20,000-word detailed explanation of the RWA tokenization track: the next wave of encrypted narratives?

Author: Stefanie

Introduction

The blockchain has brought trust, liquidity, transparency, security, efficiency and innovation, but the bear market in the encryption industry seems to be difficult to find new growth points, and the encryption industry urgently needs a track to carry new narratives. RWA tokenization can open up the channels of traditional finance and encrypted finance, and carry an asset market of tens of trillions of dollars. For the encryption industry, it can be the water of life beyond the bull-bear cycle, so the blockchain has been trying since its birth The tokenization of RWA has been hindered by multiple factors such as technology, regulation, and market. Today, the RWA track has been hotly discussed again, and many organizations have begun to lay out. RWA projects have shown the characteristics of a wide variety, DeFi-based, high returns, and high risks, and have gradually entered the public eye. However, the projects generally still have problems such as poor liquidity, early stages, and lack of price discovery. Whether the RWA track can explode in the next few years depends on the development of infrastructure and the improvement of the regulatory system. This research report also proposes that token standardization and compliance are the only way for the development of the RWA track. Although the RWA track faces multiple challenges, the development of the industry is always moving forward. We have seen the emergence of many innovative projects, especially those based on U.S. debt and U.S. stocks, SME financing, and real assets. The main characteristics of these projects are :

1. Cooperate with traditional financial institutions;
2. 2. Maximize the benefits of projects and tokens;
3. 3. Introduce more legitimate third-party participation. These features can partially solve the problems in RWA tokenization, including supervision, centralization, on-chain and off-chain identities, asset valuation, etc. We look forward to more projects in the future to enrich the RWA track.

1. Narrative in the making

After a bear market that lasted for more than a year, the market value of the entire encryption market has shrunk severely, funds have continued to flow out, activities on the chain have been sluggish, DeFi income is no longer attractive, and mutual cuts in the market are serious. Now we can’t imagine what the encryption industry should rely on to start the next bull market. There is still a big gap between the encryption market and the traditional financial market. But we can also get a glimpse of huge business opportunities from some thunderstorms in the bear market.

It can be said that the main reason for the bankruptcy of some large institutions in 2022 is the use of altcoins for financing and borrowing. When altcoins plummet in the bear market, the liquidation of loans is further exacerbated, and the death spiral begins. We see that it is institutions and credit that drive the bull market in 2021, and they also contribute to the bear market in 2022. In fact, credit drives trillions of dollars worth of business and much of the global economy. The potential it brings is huge. Currently, in the DeFi market, more and more agreements are entering traditional credit markets such as equity and debt financing. Although it brings some risks, this is the only way to bring the traditional financial market of more than 800 trillion US dollars to the chain. Bridging the **** huge **** gap between the encrypted market and traditional finance, what we need to do **** is the tokenization of real world assets. **

In the first half of this year, the traditional and encrypted industries began to pay attention to the RWA sector.

The first is that Goldman Sachs announced the official launch of its digital asset platform GS DAP, which has helped the European Investment Bank (EIB) issue a two-year digital bond of 100 million euros. Soon after, Hamilton Lane, a private equity firm with a management scale of over 100 billion, tokenized part of its $2.1 billion flagship equity fund on the Polygon network and sold it to investors; million euros in digital bonds. Secondly, some government agencies have also begun to test the waters of RWA, including the Monetary Authority of Singapore (MAS), which will cooperate with JP Morgan Chase and DBS Bank.

In April, Binance announced that it would become the Polymesh node operator of the Layer 1 blockchain; secondly, DeFi protocols such as MakerDAO, Aave, and Maple Finance are active on the RWA track, and more crypto investment companies are also seeking RWA projects. At present, there are more than 50 projects in the RWA sector, mainly in financial assets, including fixed income, TradFi, and a few in real estate and carbon credit. Recently, the RWA concept tokens have all risen, and some have increased by more than 10 times. Does the wave of accumulation in the first half of 2023 indicate that RWA will lead the encryption narrative in the next few years?

