Original author: Zuo Ye
Original source: Zuoye Waiboshan
The only lesson that leeks learned from the cycle is that they did not learn any lessons from history.
In the face of Ethena’s high interest rates, Luna-UST’s tragic past is just a thing of the past, and it has returned to a game of who can run faster.
Even MakerDAO's DAI could not escape the temptation and changed its usual low-risk nesting of USDC to actively embrace the high returns of USDe.
Although Ondo issued USDY less than three weeks ago and its TVL has climbed from 100 million to 200 million, it has teamed up with the BUIDL fund established by BlackRock to jointly resist risks and expand and strengthen the RWA ecosystem.
As we can see, the above three are all stablecoins, and they are also the latest developments of RWA - real assets are put on the chain, native arbitrage on the chain, and finally fed back to real assets, forming three small worlds that are connected end to end but operate independently.
RWA New Form
Specifically, the current RWA not only focuses on stablecoins, but also has the following new trends.
The real world is denominated in US dollars: real assets focus on four major asset categories: US Treasuries, US dollars, bonds and compliant stablecoins. It is better to say that US dollar-related assets are put on the chain rather than real assets.
Dual-currency standard in the crypto world: The status of Bitcoin and Ethereum is generally recognized in the crypto world. Ethereum not only serves as an asset issuance chain, but ETH also plays a role equivalent to that of "Bitcoin" reserve.
Integration replaces change: Traditional finance and exchanges become the infrastructure for the operation of cryptocurrencies. RWA comes from them and eventually flows to them. Even their existence is no longer a problem. The gravity of reality eventually presses down the head of dreams.
From the US dollar tide to the ETH "local currency deflation-recirculation" standard
Each bull-bear cycle starts with Bitcoin, and then a large market for absorbing deposits appears, such as exchanges, DeFi or stablecoins, and then a liquidity crisis occurs in a certain project, and eventually everything collapses.
However, this cycle is different. On the one hand, over-the-counter funds brought in 60 billion yuan of ETF funds, which improved the previous US dollar interest rate cuts. The interest rate hike cycle would cause a "tidal" dollar shortage worldwide. Bitcoin acted as a reservoir, appropriately alleviating this harm. Of course, the reservoir still has more than 10 times of room for expansion.
Summary point 1: Bitcoin has a dual nature. It is both a real asset and a crypto asset.
This reservoir has two development paths in the future: one is to continue to increase the capacity of Bitcoin, and the other is to seek more ETF products, such as Ethereum.
On the other hand, Ethereum's staking system has created an in-market "local currency deflation-recirculation" mechanism, with ETH as the denominated asset. Even if the pledged issuance assets (LSDfi) and re-pledged issuance assets (LRTfi) eventually collapse, ETH's own staking income will not decrease. Instead, it will increase in value through deflation as usage increases dramatically during the bull market.
That is, if you go long on ETH, your earnings denominated in USD will increase, and if you go short on ETH, your earnings denominated in ETH will not decrease, provided that ETH can become the phoenix of the crypto world like Bitcoin.
Summary point 2: As long as you can cross the bull and bear markets, it is possible for both long and short positions to make profits, and losses in the bear market can be made up in the bull market.
Now change your thinking. If something is equal to the US dollar, that is, the US dollar is always pegged at 1:1, and uses a gold and silver composite standard (BTC+ETH) as an issuance reserve, and is seamlessly integrated with the exchange, then can USDe under this RWA model survive bull and bear markets?
Summary Point 3: Don’t resist centralized exchanges, but use them as a source of profit.
We cannot predict the future, we can only make assumptions based on the past and give our own opinions. USDe will most likely collapse, but if the bull market lasts long enough, it may decline steadily and eventually become obsolete among the other currencies. If the price of ETH collapses sharply, USDe will also collapse quickly.
Based on the above three points, let’s use USDe to explain why this conclusion is reached.
USDe Principle
The issuance of USDe is linked to the long and short positions of ETH. According to AC theory, spot trading is a perpetual contract with no leverage or 1x leverage. Buying is long and selling is short.
The Delta neutrality of USDe can be roughly understood in this way, that is, the collateral is stETH and BTC, etc., which is equivalent to buying long. At the same time, the corresponding short ratio is bought on the exchange, one positive and one negative. This is the so-called neutrality and risk hedging.
There are two benefits here. stETH comes with a return of about 4%. Secondly, short selling will receive fees from longs. Combining the two, during the bull market, the price of ETH will continue to rise, and the rate of return denominated in USDe will be ridiculously high.
Then the risk will follow, that is, the price of ETH will fall. Then, as mentioned earlier, the income denominated in U will not only disappear, but the exchange will even need to pay long fees, resulting in insolvency and an instant collapse.
But the hope here is that even if the price of ETH falls, the ETH-based returns of stETH will still exist. As long as there is a bull market, ETH can still be sold for profit. People just need to firmly believe in this and not withdraw their investment.
During the bull market, everything is easy. For assets such as BTC/ETH, exchanges need short positions to maintain liquidity to a certain extent. In addition, they are already very skilled in techniques such as unplugging network cables and inserting pins, so they don’t care too much.
