The Narratives: RWAs
What are Real World Assets?
Real World Assets (RWAs) in the context of crypto refers to the tokenization of tangible or intangible assets from the real world, and their representation on a blockchain. This process involves the creation of digital tokens that represent a claim or ownership stake in said assets. By tokenizing real-world assets, they can be easily traded, fractionally owned, and made more accessible to a global audience.An example of an RWA that is already commonly would be a stablecoin. One “real” dollar is held in an account to facilitate the creation of a tokenized version of that dollar that can then be traded and used on a blockchain.
Some other examples of RWAs that can be tokenized include:
Physical assets such as real estate, commodities, and art constitute a significant portion of the global financial market. For instance, the global real estate market was valued at $326.5 trillion in 2020, while the gold market capitalization reached $12.39 trillion. This gives you an idea of the scale of RWAs and what they can bring to the DeFi ecosystem.
Why might this narrative play out?
Bringing such RWAs on chain will plug DeFi into an entirely new world. DeFi as we know it today has shown that the protocols have great potential. Applications such as P2P payments, spot trading, lending markets, derivatives, synthetic assets, and insurance show that the thriving ecosystem has a lot to offer.Tokenizing RWAs will serve as the key that unlocks a new door for DeFi, leading it into unexplored territories as people start to grasp that the core infrastructure is now robust enough to accommodate this paradigm shift.
In addition to this, RWAs have a clear and practical use case that the legacy financial system can understand. This may sound like a small thing, but if the crypto community wants to onboard the next million users, we must strive to provide real tangible use cases to a broader market. The tokenization of RWAs will provide traditional investors with a well-known investment strategy to engage with, simply presented in a new and modern way. Gone will be the days of crypto being seen as a degenerate casino-wonderland by outsiders.The big players in the financial world are starting to wake up as well. Gargantuan names such as Amazon, Goldman Sachs, Hamilton Lane, the Monetary Authority of Singapore, and the German Ministry of Finance are all starting to dip their toe into the on-chain market. This could see trillions of liquidity flow into defi bringing millions of users with it.
All of these factors lead many to believe that 2023 is the year that RWAs finally take off on a large scale.
How to get exposure to this narrative
Thankfully, there are already quite a few projects providing RWA functionality. The following projects are, in our opinion, the most interesting players in this space and are positioned to benefit from this narrative should it take off. Make sure to look into each project yourself to see if it fits your investment thesis.
Centrifuge connects real-world assets to DeFi by tokenizing them into non-fungible tokens (NFTs). Businesses can use these NFTs as collateral to access liquidity in DeFi markets, allowing them to borrow or lend without relying on traditional financial institutions.
LandX is a platform designed to revolutionize the agriculture sector. By creating a decentralized autonomous organization (DAO), LandX aims to provide farmers and agricultural businesses with easy access to funding, insurance, and other financial products. Users can tokenize their farmland or agricultural assets, unlocking liquidity and joining the DeFi ecosystem. LandX's price oracle offers transparent data on agricultural commodities, while its NFT-based digital crops enable a virtual farming experience. LandX is still on testnet, so consider jumping on and using their dApp - keep your eyes open for their mainnet launch, as that will most likely come with a token drop.
MakerDAO's Real World Asset (RWA) program enables borrowers to use tokenized real-world assets as collateral to mint DAI, a stablecoin pegged to the US dollar. Maker DAO has been around for many years and is a staple in the DeFi ecosystem. Their experience in this market gives them a good chance of doing well in this narrative.
Ondo offers tokenized bond products that are regulatory-compliant and carefully structured to ensure safety and transparency. They aim to bring bonds on chain to make them easily accessible to everyone.
To subscribe you will need to pass KYC and AML screening, sign subscription documents, and then fund investments with stablecoins or USD. A rigorous process to be sure, but this is the cost of being fully compliant.Their products include:Ondo Short-Term US Government Bond Fund (OUSG)
Ondo Short-Term Investment Grade Bond Fund (OSTB)
Ondo High Yield Corporate Bond Funds (OHYG)
They have also confirmed a token launch and hinted at an airdrop, so this one should definitely on your watch list.
Bixos Inc. is a project that utilises the UBXS Token (Utility Bixos Token) to allow investors to tokenize deeds and other ownership documents, creating an on-chain marketplace for buying and selling houses. Bixos has also introduced NFT-Bonds, a new technology enabling investors to convert their UBXS Tokens into BXS Tokens, which represent shares of the DAO-LLC Company. This system offers dividends based on the company's profits from various fees, such as real estate ownership conversions and NFT insurance.
Swarm is a tokenized investment platform that allows you to invest in different asset classes, including real estate, renewable energy, agriculture, and tech startups. They also have a nice user-friendly interface with a dashboard to track and manage your investments. You can participate in various projects by purchasing security tokens representing fractional ownership of the underlying assets.
Credefi is a decentralized platform that streamlines lending and borrowing, allowing interest rates to be set based on individual risk preferences. You can invest in credit portfolios, individual loans, or take a more hands-off approach with passive income. You can also chase higher returns through specific projects listed on the Credefi platform.
Realt is a platform that tokenizes real estate, making it accessible to a wider range of investors. By using RealT Management Model (RMM), the platform streamlines property management and rent distribution. When you buy a RealT token, you own a share of the property it represents. Rental income from the property is then distributed to token holders daily, based on their ownership percentage. RealT takes care of all property management tasks, so you can invest in traditional real estate hassle free. They have promised a governance token is coming soon, so keep your eyes peeled.
Backed creates ERC-20 tokens that track the value of real-world assets, such as stocks or ETFs. Tokens are freely transferable across wallets, and are 100% backed by the underlying asset. This will allow defi users to freely trade in traditonal stocks such as AMZN, GOOGL, TSLA, and MSFT. They have no plans for a native token, but we feel they are doing great work to bring securities on chain and thought they deserved a shout out.
Conclusion
RWAs are an exciting narrative, as they have the potential to bring an ungodly amount of capital into the DeFi ecosystem. Keeping an eye on RWA projects and investing early could provide huge upside in the coming months and years. We hope you could learn something new to better inform how you build your crypto portfolio.
Consider putting together your own RWA index on Nested.
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Not financial or tax advice. This article is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Do your own research.