2.RWA’s past and present life

The concept of RWA is no stranger to the blockchain industry. The earliest RWA project is the BTM Bytom chain of “assets on the chain”. At present, the most successful RWAs are the digital dollars USDT and USDC, which map the U.S. dollar to the chain and tokenize it. Stablecoins have subtly affected the entire encryption industry and have become an important cornerstone.

The full name of RWA is the value tokenization of real world assets (real world assets-tokenization), which is the process of converting the ownership value (and any related rights) in tangible or intangible assets into digital tokens. This enables the digital ownership, transfer and storage of assets without a central intermediary, and the value is mapped to the blockchain and traded. RWA can be tangible or intangible assets.

• Tangible assets include: real estate, art, precious metals, vehicles, sports clubs, horse races, etc.

Intangible assets include: stocks and bonds, intellectual property, investment funds, synthetic assets, revenue-sharing agreements, cash, accounts receivable, and more.

2.1 Status of RWA track

There are many types of RWA track projects, most of which are based on DeFi. There are three main categories: 1. Fixed-income projects based on off-chain assets such as U.S. bonds, stocks, real estate, and artwork; 2. Public funds issued or traded on the open market Credit projects; 3. Trading market projects based on virtual assets such as carbon credits. In addition, there are infrastructure projects such as vertical public chains.

• The fixed income category provides loans to private individuals and institutions based on the U.S. bond and stock markets. The only difference between these projects and other DeFi lending projects on the chain is that the collateral can be real-world assets.
• Public credit can establish investment funds by tracking U.S. bonds or other bonds for crypto users to invest.

In terms of data, according to statistics from the RWA.xyz website, 8 RWA lending agreements including Centrifuge, Maple, GoldFinch, Credix, Clearpool, TrueFi, and Homecoin have issued a total loan amount of $4.38b, and users can obtain an average APR of 10.52%. Serving countries with a below-middle level of development. These credit lending agreements provide higher returns than most DeFi lending, but in the institutional storm in 2022, Maple Finance defaulted on its $69.3 million debt.

According to the Dune data analysis panel, in the Ethereum RWA project, the number of currency-holding addresses of $wCFG, $MPL, $GFI, $FACTR, $ONDO, $RIO, $TRADE, $TRU, $BST is also increasing, reaching 3.9k.

2.2 Advantages of asset tokenization

Ideally, any asset of value could be tokenized. The advantages of asset tokenization are also based on decentralization and the bottom layer of blockchain technology, creating some ecological applications to solve the disadvantages of traditional finance, specifically:

(1) Bring a potentially huge market and attract investors and retail investors

As leading financial institutions look to benefit from the efficiencies and economic possibilities blockchain brings, the tokenization of real-world assets is gaining institutional attention and several tokenized products have already been developed. The RWA project will also stimulate the investment income of DeFi.

Through the tokenization of real-world assets, businesses can leverage the DeFi ecosystem to access capital at low cost and benefit from lower barriers to entry as well as new financing methods, especially for emerging markets. At the same time, the DeFi ecosystem has gained investment income, access to diverse off-chain markets, and new opportunities to expand the traditional financial customer base.

(2) Improve the efficiency of capital flow and promote the positive feedback of asset tokenization

The traditional financial trading market is labor-intensive. Blockchain technology can provide instant settlement and 24-hour transactions, which reduces the operating costs and market access of participants. Not only that, asset tokenization can make real illiquid assets into small portfolios, and investors do not need a lot of paperwork, money and time consumption. This leads to fairer markets while creating new business and social models, such as shared property ownership or shared rights.

In terms of securities, tokenization can be a useful tool for securitization, or refinancing of assets from illiquid assets into more liquid securities.

Bringing real-world assets on-chain and into the DeFi ecosystem brings unique collateral or investment opportunities, market efficiencies, and liquidity unavailable in traditional markets. The improvement of capital efficiency will further promote the development of the RWA track and form positive feedback.

