolve, real-world assets are becoming increasingly diverse and integrated. Stablecoins provide a means of stability, peer-to-peer lending explores efficient decentralized lending activities, and the public debt market serves as a tool for profiting using stablecoins. These emerging areas offer limitless possibilities for the future of cryptocurrency finance.
