RWA is not derived from Web3.0, but is more like Web2.5, or even a transitional form of Web2.1/2.2. Therefore, the early development of RWA is more like the tokenization of real-world financial assets (such as financial products such as bonds and stocks), rather than directly tokenizing physical objects. These assets are different from physical objects. If we start from the perspective of real-world financial assets, we must consider the industry and conduct industrial analysis. Here is a classic ADF framework: Asset-Dealer-Finance. RWA, which revolves around industrial upgrading, will be integrated with real-world industrial assets and industrial transactions (on-chain certificates and Oracle mechanisms, etc.), and then tokenize financial products based on assets and transactions.

For example, the financial products of RWA for green energy and crude oil cannot avoid the commodity trading of energy or crude oil, and their tokenization also requires the realization of relevant exchange functions.

Industrial Transaction Finance

The existence of industries can expand the scale of asset transactions. When an ordinary real-world asset is placed in an industrial context, its transaction scale and method will become very diversified, thus giving rise to diversified industrial trade finance.

Depending on the different asset categories in the real world, industrial transactions may include different trading markets and methods such as on-site trading, electronic trading, over-the-counter trading, and block trading. For example, the trading volume of an agricultural product such as ginger or garlic on an electronic trading platform may exceed 20 billion, and there will be a wealth of trading financial phenomena such as futures-spot arbitrage, trading operations, virtual positions, and price manipulation.

Garlic Industry Electronic Disk

Take the garlic industry as an example. When Ye Kai was working on the Rural Revitalization Fund, he investigated the electronic garlic trading market in Shandong. Garlic farmers grow garlic, and local pickers buy garlic from scattered farmers and bring it to the wholesale market. After the wholesalers buy it, they concentrate it in the "market"; the middlemen in the market are similar to the "brokers" in the stock market, providing intermediary services for garlic speculation, helping speculators to collect, sell, and store garlic on their behalf. Large middlemen are often those dealers with thousands or tens of thousands of tons of cold storage; "big speculators" with tens of millions or hundreds of millions of funds buy or sell hundreds of thousands of tons of garlic through middlemen. These big speculators are basically from other places, including Fujian, Zhejiang, Guangdong, Hebei, Heilongjiang, etc.; garlic farmers and garlic vendors, as retail investors, follow the trend and speculate when the market is hot; at the same time, electronic garlic trading is also fueling the trend, helping to increase or decrease prices.

The financial phenomenon of garlic trading is often: when speculators see an opportunity, they will buy a large amount of garlic through middlemen. In this way, in addition to the wholesale volume and export volume of regular transactions in the market every day (normal consumption of the garlic industry and export transactions to Japan and South Korea), investors will also buy lock-up warehouses in middlemen's cold storage, and sometimes provide leveraged financing. When the market is frenzy, industrial speculators directly speculate on the warehouse receipts of garlic in cold storage. For 1,000 tons of garlic warehouse receipts, the previous speculator may spend 60 million yuan to buy at 3 yuan per catty, and then sell it to the next speculator who continues to be bullish at 4 yuan per catty, totaling 80 million yuan. What is bought and sold are warehouse receipts, and garlic does not leave the cold storage at all. When demand is strong, electronic trading will help push garlic prices up all the way, and then when demand falls, the trading market will also be magnificent.

Cotton Industry Transactions

Louis Dreyfus, one of the four major international grain traders ABCD, has been quietly laying out its plans for the entire agriculture, food and financial industries, and its penetration into the cotton industry is centered around trading and finance.

In the early days, China's cotton industry was relatively closed and the market was difficult to grasp. Louis Dreyfus first recruited a group of elites from China's cotton industry with high salaries, especially senior executives from cotton and linen companies in some provinces and cities, and formed a senior team that understood both the international market and the Chinese market together with Louis Dreyfus' international talents. Then, through a sound futures trading mechanism and strong financial strength (overseas funds and domestic bank funds), cross-market operations were carried out through the two cotton futures markets in New York and Zhengzhou to influence the domestic futures market prices. At the same time, imported cotton in the spot market and warehouse receipt cotton purchased and processed domestically were used to cooperate to influence the domestic spot market prices, and finally achieve dual benefits of arbitrage in the futures and spot markets. Finally, with the full opening of China's cotton market, Louis Dreyfus and many international cotton traders quickly intervened, and with strong capital, it quickly became the most influential industrial capital group in the cotton industry.