(3) Reduce the entry threshold for retail investors and increase the liquidity of physical assets

Tokenization removes barriers that currently prevent real-world asset segmentation, making it possible for most retail investors to gain access to asset classes that are usually limited to a few high-net-worth individuals or institutional investors. Especially in real assets, retail investors can invest across geographies Sexual products, or collective investment in a real estate or a work of art, requires a very high threshold in the traditional financial field. And these physical objects may have extremely low liquidity in small markets. Once they are on the chain, they will be available to investors from all over the world. Additionally, issuers gain access to a broader investor base and create new asset classes. Retail investors gain access to previously inaccessible markets and are able to make more informed investment decisions based on transparent data.

(4) Relying on the advantages of blockchain technology, RWA transactions are more efficient and secure

Blockchain technology ensures the transparency of payment and data flow on the chain, the immutability of transaction records, traceability, higher efficiency and lower operating costs, more robust risk management, clear ownership and other advantages, and More composability and a fairer market environment. In the future, with the continuous development of blockchain technology, there will be higher-performance public chains or layer2 solutions, stricter smart contract review mechanisms, and zk-based privacy projects to protect transactions. These are all for the RWA track Development provides solid soil.

3. Prerequisites for the outbreak of the RWA track

Asset on-chain is the only key point on the RWA track. Solving this key point also requires two foundations, one is the improvement of blockchain infrastructure, and the other is legal supervision. Blockchain involves the interoperability, security, and privacy of various protocols and tokens. Legal supervision refers to whether there are corresponding legal and regulatory support for off-chain assets and on-chain identities. A lot of issues are being actively discussed, but two are discussed here: token standards and censorship.

3.1 Diversification of Token Standards

According to the on-chain token standard, there are ERC-721 and ERC-20 on Ethereum, which correspond to indivisible NFT and divisible token standards respectively. In traditional finance, there are various asset attributes, including tangible assets and intangible assets. For use on the blockchain, we also need to create corresponding token standards to tokenize assets based on their attributes. Fungible tokens and non-fungible tokens have the following characteristics:

• Fungible Tokens: Fungible**, each unit has the same market value and validity, which means that token holders can exchange assets with each other and be confident that they are of the same value; Divisible, how many decimal places the asset can be divided into at the time of issuance, each unit will have a proportional value and validity.
• Non-fungible assets are not fungible and cannot be replaced, as each unit represents a unique value and has unique information and attributes. Non-fungible tokens are usually also indivisible, although there are ways to split the investment cost to provide fractional ownership, for example in commercial real estate.

Most assets can also use the fungible token standard, and some assets, such as bonds and derivatives, may be better tokenized through non-fungible tokens. According to the gradual rise of the RWA project, more rich forms may appear. At this time, the simple ERC-20 and ERC-721 can no longer meet the needs of RWA tokenization. Many RWA vertical public chain projects have thought of this and started to create RWA tokenization standards, such as Polymesh. Judging from the development of RWA projects today, most projects are built on Ethereum, so the development of a wider ERC token standard is more universal. At present, ERC-3525 is more discussed, and it is possible that more token standards will appear in the future, especially after the baptism of BRC-20. We believe that the token standard that can well serve the RWA project needs to have the following two characteristics:

1. **It has good operability and flexibility for the issuer of the RWA token, and **has the dual characteristics of ERC-721 and ERC-20;
2. ** has a certain degree of privacy and can protect transaction information and user information. **

3.2 Strict censorship

Security is an important part of tokenizing real-world assets, especially when they serve as a source of collateral. It is important for issuers and investors of RWA to conduct due diligence on DeFi protocols and choose technologies or services that prioritize secured lending, offer strict regulatory compliance, and are built using high-quality open source code. For RWA-related project teams, it may be necessary to provide two necessary solutions:

• Avoid KYC/AML Risk - Conduct KYC (Know Your Customer) or AML (Anti-Money Laundering) checks on users and/or transactions on the platform. Avoid potential interactions or transactions by users, directly or indirectly, with counterparties or politically exposed persons listed on OFAC and other sanctions lists.
• Provide **** effective monitoring **** means - products and services that monitor and detect suspicious activities of DeFi users.

As a result, projects need to have a dedicated compliance team to review and approve or deny user access to the platform based on customer identity, risk assessment, verification, and due diligence. In addition, customer activity is continuously monitored for any suspicious activity or behavior that may suggest fraud or money laundering.

