Author: Sanjay@Roofstock onChain Vice President Translator: Qin Jin, Carbon Chain Value
Stablecoins, tokenized treasuries, decentralized private credit, physical-backed NFTs, climate and regenerative finance DeFi — these are just some of the trends that will reshape capital markets in the year ahead.
The past two years have presented us with a unique set of challenges in an ever-changing financial landscape. Chief among them has been inflation in the United States, which hit a staggering 9.1% in June 2022, prompting the Federal Reserve to implement a series of aggressive rate hikes (which are still ongoing).
Meanwhile, the cryptocurrency industry has weathered its own storm, with major projects like Terra/Luna, Celsius, Voyager, and FTX falling, as well as banks like Silvergate, Signature, and Silicon Valley Bank.
Amid this turmoil, blockchain builders continue to forge ahead, with the real-world asset (RWA) space emerging as a beacon of innovation and resilience. At its core, tokenization of real-world assets is about creating an investment vehicle on the blockchain that is tied to a tangible asset like real estate or a car, or anything else that might exist in physical form. Once ownership is recorded on the blockchain, the asset can be traded, divided, or held securely.
As we head into 2024, the following seven RWA prospects will reshape the financial landscape:
1. Stablecoins: The Cornerstone of Programmable Money With federal regulation looming, stablecoins - the epitome of programmable money - are on the verge of transformative growth, fundamentally changing the way we think about money. In the United States, two issuers dominate this space - Circle (which issues USDC as a multi-chain solution) and Paxos (which provides token solutions such as Paypal's PYUSD). Globally, stablecoins have a market cap of approximately $125 billion and form the infrastructure layer that powers the Internet of Value. With their stability and flexibility, stablecoins will revolutionize global payments, remittances, e-commerce, trade finance and more.
2. Tokenized Treasury Bonds: A Bridge Between Traditional Finance and Decentralized Finance Tokenized Treasury bonds embody the true convergence of traditional and decentralized finance. As risk-free short-term Treasury yields rise from near zero at the beginning of 2022 to about 5.4% in October 2023, companies such as Franklin Templeton, Ondo, Backed, Maple, Open Eden, and Superstate have taken the lead in tokenizing short-term U.S. Treasury bonds and bank deposits. According to data token and analytics platform RWA.xyz, this new asset class currently has a market cap of $700 million. Tokenized Treasury bonds are breaking down barriers and providing new avenues for investment and financial inclusion.
3. Private credit: empowering small and medium-sized enterprises through DeFi The US private credit market is worth $1 trillion and the global private credit market is worth $1.7 trillion, but small and medium-sized enterprises have long been unable to enter this market. DeFi lending protocols such as Centrifuge, Goldfinch, Credit, Maple, Huma, etc. are changing the rules of the game, opening the floodgates to debt capital from public markets, banking systems, and traditional private credit issuers.
Private loan originators. RWA.xyz focuses on specific industries or geographies and currently estimates that there are approximately $550 million in active loans in this market, with continued growth in the coming months.
4. NFT: Completely transforming the financing model for collections With annual art sales of more than $65 billion worldwide ($30 billion in the United States alone), it is not difficult to see that there are huge business opportunities in art. However, the traditional art and collectibles market lacks liquidity and is expensive (auction houses typically charge a 15-20% fee for small items). It is estimated that the global collectibles market (coins, stamps, books, comics, art, toys, etc.) is about $400 billion in size and also lacks liquidity. Marketplace platforms like eBay and some smaller custom markets cater to the needs of this industry, and lending options are generally limited to pawnshops with higher interest rates.
Fortunately, decentralized protocols like 4K and arcade.xyz are changing this paradigm. By bringing physical collectibles to the blockchain, lending against assets like Supreme T-shirts and comic books has become a reality. These initiatives are democratizing lending and making it accessible to collectors around the world.
5. Consumer Brand NFTs: Boosting Customer Engagement Leading consumer brands including Nike, Adidas, Louis Vuitton, and Coca-Cola are embracing NFTs. From Starbucks on Polygon to Amazon's rumored private blockchain efforts, big brands are using blockchain to enhance digital footprints, customer engagement, and entertainment experiences. Whether on a public blockchain (Starbucks on Polygon) or a private blockchain (rumors around Amazon), these brands are shaping the future of consumer interaction by incorporating gaming and metaverse elements.
6. DeFi in climate and regenerative finance As environmental, social and governance (ESG) issues gain increasing attention, blockchain technology is driving positive changes in the $2 billion and growing carbon market. Companies such as Flowcarbon are using the potential of blockchain to increase transparency in this important market, which must grow 15 times by 2030 to achieve the goals of the Paris Agreement. Blockchain's accuracy and transparency at every stage of the carbon life cycle are essential to promoting a sustainable future.
7. Tokenized deposits and wholesale bank settlements: Revolutionizing cross-border transactions Blockchain technology is reshaping the way banks handle tokenized deposits and wholesale settlements. While central bank digital currencies (CBDCs) may not be a pressing issue in the United States, especially if private issuers can be regulated at the federal or state level, some banks are experimenting with blockchain technology for tokenized deposits and intra-bank or inter-bank wholesale settlements. Pilots by industry giants such as Citigroup and JPMorgan Chase have demonstrated the potential for instant cross-border transactions. This area will continue to expand in the coming months, thereby improving the efficiency of global finance.
These RWA trends herald a new era of finance, offering solutions to long-standing challenges. While their market caps may seem small now, their transformative potential is immeasurable. Stablecoins, tokenized treasuries, decentralized private credit, physical-backed intangibles, consumer brand intangibles, DeFi in climate and regenerative finance, and tokenized deposits/wholesale bank settlements are more than just trends, they are the building blocks of a more inclusive, efficient, and sustainable financial future. In 2024, these innovations will undoubtedly lead the way, bringing unparalleled opportunities to businesses and individuals.