Happy Dragon Boat Festival and happy holidays!
During the holiday, I still want to share some hot spots and trends in the RWA market in the past two weeks.
Money Never Sleeps!
1. Macroeconomic data this week
This week, U.S. economic data continued to unexpectedly decline, raising questions about whether the Fed will take more aggressive rate cuts again in 2024, or whether the data will exacerbate stagflation risks. This week, both the Bank of Canada and the European Central Bank began their easing cycles, and the Fed remained hesitant, complicating the macro outlook.
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Meanwhile, U.S. spot Bitcoin ETFs have seen inflows for 16 consecutive days, starting on May 13. This equals the longest inflow streak between January 26 and February 20 (soon after the first ETF launch).
The total size of the current inflows is comparable to the last inflows at $3.6 billion and $4.4 billion, respectively, and although slightly smaller, both periods saw significant price increases. During the January/February month of inflows, BTC rose from $40,000 to $52,000 (30%), while during the current May/June month of inflows, BTC rose from $61,000 to $71,000 (16%).
While the percentage increase in current prices is smaller than previous inflows, the market cap growth in both periods is similar at around $200 billion (from $0.8 trillion to $1.0 trillion in January/February, and from $1.2 trillion to $1.4 trillion in May/June).
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BTC is trading back towards the high end of its recent range, driven by strong inflows into U.S. ETFs. Weaker economic data has reignited hopes for multiple rate cuts this year, which has helped risk assets in a big way. ETH continues to see new inflows, albeit at a slow pace.
Recent comments from regulators indicate that it may “take some time” for the S-1 to be approved and for the spot ETH ETF to begin trading. Altcoins are still selling better, with traders looking to capitalize on SOL’s recent rally. However, overall sentiment remains positive. Strong ETF inflows, the potential for lower rates, and a friendlier regulatory environment have traders looking forward to what could be an interesting second half of the year.
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2. Development trend of stablecoin/US Treasury RWA
Stablecoin + US Treasury yield = interest-bearing stablecoin
Interest-bearing stablecoin = US Treasury bond RWA
2.1 Trends
With the recent recognition of ETH and the approval of ETH ETF, it means that ETH has solved the security problem of carrying traditional financial assets. In particular, in March this year, Blackrock issued the $BUIDL tokenized fund on Ethereum. In just 3 months, TVL has reached the first place in the US Treasury RWA market, reaching 460 million US dollars.
Franklin Templeton, which launched the tokenized fund $FOBXX (Polygon & Stellar) earlier than Blackrock, has a TVL of $346 million, while Ondo Finance's two US debt RWA products (ETH & Solana) have a combined TVL of $300 million. In particular, the approval of the ETH ETF has not only brought growth in TVL to Ondo Finance, but also brought a wave of explosion to the $ONDO token.
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2.2 The importance of channels
Over the past two years, stablecoin/RWA issuance has exploded, with new products launching almost every week. As the number of issuers increases, two key questions arise: which issuers will take market share and how will they stand out?
For issuers, it is crucial to establish a channel distribution strategy based on their own advantages. Leading issuers prioritize distribution, payment channels for payment, DeFi channels for Crypto Native, and traditional financial channels for traditional finance. In addition, centralized and decentralized exchanges, financial management applications, institutional prime brokers, payment applications, payment cards, and other venues are all their targets.
Let’s look at some recent examples:
May 29: PayPal $PYUSD will be launched on Singapore payment app Triple-A;
May 24: PayPal $PYUSD will be integrated with stablecoin payment application BVNK;
May 29: Circle $USDC connected to BTG Pactual, the largest bank in Latin America, and Nubank;
May 16: Tether connects to mobile payment app Oobit and TON network;
May 10: Ondo’s $USDY connected to DePIN and RWA payment network Zebec Payment;
May 3: Ondo and Ether.Fi jointly launched USDY-WEETH DeFi pool;
March 28: FalconX accepts tokenized fund shares $BUIDL launched by BlackRock and Securitize as trading collateral;
April 24: Finoa allows institutional clients to custody Ondo’s $OUSG.
2.3 Mountain Protocol Financing and Planning
The importance of channels can also be seen from the recent Mountain Protocol financing announcement:
On June 7, Mountain Protocol, the issuer of the interest-bearing stablecoin $USDM, completed an $8 million Series A financing round. This round of financing will be used to expand users and increase its supply. It was led by Multicoin Capital, with participation from Castle Island Ventures, Coinbase Ventures, BanklessVC, and Aptos.
$USDM was previously issued on Ethereum, Polygon PoS, Arbitrum, Optimism, and Base. Through this round of financing, it plans to expand support for new blockchains such as Solana, Aptos, Sei, and Monad, and integrate it into more DeFi protocols to increase the issuance of USDM.
At the same time, it also plans to cooperate with market participants such as fintech companies, cryptocurrency exchanges and market makers, whether by using $USDM as collateral or by increasing the issuance volume. The goal is to increase the $USDM supply 10 times to 500 million tokens by the end of this year, and 10 times to 5 billion tokens by 2025.