4. Representative project analysis

There are multiple subdivisions of the RWA track. This research report analyzes 19 RWA representative projects in detail from multiple dimensions such as the RWA tokenization mechanism, protocol status, token functions and performance, protocol advantages and risks. Through the analysis and summary of these projects, we can have a glimpse of the overall development, existing problems and future potential of the RWA project.

4.1 The concept of US debt

（1）MakerDAO

In 2020, MakerDAO officially included RWA in its strategic focus and released guidelines and plans for introducing RWA. In addition to issuing the stablecoin DAI, Maker has also expanded the types of collateral beyond ETH to include collateral in the form of tokenized real estate, invoices, and accounts receivable. The main source of income for the Maker protocol is the loan interest and liquidation penalty of the stable currency DAI.

Agreement Status: Judging from TVL, Maker is the top three DeFi protocols, ranking behind Lido and AAVE, and is the first CDP (Collateralized Debt Position) protocol. Currently only running on Ethereum, according to 2023-06-02, defillama shows, TVL is $6.29b, 30-day agreement income is $23.53m, treasury amount is $68.4m, governance token $MKR has been listed on Coinbase, Binance, Kucoin, Kraken , OKX, Huobi, Bybit, Gate and other mainstream exchanges, the 24h trading volume was $13.58m, and the 30-day average trading volume was close to $20m.

**Token function: **$MKR is the governance token of MakerDAO, and the currency price is not performing well. The main reason is that the value capture ability of the protocol is too weak, but governance has played an important role. The utility of the $MKR token includes the following 4 aspects,

• Governance rights: MKR token holders have the governance rights of the MakerDAO system. They can participate in voting and make decisions on important matters such as system parameters, risk management measures and protocol changes. The voting results of token holders have an important impact on the development and operation of MakerDAO.
• Collateral stabilization: MKR tokens can be used as collateral in the MakerDAO system. When users generate stablecoins (such as DAI) by locking a certain amount of encrypted assets (such as Ethereum), they need to pay a certain amount of MKR as collateral. This mechanism is designed to ensure the stability and security of the system.
• System stability repurchase: MKR tokens used as collateral are also used in the system stability repurchase mechanism. When the value of the stablecoin DAI in the MakerDAO system drops and deviates from the anchor value with the US dollar, the system will automatically initiate the repurchase of MKR tokens and destroy them to stabilize the system.
• Risk sharing: MKR token holders bear the risk in the MakerDAO system. If the debt of the system cannot be repaid or other problems occur, the value of the MKR token may be affected. This gives MKR token holders an incentive to participate in and supervise the operation of the system, ensuring the security and stability of the system.

Protocol Advantages: 1. Based on EVM and L2 ecology, it has more loyal user groups and stable and secure network support than other public chain RWA protocols; There are strict entry thresholds for DAI products, coupled with over-collateralization and a comprehensive auction system, which can guarantee a 1:1 peg between DAI and the U.S. dollar in most cases. In extreme cases, the agreement also sets emergency measures for emergency shutdown.

**Protocol risks:**1. Governance attacks, the short-term large-scale convergent attribution of MKR tokens may lead to the concentration of governance power, which will lead to a series of governance such as new garbage collateral, emergency shutdown, and malicious modification of risk parameters Attacks, with the increase in the value of MKR and the risk control measures of the agreement itself are sufficient to prevent such risks in most cases; 2. Market price risk, in the case of increased fluctuations in mainstream tokens, the serial agreement auction liquidation will actively increase the risk in the market The supply of tokens has exacerbated the problem of market liquidity. This has happened from time to time in the past two years when mainstream tokens have experienced large-scale declines, but the protocol itself has not suffered large-scale losses.

（2）Ondo Finance

Ondo Finance is one of the most watched RWA projects in the first half of this year. It received a US$20 million Series A financing led by Founders Fund and Pantera Capital in April. Ondo Finance is a decentralized investment bank. The off-chain mainly invests in U.S.-listed currency funds. On the chain, it cooperates with Flux Finance to carry out on-chain stablecoin lending business, including USDC, FRAX, DAI, and USDT. The current average lending rate is about 5% . The agreement income comes from a 0.15% annualized management fee.

