Original author: The DeFi Investor
Original compilation: Shenchao TechFlow
The Real World Assets (RWA) sector is one of the sectors with the highest long-term potential. This is clearly not just a short-term narrative.
Tokenizing real-world assets brings many benefits:
Easier access
transparency audit
Near instant settlement speed
Composability (imagine opening up loans on your tokenized car on a decentralized money market like AAVE)
I believe cryptocurrencies will play a significant role in the RWA/tokenization industry.
In this question, I will discuss my reasons for being bullish on RWA, some of the RWA projects on my watch list, and my strategy for choosing the right coin in this space.
Why I’m bullish on the RWA narrative
Real-world assets in cryptocurrency refer to tangible assets that are tokenized and put on the blockchain.
According to Crypto Koryo’s dashboard, the real world asset narrative was the second best performing narrative this year, outperforming artificial intelligence.
But despite this, the total market capitalization of real-world assets in the cryptocurrency industry remains small: just over $9 billion, according to Coingecko.
For context, Boston Consulting Group projects that tokenization of illiquid assets will reach $16 trillion by 2030. While this forecast may be overly optimistic, it is clear that tokenization has huge growth potential.
Stablecoins are a great example of real-world assets that have been tokenized and have found product-market fit, with a market cap currently exceeding $150 billion.
The recent news about BlackRock has added fuel to the fire.
As you may have heard, BlackRock, the world’s largest asset manager, announced a few days ago the launch of a tokenized fund on Ethereum worth more than $100 million.
Although the news was not directly related to any cryptocurrency RWA project, speculation about it led to a significant increase in the price of the RWA token.
Beyond that, this news is important for one main reason:
BlackRock’s launch of an on-chain tokenized fund legitimizes the on-chain real-world asset industry and paves the way for other institutions to take similar initiatives.
After BlackRock applied for a Bitcoin spot ETF last year, several financial giants such as Fidelity also applied. I think it will be the same this time.
Additionally, RWA/tokenization is an easy narrative for retail investors to understand. To outperform the market, you have to invest in tokens that retail investors are willing to buy once they start paying attention to crypto.
Because of all the things I mentioned above, I expect real world assets to be one of the best performing narratives in this bull run.
RWA Market Situation
As shown in the above figure, there are many subcategories within this industry, some of the most important of which include:
Tokenized Treasury Bonds and Securities
On-chain private credit
Infrastructure projects (e.g. RWA blockchain)
real estate
Regenerative Finance
There are dozens of interesting RWA projects and it would be impossible to cover them all. But I will focus on some of the market leaders and some standout projects:
Mantra
Mantra is the first blockchain designed specifically for real-world assets.
Just a few days ago, the team announced $11 million in funding.
Some of the core features of this blockchain include:
MANTRA Compliance Module: A set of tools to help Web3 platforms comply with regulatory requirements, including KYC protocols and sanctions screening
MANTRA Token Services: An SDK that enables businesses to easily create, issue, distribute and manage digital assets that comply with various regulatory frameworks
Mantra DEX: A DeFi hub that leverages the Cosmos ecosystem to make real-world asset trading simpler and more efficient
All in all, the project aims to make it easier for businesses and investors to launch and trade tokenized assets on-chain.
Complying with regulatory requirements has always been a big issue for Web3 businesses, and Mantra provides several tools to make this process easier.
Ondo Finance
Ondo provides liquid exposure to institutional-grade financial products such as short-term U.S. Treasuries and ETFs.
The protocol has a TVL of $220 million and is backed by Pantera Capital and Coinbase.
As I said before, with Ondo you can invest in tokenized U.S. Treasuries.
Interestingly, after you do this, you can use protocols like Flux Finance to borrow and lend against these tokenized Treasury assets in DeFi.
Composability is a key feature of DeFi as it enables developers to combine multiple DeFi products into entirely new products, just like Flux does.
It will be interesting to see more RWA projects leverage the composability of DeFi to enable new use cases.
Avalanche
While Avalanche is primarily known for being an L1 platform for various dApps, its team is also investing a lot of effort into tokenization and institutional adoption.
For example, last year Avalanche:
Introduced a $50 million ecosystem fund to explore tokenization
Announces partnerships with financial giants including WisdomTree and JPMorgan Chase
Launched Evergreen subnet tailored for institutions
Recently, Citibank also announced that it has successfully used the Avalanche subnet to explore the tokenization of private equity funds.
Another interesting development is that a well-known asset tokenization company, Securitize, chose to issue its first tokenized asset on Avalanche last year.
Parcl
Parcl is the first derivatives DEX for the real estate market.
The project is backed by Coinbase Ventures, Solana Ventures, and Dragonfly. The launch of its token is confirmed to take place in the coming weeks.
Parcl is one of the largest dApps on Solana, with a TVL of almost $200M.
With Parcl, you can easily speculate on price fluctuations in the real estate market as the platform provides a city index.
Clearpool
Clearpool is a decentralized credit marketplace.
Through it, you can lend USDC to institutional borrowers in exchange for an annualized yield of up to 23%.
All borrowers sign a legal agreement before funds are received, ensuring the right of recourse against the borrower in the event of default.
Interestingly, Clearpool’s TVL has grown by nearly 50% in the past few weeks.
LandX
LandX has a unique product as it is the first decentralized RWA platform for investing and trading farmland and agricultural products.
The protocol provides funds to real-world farmers in exchange for a legal share of their crops. Since LandX farmers’ crop shares are tokenized, you can use the platform to easily invest and earn inflation-protected returns.
Thanks to LandX, commodity inventories can be offered as liquid digital assets.
Other projects worth mentioning:
Florence Finance: Leading Euro-denominated RWA project connecting DeFi to physical lending
MakerDAO: While MakerDAO is technically more than just an RWA project, its stablecoin $DAI is mostly backed by real-world assets. DAI holders can also stake their stablecoins in exchange for sDAI, which is the yield generated by DAI staking.
Centrifuge: Centrifuge allows anyone to lend assets to institutions in exchange for a stable return
Select RWA Narrative Winner
Now I will go over the factors I look for in RWA projects to decide which RWA tokens might be good investments.
Generally speaking, this is what I'm looking for:
Strong community: No community = no one will buy your bag (referring to investment)
Increased adoption: You can use a tool like DeFiLlama to look at stats for almost any protocol (I usually focus on Total Value Locked (TVL) and Revenue)
Teams that are very active on social media: We live in an attention economy. Ideally, you want to invest in teams that understand the importance of marketing.
Publicly identified team: This is not necessary for most projects, but I would say it is very important for real-world asset protocols
Good backers: Projects that have big names like Binance Labs, Coinbase Ventures, a16z, or others as investors usually have a good understanding of how to fit into the new narrative
Partnerships with financial giants: This is not a must, but for example, in the case of Avalanche, $AVAX always surges after every announcement of a new big partnership
Token utility: In a bull market, token utility is not super important, but ideally I would like to invest in tokens that directly benefit from the success of the project
It's unlikely that you'll find a project that meets all of these criteria. But the more that are met, the better.
As I mentioned before, the total market cap of the entire real asset cryptocurrency industry is currently around $9 billion. In my opinion, this is very low and I think it has huge potential to grow in this bull cycle.
Almost all coins will rise at the start of the altcoin season.
Hopefully, with the investing framework I laid out above, you’ll be able to find and invest in future outperformers.
One last piece of advice:
If you want to invest in RWA tokens for the long term, don’t buy RWA tokens at a 2-3x gain in the market just because of the recent BlackRock news. Wait for a -25-35% price correction and then place your order to buy.
If you are patient, the market will give you the opportunity to buy them at a small discount.
