Mapping the RWA Landscape

Are real-world assets crypto’s next frontier?

Real World Assets (RWAs) are the talk of the town. Big names like BlackRock are getting into RWAs, Tether is rolling out its own platform, and the numbers are impressive too – RWA tokens reached a record market cap of $2.7 billion in February.

With so many major catalysts, the RWA narrative is expected to take center stage in the second half of 2024. 

Today’s story gives a rundown of the RWA landscape, highlighting the different types of real world assets being tokenized and the standout projects to keep an eye on.

Let’s dive in! 👇

What's Next for RWAs?

RWAs are one of the fastest-growing sectors in crypto. Many see them as a way to tap into the world's trillions in assets, fueling the growth of the entire industry.

Larry Fink, the CEO of BlackRock, has called RWAs "the next generation for markets.” The Boston Consulting Group predicts that by 2030, turning these assets into tokens could unlock a $16 trillion opportunity.

However, until now, there’s only been one asset that’s been successfully tokenized and fully integrated into the crypto ecosystem, and that’s fiat currency in the form of stablecoins.

Stablecoins are the first, the largest, and the most established RWA. They’ve found product market fit in crypto and see strong demand for different services and are a fundamental part of every crypto ecosystem.

But what's beyond stablecoins in the RWA space?

In recent years, we've seen a growing trend of various real-world assets being tokenized and brought onchain. Let's check out some of the most popular types.

Commodities, Equities & Funds

Commodities like gold, silver, and crude oil are commonly traded on various exchanges around the world. These natural resources can be tokenized to represent a stake in the actual commodity, much like stablecoins do for fiat currency.

So far, precious metals, especially gold, have gained the most traction in crypto as RWAs. Tokens like PAX Gold (PAXG) and Tether Gold (XAUT) are leading the charge, with gold-backed RWAs comprising 83% of the commodity token market cap, as reported by CoinGecko.

This dominance of gold indicates just how nascent the RWA sector is. However, several projects are experimenting with different commodities. For instance, the Uranium308 project has introduced a token pegged to the price of a pound of U3O8 uranium compound 👀

As the RWA tokenization space matures, we might see tokens for other commodities like crude oil and even crops like corn. The thesis is that more global trading will shift onto the blockchain in the future.

Similar to commodities, stocks, and mutual funds can also be tokenized. These assets are mainstays in the traditional finance market, but their adoption in crypto has been slow, largely due to regulatory hurdles. 

Complying with laws across jurisdictions is tough, with many projects needing licenses and facing restrictions, like excluding users from certain countries or meeting strict KYC and AML criteria.

Despite these challenges, some projects like Swarm and Backed have navigated the regulatory maze, allowing onchain trading of global stocks and funds, like COIN and NVDA from the U.S. markets, and index funds like the Core S&P 500, among others.

Treasuries

Treasuries refer to tokenized government debt instruments. Traditionally, these instruments are secure, yield-generating assets as they are issued by governments.

Following the COVID-19 pandemic, treasury rates, which were historically low, saw a rise as the Federal Reserve adjusted its monetary policy to the shifting economy. By October 2023, short-term treasury yields had climbed from near zero to approximately 5.4%.

This uptick in rates spurred the launch of projects tokenizing U.S. treasuries, with some notable examples being:

• Franklin Templeton — launched the Franklin OnChain U.S. Government Money Fund (FOBXX) in 2021, the first U.S.-registered fund on a public blockchain. It offers a 5.11% yield and has a $365 million market cap, ranking it among the largest onchain treasury products.
• BlackRock — launched the BlackRock USD Institutional Digital Liquidity Fund ($BUIDL)  in March 2024 on Ethereum. It currently leads the onchain treasury fund market with over $375 million in assets under management.
• Ondo — launched the Ondo Short-Term U.S. Government Treasuries (OUSG), which provides access to short-term U.S. Treasuries with a 4.68% yield and a market cap around $240 million. A significant portion of OUSG is invested in BlackRock's BUIDL. Ondo also offers the USDY yield-bearing stablecoin, with a market cap exceeding $120 million.

This category has seen substantial growth as treasury yields have become more appealing with rising interest rates. Other notable projects in this space include Superstate, Maple, Backed, OpenEden, and more. 

Onchain Private Credit

Private credit involves lending by financial institutions to businesses through debt instruments, essentially loans.

In the context of the RWA sector in crypto, these loans are tokenized through credit protocols, allowing lenders to extend capital to these institutions in exchange for yield.

In traditional finance, private credit is a massive $1.6 trillion market, and it's slowly carving out a significant niche in crypto. 

Crypto credit protocols have already tokenized over $4.4 billion in loans, with more than $600 million currently loaned out to real-world businesses, generating returns for onchain lenders.

For onchain investors, private credit presents an attractive proposition due to its higher yield potential. For example, lending stablecoins through a protocol like Centrifuge can yield an average APY of 8.7%, surpassing the 4-5% APY typically found on platforms like AAVE, though it comes with increased risk.

Key players in the private credit space include:

Real Estate

The real estate category within RWA focuses on tokenizing physical properties like residential houses, land, commercial buildings, and infrastructure projects.

Real estate stands as the world's biggest asset class. But traditionally, real estate investment requires significant capital due to the high cost of properties. Making real estate tradable onchain by tokenization introduces a novel investment paradigm, enhancing accessibility, enabling fractional ownership, and potentially increasing liquidity.

Nonetheless, real estate's inherent illiquidity has tempered the pace of its onchain adoption. The protracted nature of real estate transactions and the  small buyer pool make it challenging to align sellers with buyers onchain, especially given how the sector has operated on legacy systems traditionally.

Projects like RealT Tokens are striving to inject liquidity into the market by simplifying property fractionalization, thus allowing sellers to easily divide their assets and enabling buyers to acquire tokenized shares.

Additionally, platforms like Parcl allow for speculation on the value of real estate across various locations, such as different U.S. cities, through their onchain trading mechanisms.

All these initiatives will make the real estate market more liquid in the long term.

Closing Thoughts

The concept of RWAs promises to bring a new level of global access and liquidity to traditional assets like real estate, commodities, and debt. Should the bold predictions for RWAs materialize, the tokenization of these assets may well redefine how the world trades these assets and in turn, bring more people onchain.