Users need to pass the KYC/AML process before they can trade fund tokens and use these fund tokens in licensed DeFi protocols. Ondo Finance has launched four tokenized bond products for investors to choose from, including:

• U.S. Money Market Fund (OMMF): Ondo Money Market Funds invests in debt instruments such as high-credit U.S. government bonds and short-term bonds. The biggest goal is to preserve capital. The current annualized return is 4.5%.
• U.S. Treasury Bonds (OUSG): Ondo Short-Term US Government Bond Fund, which invests with U.S. short-term bill ETFs. The current annualized yield is 4.85%, $100.87M TVL.
• Short-Term Bond (OSTB): Ondo Short-Term Investment Grade Bond Fund, an actively managed exchange-traded fund (ETF) designed to pursue maximum current income while ensuring capital preservation and daily liquidity. The ETF invests primarily in short-term investment-grade debt securities, with an average portfolio maturity typically no longer than one year, and currently has an annualized return of 5.77%.
• High-yield bonds (OHYG): Ondo High Yield Corporate Bond Fund, which mainly invests in high-yield corporate bonds, with a current annualized return of 7.9%.

**Agreement status: **TVL on ETH is $100.5m, defillama RWA ranks first. OUSG is used on the largest scale, and OUSG holders can also deposit into Flux Finance, a decentralized lending protocol developed by Ondo Finance, to obtain income. Tioga Capital investor Tzedonn mentioned in the latest report that the existing market value of bond tokens is $168 million, and Ondo (OUSG) has a 61% market share, of which 28% is deposited in Flux Finance. At present, the total supply of Flux Finance has exceeded 40 million US dollars, and the market value of OUSG has exceeded 100 million US dollars. The lending protocol FLUX has been sold to the Neptune Foundation.

Token Functions: The functions of the governance token $ONDO include the following four,

• Platform fee payment: When users conduct transactions, loans or other financial activities on the Ondo Finance platform, they may need to pay a certain fee, which can be paid with Ondo Finance tokens.
• Voting rights and governance: Holders of Ondo Finance tokens can participate in the governance and decision-making process of the platform. They can vote on matters such as platform upgrades, parameter adjustments, and approval of proposals, and express opinions and suggestions on the development direction of the platform.
• Rewards and incentives: The Ondo Finance platform may attract users to participate in platform activities and ecological construction by issuing token rewards and incentives. These rewards can be issued in the form of Ondo Finance tokens, encouraging users to contribute and support the development of the platform.
• Lending and mortgage: On the Ondo Finance platform, users can use Ondo Finance tokens as collateral to obtain lending services. Users who hold Ondo Finance tokens can use them as collateral to get more loans or lower interest rates.

**Agreement advantages: **Compliance, products are either low-risk U.S. government-related debt instruments or high-risk ETFs, all of which are compliant products with third-party accounting disclosures. At the same time, users also need to pass the KYC/AML process.

**Agreement risks:1. Risks outside the circle, the main products are off-chain ETFs, U.S. government debt instruments, etc. Compliance can be guaranteed but it will also bring market risks and credit risks outside the circle etc., especially high-risk corporate credit bonds such as OHYG; 2. The risk of exiting the circle. The current personal opinion of the project is that it is stripping off decentralized products and switching to centralized + compliance operations. The use of governance tokens may be restricted. Stripped and marginalized, the follow-up only uses blockchain technology for project profit + bookkeeping + sales share instead of developing in the direction of overall decentralization of the project, which deviates from the purpose of most projects in the currency circle.

（3）Maple Finance

The Maple Finance protocol has been in development for 3 years, and its mainstream business is lending/institutional credit. The on-chain business is to provide USDC and wETH lending services, but the independent centralized pool manager manages the lending business, including loan objects, quotas, interest rates, strategies, etc. It seems that Maple Finance is not a qualified RWA project, but in April it announced plans to launch a lending pool for investing in U.S. treasury bonds, supporting non-U.S. DAOs, offshore companies, etc. to invest restricted funds into the pool set up by Maple Finance.