But as we can see, rather than saying that USDe is pegged to ETH derivatives for pricing, it is better to say that it relies on exchanges to operate. The exchange itself is a black box. This is not a problem that can be solved by connecting to an oracle. Moreover, it is unknown how the exchanges will respond to the USDe family members who make a living by charging fees.
USDe is so creative that I couldn’t help but write it in the middle of the article. Next is Ondo’s new business model and speculation about where MakerDAO’s DAI will go.
Among them, Ondo is actually more like tokenizing assets such as U.S. Treasuries, but it represents the comprehensive dollarization and "virtualization" characteristics of RWA-linked asset types, that is, physical assets such as real estate and other currencies are no longer the main direction in the future.
Get rid of reality and move towards the virtual, and be happy
MakerDAO represents the struggle of on-chain protocols. We can still vividly remember how MakerDAO directly purchased government bonds through a proposal. Unexpectedly, the road of RWA is becoming more and more confusing. Should we go on-chain, or move native assets off-chain, or combine them? Perhaps it will take time to verify the idea.
How to deal with the barbarians
After discussing the BTC/ETH compound standard system, the entry of massive off-market funds is not all good news. The assets of asset management giants such as BlackRock and Franklin Templeton are more than ten times the market value of Bitcoin. But at least cooperating with them has the confidence and a steady supply of ammunition to resist SEC supervision. The trend of the three countries has been formed.
Traditional financial giants: Open up new battlefields, not only stay at the futures/spot ETF stage, but also hope to enter the on-chain market and conduct more innovative combination experiments;
RWA project: From the perspective of encryption, we hope to cooperate with traditional financial giants. Our goal is to become a mainstream financial investment option by using a backdoor listing to comply with regulations, rather than confronting regulatory authorities. In other words, confrontation is a superficial gesture, and the core goal is to be pacified.
Regulatory authorities: try their best to block it, and seek control if they cannot stop it. OFAC controls Ethereum nodes, the SEC controls the definition of "securities", Congress and the Federal Reserve mainly focus on stablecoins and exchanges. Money laundering and illegal securities issuance are the most commonly used methods.
From the perspective of Bitcoin and Ethereum, regulation has in fact been released, and the approval of the ETH spot ETF is only a matter of time. However, for smaller project parties, they do not have the ability to fight regulation alone. They have to commit themselves to traditional financial giants and take the initiative to implement KYC/AML and other measures, hoping to reduce outsiders' stereotypes of them as financial disruptors and package themselves as innovators within the existing system.
In other words, it is difficult to involve real assets, and the gravity of reality is too heavy. To put it simply and roughly, the RWA route can be directly divided into three stages:
In the East, the "chain reform craze" is that everything can be put on the chain, with the main focus on traceability and recordability. For example, GXT is like this, but in the end, it is a mess.
In the West, "tokenization" is the process of tokenizing physical assets and virtual assets and putting them on the blockchain. For example, the real estate project RealT is the most typical example, followed by lending products such as Maple and Centrifuge.
What follows is the current trend of putting US dollar financial assets on the chain, as well as the integration and development of BTC/ETH's native assets and the existing financial system.
The above is just my personal opinion. In the classification of RWA.XYZ, there are four categories: lending, U.S. debt, stablecoins, and real estate. I still stick to my point of view. This round of RWA is only divided into U.S. dollar-related assets on the chain and BTC/ETH off-chain, with stablecoins as the main issuance method and lending as a supplementary development path.
However, there are three constraints: CeFi’s desire for control, CEX’s impulse to do evil, and the big hand of regulation (SEC).
Taking Ondo as an example, it has issued two main products, OUSG based on U.S. Treasury bonds and interest-bearing stablecoin USDY. The product types will be further updated in the future. Their mechanism designs are relatively similar, and they all work along the path of registered entities, Big Four audits, bank/institutional custody, and investment in U.S. dollar assets. I will not go into details.
OUSG Components
Taking OUSG as an example, its main asset composition is BlackRock's short-term Treasury bond ETF product. However, Ondo is already deeply tied to BlackRock and will continue to promote cooperation with BlackRock's RWA product BUIDL, which is the most typical demonstration of two-way integration.
If we go a step further, we can directly help old money manage their money. For example, Superstate, the founder of Compound, directly purchases U.S. debt products and then issues them in token form. The process is of course boring. The core is that a group of Old Money has been born in the crypto world. They have gone through the Age of Discovery in pursuit of high risks and high returns, and are ready to go ashore with the looted gold, silver and jewelry to live a peaceful life.
However, the endless stream of living forces do not want to give up directly. For example, MakerDAO's DAI is already prepared to embrace the high returns of USDe. 600 million DAI will be invested in it in the initial stage, and the maximum recharge can be up to 1 billion US dollars. Not only can DeFi be used as a nesting doll, but this stablecoin can also become the doll of another stablecoin. It must be noted that the essence of USDe is not the equivalent of the US dollar, but the volatility equivalent of ETH.
The crypto world is still a little immature in the face of huge real-world assets. Compared with asset management giants with trillions of dollars, TVLs of hundreds of millions or billions are simply not worth looking at. The more important question is whether we think RWA is an important asset form in the future, at least as mainstream as ETFs, or is it just a one-sided love in the crypto circle, and after the good news about tokens is exhausted, only a mess will be left.