2.4 Some thoughts
So far, the success of stablecoin/US Treasury RWA products appears to depend more on the product’s distribution strategy than on other factors such as its legal structure (BVI or Bermuda), operations (e.g., transparency, holding repo vs. Treasury bonds), or marketing plans (e.g., token incentives, community building).
Stablecoins, interest-bearing stablecoins, and U.S. Treasury RWA products will inevitably enter a fierce competition in the future because their underlying assets are the same, namely, U.S. dollar/U.S. Treasury assets.
In fact, what I am looking forward to more is the circulation of $USDY similar to Ondo Finance, that is, this interest-bearing stablecoin, which has sufficient liquidity and can circulate like $USDC, and can also obtain 5% of US bond yields. This can give full play to the huge advantages of DeFi composability.
III. House Hearing on Tokenization
On June 7, the House Subcommittee on Digital Assets, Financial Technology, and Inclusion held a hearing on “Next Generation Infrastructure: How Can Tokenizing Real-World Assets Promote Efficient Market Functioning?”
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In his opening remarks, Rep. French Hill said:
“While digital assets are typically issued and managed on blockchain networks, tokenization can bring traditional finance on-chain. In other words, tokenization can leverage the efficiency and transparency of blockchain to help the U.S. market stay ahead.”
With the help of blockchain, tokenization can automate some key processes in financial transactions, thereby simplifying the settlement process and reducing costs. Moreover, reducing agency costs is an important factor that benefits consumers of financial services.
Due to its transparency, immutability, and compliance programming, blockchain can provide a secure and transparent record of ownership for tokenized assets, thereby reducing the risk of fraud and errors and increasing trust and transparency in transactions. Many markets can benefit from these benefits.
I hope we can use this hearing to understand in which cases it is reasonable to consider the use of tokenization and what necessary regulatory and legal factors must be modified or considered in order to make tokenization more realistic.”
Other attendees include:
Technology alone will not change the nature of financial markets. - Nadine Chakar (Global Head of Digital Assets, DTCC)
Existing regulations were not designed with tokenized assets in mind. This market needs to adapt in order to thrive. - Carlos Domingo (Securitize CEO)
Tokenization does not change the legal nature of the asset. - Lilya Tessler (Partner, Sidley Austin LLP)
We don’t need public permissionless blockchains to enable tokenization. They present serious challenges in terms of governance, scalability, etc. - Professor Hilary Allen (Professor at American University)
You can view more content through the following links:
https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=409284
4. DTCC’s Exploration of Digital Asset Security
This week, DTCC, Clearstream, Euroclear and BCG jointly released a report on digital asset securities. Specifically, the report presents the findings of its tokenized MMF case study. It also establishes a set of so-called "Digital Asset Securities Control Principles" (DASCP), which provide a set of key considerations for issuers considering tokenizing their assets.
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The report introduces a comprehensive set of risk management principles and controls designed to unlock the transformative potential of distributed ledger technology (DLT) in the digital asset securities sector (excluding cryptocurrencies). It outlines an industry-wide risk and control framework that serves as a guide to address current challenges and promote operational excellence in DLT-driven financial markets.
The report introduces a comprehensive set of risk management principles and controls designed to unlock the transformative potential of distributed ledger technology (DLT) in the digital asset securities sector (excluding cryptocurrencies). It outlines an industry-wide risk and control framework that serves as a guide to address current challenges and promote operational excellence in DLT-driven financial markets.
Through this structured approach, the white paper aims to facilitate the entry of tokenization into financial markets, paving the way for it to play an important role in financial development. DTCC, Clearstream and Euroclear developed the Digital Asset Securities Control Principles (DASCP), leveraging decades of combined experience to effectively manage regulatory compliance and reduce operational risk.
5. Stablecoins (EU MiCA & Payments)
5.1 EU MiCA Stablecoin Regulation is about to be implemented
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.
Binance announced that it will restrict unauthorized stablecoins for users in the European Economic Area (EEA) across all its products from June 30, classifying stablecoins into “regulated” and “unauthorized” stablecoins based on their compliance with the new rules. The exchange “aims to smoothly achieve MiCA objectives by transitioning users from unauthorized stablecoins to regulated stablecoins over time, as more regulated stablecoins emerge in the market.”
No ruling has yet been made on which stablecoins do or do not comply with MiCA. Binance said that only a handful of stablecoins currently meet MiCA’s requirements.
5.2 Paypal Launches on Solana
On May 29, PayPal's $PYUSD was launched on Solana, and users can deposit funds through Crypto.com, Phantom, and Paxos. A White Paper was also released. In addition, PayPal also announced on the 28th that it had obtained a New York Crypto Trust License, which allows it to custody crypto assets, which is consistent with the custody licenses of Circle and Paxos stablecoin issuers.
5.3 Mastercard’s Layout
On May 29, Mastercard launched the blockchain identity infrastructure, the Mastercard Crypto Credential pilot ecosystem, which supports verified users in the ecosystem to make seamless transfers, including cryptocurrency transfers. This Verified Credential can meet KYC/AML/CTF requirements and will become the mainstream identity system for subsequent crypto payments.