**Protocol income: **Maple Finance’s income mainly comes from the following aspects,

• Borrowing fees: Maple Finance charges a certain amount of borrowing fees by providing funds to borrowers. These fees are calculated based on the borrowed amount and loan term, and are set according to the interest rate set by the borrowing pool.
• Loan handling fee: As a platform provider, Maple Finance can charge handling fees related to loan transactions. These fees can include loan application fees, loan disbursement fees, and loan settlement fees, among others.
• Token mining rewards: Maple Finance may issue rewards to participants through the token mining mechanism. Users who hold Maple tokens can earn rewards by providing liquidity or participating in lending pools.
• Platform governance fees: As the manager of lending and borrowing pools, Maple Finance may charge a certain percentage of platform governance fees. These fees are used to support and maintain the operation of the platform, including developing new features, conducting security audits and maintaining community governance, etc.

Agreement Status: Judging from the TVL, Maple Finance ranks 145th on defillama, but it ranks first in the unsecured loan agreement, with a total TVL of $48.56m, a total of $32.22m in debt, a cumulative income of $45.6m, and a debt in transit of 18 (Because the centralized credit guarantee debt is provided, the borrowing objects are all large institutions with a small number), and 8 cash pools (7USDC+1ETH, with an average 30d annualized income of 7%). In addition, Maple Finance also has a small part of TVL on Solana, but with the decreasing activity on the Solana chain, there is currently only about $16.4k TVL, and most (99%) of the TVL comes from the ETH mainnet.

**Token function: **MPL token is the native token of the Maple Finance platform and has the following functions,

• Payment fees: MPL tokens can be used to pay fees for lending transactions on the Maple Finance platform. Users who hold MPL tokens can receive discounts or other benefits to encourage them to use and hold the token.
• Community governance: MPL token holders can participate in the governance decisions of the Maple Finance platform. They can make proposals, vote and express their opinions, influencing the development direction and important decisions of the platform.
• Voting rights: MPL token holders have certain rights and interests in voting on the platform, and can participate in voting on protocol parameters, protocol upgrades and other important matters.
• Share dividends: Users who hold MPL tokens are eligible to share the profits of the lending pool on the Maple Finance platform. These profits, which may come from interest paid by borrowers or other sources of income, are distributed proportionally to users holding MPL tokens.
• Incentive mechanism: The Maple Finance platform may promote the development of its ecosystem by providing incentives to MPL token holders. These incentives may include airdrops, rewards, or other forms of rewards to encourage user engagement and support the growth of the platform.

**Advantages of the agreement: **There is a certain degree of security. The manager of the pool is responsible for the loan risk and charges a certain management fee in return. The liquidity provider can bear less default risk while enjoying the loan interest rate.

Protocol risk: 1. Credit risk, the lending pool manager and borrowing objects are reviewed by the centralized organization, and the debt mainly relies on credit mortgage rather than asset mortgage (mortgage assets come from the pool manager), so once it happens Large-scale institutional defaults may lead to insolvency; 2. The threshold is too high. In order to ensure the safety of debts, the borrowing threshold is relatively high, which is not suitable for most users, so the popularity of the community is not high.

4.2 TradFi

（1）Polytrade

Polytrade is a decentralized trade finance platform designed to provide seamless lending to businesses across multiple industries. Currently, the project is transitioning from V2 to V3. Since January 2022, there has been no debt default, and LP loss is 0. In V3, it is expected that the NFT function of real assets will be added, and there may be a secondary trading market for NFT in the future.

Agreement status: The governance token TRADE has been listed on Kucoin, Gate, MEXC, Bitfinex and other exchanges. The main disk is in MEXC. The defillama shows that the TVL of the project is only $10,984, which is far from the fully unlocked market value of the project token of $17.27m And there is a risk of overestimation. On March 30, 2023, the project raised $3.8 million in seed financing from Polygon Studios, Matrix, CoinSwitch, Alpha Wave Global and other companies.

Token Function: TRADE is the governance token of the project. Its main function is to vote and make decisions on protocol income and updates. More detailed disclosure of token functions may be disclosed after V3 is released.