Bulk non-ferrous metals industry

Among commodities, non-ferrous metals are very core assets, and as the core of global non-ferrous metal transactions, the London Metal Exchange has laid the foundation for transactions and finance in the non-ferrous metal industry. However, the complexity of procurement, smelting, finishing, and trade in various production areas and manufacturing industries makes the non-ferrous metal industry even more complicated.

I won’t go into details about the nonferrous metals industry here. Instead, I’ll share a diagram of the industrial upgrading framework that Ye Kai gave to a Fortune 500 nonferrous metals group five years ago. This diagram will give you a glimpse of the overall picture.
There are many cases of industrial transactions. For example, for emerging assets such as carbon emissions, there are many related exchanges in China, including the official Shanghai and Wuhan carbon emissions exchanges, the Beijing Green Exchange, and several registered Oriental Carbon Emissions Exchanges, as well as the Macau International Carbon Emissions Exchange. The scale of carbon emissions trading has not yet matured, but there are already so many exchanges. It is conceivable that the importance of industrial transactions and pricing power. Therefore, RWA around carbon emissions must be integrated or upgraded with relevant exchanges.

A relatively new thing recently is the hydrogen energy exchange. The hydrogen energy strategy is relatively recent. Transactions and finance related to hydrogen energy and industries, including hydrogen price index, green bonds for hydrogen energy infrastructure, and supply chain finance for hydrogen production equipment, are also a very large market.

RWA Exchange’s alternative design

There are two situations for replacement or upgrade design: one is that the newly established industrial exchange can draw on the ideas of blockchain and RWA for upgrade design; the other is that the RWA exchange with virtual asset resources can integrate industrial assets and financial tokenization of transactions to realize the industrial exchange.

Since industrial exchanges must support diversified trading methods, especially conventional spot trading in the industry, the replacement design of the RWA exchange needs to fully consider the needs of industrial trading and finance. The model of the industrial RWA exchange can be designed as: "spot trading + RWA trading + liquidity pool".

The implementation of spot trading is not complicated. It mainly depends on the refinement of the core logic of the business and the receipt of the delivery note. The assets and transactions of the industry are put on the chain, and it is not necessary for all physical goods, various logistics, transaction records, etc. to be put on the chain. As long as the assets are numbered basic data based on the digital system and consensus algorithm of the industry, the relevant transaction flow is hashed and encrypted into the on-chain document, and the delivery note of NFT (non-homogeneous token) is generated on the chain. For spot trading, the delivery note/warehouse receipt is sufficient, and the trading system is equivalent to a centralized order book trading system.

The realization of RWA transactions involves multiple links of industrial transactions, from payment and settlement of transaction orders to accounts receivable, warehouse receipt pledge and supply chain finance, as well as financial products such as fixed income bonds, margin trading, accounts receivable ABS, etc., which will involve the design of industrial stablecoins, equity, franchise and tokenized products.

RWA will have diversified trading methods, based on the delivery note NFT pool, decentralized AMM, OTC bulk, and may also require some centralized order book functions.

For spot transactions of bill of lading NFT, designing NFT swaps in RWA transactions will become option transactions. Some of the income RWA products may come from the spread or interest rate swaps of bill of lading NFT.

Most of the liquidity pools for real-world assets are similar to Uniswap’s asset pools, but there are also some consumable assets whose liquidity pools have certain dissipative properties, so different AMM algorithms need to be specially designed.

RWA transactions reserve arbitrage space and products for Makers and Brokers, so there will be spot (delivery note NFT) contracts, pledge leverage, and spot-futures arbitrage.

Since RWA transactions have an asset liquidity pool, there will be an industry capital pool, deposits and withdrawals, and payment settlements, but they are tokenized or stablecoins. This is like the "industrial currency" designed by Ye Kai when he was engaged in supply chain finance nearly ten years ago, which is based on the share and split transfer of the credit and commercial bills of core enterprises within the industrial chain. In fact, this can be understood as a stablecoin, or it can be understood as the tokenization of the credit limit of industrial RWA transactions.

RWA transactions also require the design of contracts, which are equivalent to options on real-world assets. Of course, this is slightly different from cryptocurrency options because there is a physical asset redemption.

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