Mastercard previously launched the Start Path Program, which aims to help and incubate the growth of startups. The sub-sectors include: Blockchain and Digital Assets, Emerging Fintech, Open Banking, etc.
VI. RWA market hot spots and project investment and financing
6.1 RWA Market Cooperation
Centrifuge Gets $10M From Plume to Tokenize Credbull Private Credit Fund Maple Launches Institutional Yield Protocol;
Syrup Helix launches second version of RWA perp marketplace;
Ondo $USDY is listed on Ethereum, Galaxy Exchange, and cooperates with Msafe;
Snapshot governance voting for IndexCoop’s RWA Index is now live;
Polymesh and REtokens partner to tokenize $30 million in real estate RWAs;
SteelWave Launches $500 Million Digital Token Real Estate Fund Blocksquare Achieves $100 Million in Tokenized Properties;
Paxos launched the interest-bearing stablecoin $USDL, issued by its UAE entity;
This week, two alternative RWA issuances made headlines:
Galaxy Digital and Animoca Brands tokenized a 1708 violin and used it as collateral for a multi-million dollar loan; English Premier League football club Watford FC tokenized 10% of its equity and sold it as a security token through Republic and Seedrs. The tokenization of these alternative assets indicates that more players are exploring the tokenization trend.
6.2 Investment and Financing Hotspots
On June 5, the decentralized stablecoin issuance platform M^0 raised $35 million in its Series A funding round, led by Bain Capital Crypto, with participation from Galaxy Ventures, Wintermute Ventures, GSR, Caladan, etc. M^0 allows institutional clients to issue stablecoins through qualified collateral.
On June 4, South American stablecoin application El Dorado announced that it had received $3 million in seed round financing. Targeting Latin America, where the traditional financial foundation is relatively weak, this financing will help El Dorado develop into a super application for crypto payments, enabling convenient cross-border remittances through stablecoins and connecting deposit and withdrawal service providers. Multicoin Capital led this round of financing, and other investors include Coinbase VC and others.
On May 30, Fortunafi raised $9.5 million, with major investors including Shima Capital, Manifold, Cobie, Evanss6, Scott Lewis, Ari Litan, Austin Green, etc. This move marks that the company will not only expand its current RWA product offering, improve the utility of tokenized assets and expand its distribution, but also launch a new stablecoin protocol, Tokenized Asset Protocol (TAP). On May 30, Singapore-based Marketnode received Series A funding from HSBC, and other investors include Temasek. Marketnode aims to establish a tokenized and fund-based financial technology facility, and has previously been deeply involved in HSBC's exploration of tokenization projects.
On May 24, Plume raised $10 million in seed funding led by Haun Ventures to develop the first Layer-2 blockchain dedicated to RWA. Other participants include Galaxy Ventures, Superscrypt, A Capital, SV Angel, Portal Ventures, and Reciprocal Ventures. Plume is based on Ethereum and is positioned as a one-stop shop for easily introducing off-chain assets to the blockchain, which means that the protocol can help people deal with the large amount of paperwork, custody requirements, and other preparations required to introduce real estate, art, and certain financial instruments to the blockchain.
On March 28, Anzen Finance, the issuer of the stablecoin $USDz, raised $4 million in seed round financing, with investors including Mechanism Capital, Circle Ventures, Frax, Arca, etc. Different from the dollar-collateralized stablecoin, $USDz is collateralized by real-world assets and supported by the cash flow of RWA assets. Infinant, a banking technology service provider, acquired Figure Pay's payment card processing technology to help banks further enhance their digital capabilities.
VII. RWA related articles and research reports
[1] DTCC, Building the Digital Asset Securities Ecosystem
https://www.dtcc.com/dtcc-connection/articles/2024/may/29/building-the-digital-assets-ecosystem
[2] ISDA reviews legal treatment of tokenized collateral
https://www.ledgerinsights.com/pwc-accelerator-selects-11-tokenization-digital-assets-startups/
[3] Messari, State of XRP Ledger Q1 2024
https://messari.io/report/state-of-xrp-ledger-q1-2024
[4]BIS, Next generation correspondent banking
https://www.bis.org/publ/bisbull87.htm
[5] CoinGecko, RWA Report 2024: Rise of Real World Assets in Crypto
https://www.coingecko.com/research/publications/rwa-report-2024
[6] Ripple, Insights from Ripple’s 2023 Trends in Regional Payments Report
https://ripple.com/insights/insights-from-ripples-2023-trends-in-regional-payments-report/?utm_campaign=&utm_medium=organic_social&utm_source=twitter
[7] PYUSD Launches on Solana: The Next Phase of Adoption
https://pyusd.mirror.xyz/TpEwPNybrwzPSSQenLtO4kggy98KH4oQRc06ggVnA0k?_360safeparam=89120593
[8] Axelar Network, Institutional Interoperability: How Financial Institutions Navigate a Multichain World
https://www.axelar.network/institutional-interoperability
End of article
This article is for learning and reference only. We hope it is helpful to you. It does not constitute any legal or investment advice. Not your lawyer, DYOR.
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