Advantages of the protocol: 1. The transaction cost on the Polygon chain is lower, and EVM has natural advantages such as gas and transaction speed; 2. The track advantage, officially funded by Polygon, is expected to guarantee the competitive advantage on the Polygon EVM.

Protocol risk: 1. Credit risk. Although the loan transaction is kept on the chain, the loan object, business, audit and other processes are all off-chain. The project party claims that the transaction is guaranteed by institutions such as AIG and Mercury, but it cannot be avoided Breach of contract by offline entities; 2. Technical risk. The project is in the migration stage from V2 to V3. The current protocol code does not provide a third-party audit report, and there may be bugs in unknown code technology.

(2) Defector

Defactor aims to provide enterprises with financing opportunities and liquidity by connecting traditional financing with DeFi. At present, the project has not yet launched and is in the early stages. According to its roadmap, the second half of 2023 is still in the stage of investment promotion + recruitment + development. According to the project’s official website, $FACTR is the native token of the defactor ecosystem, which aims to lower the threshold for using applications and infrastructure. It is able to align interests and incentivize the growth of the ecosystem.

4.3 Borrowing

（1）Goldfinch

Goldfinch is a decentralized credit protocol for debt funds and fintech companies with off-chain entities, similar to Maple Finance. Goldfinch offers zero-collateral USDC line of credit loans. Goldfinch’s model is much like a bank in traditional finance, but with a decentralized pool of auditors, lenders, and credit analysts. Borrowers can convert USDC into fiat currency and deploy it to end borrowers in the local market. Borrowers must be approved by the protocol’s decentralized auditors before applying for a loan. Auditors are independent entities that must stake the governance token, GFI, to have the opportunity to verify borrowers in exchange for rewards.

Protocol income source: 10% of all interest payments by Goldfinch are kept in the protocol treasury. At the same time, users will incur a 0.5% fee for redemption from the premium pool, which will also be deposited into the protocol treasury.

Agreement Status: At present, the total outstanding principal amount of all loans in the Goldfinch agreement is $101.34 million, the total loss rate is 0%, and the total principal and interest repaid is $25.1 million. Over the past 30 days, the agreement has generated $100,100 in revenue. There are no bad debts.

**Token Functionality:**Goldfinch currently has two ERC20 native tokens, GFI and FIDU.

• GFI is the core native token of Goldfinch, which can be used for governance votes, auditor pledges, auditor vote rewards, community grants, staking supporters, protocol rewards, and can be deposited into member treasuries to obtain member rewards to ensure the development of the protocol .
• FIDU represents the liquidity provider’s deposit in the premium pool. When liquidity providers provide funds to the advanced pool, they will receive an equal amount of FIDU. FIDU can be converted to USDC in the Goldfinch dApp at an exchange rate based on the NAV of the Premium Pool, minus a 0.5% withdrawal fee. Over time, the FIDU rate increases with increasing interest payments in the premium pool.

Protocol advantages: The mechanism adopted lowers the threshold for borrowing, which can help users with lower credit ratings to obtain loans to a certain extent. Compared with traditional platforms, Goldfinch has stronger ease of use, and the process is basically handled by smart contracts.

**Agreement****Risks: **The adoption of DeFi is globalized, but different laws in various countries may lead to higher costs and problems in Goldfinch’s business. And, because there is no collateral, the Goldfinch advanced pool also has default risk.

（2）Centrifuge

Launched in 2017, Centrifuge is one of the earliest DeFi projects involved in RWA, and is also the technology provider behind top protocols such as MakerDAO and Aave. Similar to the above lending protocols, Centrifuge is also an on-chain credit ecosystem, aiming to provide small and medium-sized business owners with a way to mortgage their assets on-chain and obtain liquidity.

Centrifuge allows anyone to start an on-chain credit fund and create pools of collateralized loans. Centrifuge created Tinlake, an open asset pool based on smart contracts. Borrowers can tokenize physical assets through Tinlake. The physical collateral will be divided into two tokens, DROP and TIN, according to risk and return, representing the fixed rate of the priority level and the floating rate of the secondary level respectively. Investors can choose to invest in DROP or TIN according to their own risk tolerance and income expectations. Currently, there are no fees for the Centrifuge protocol.

Project status: On May 23, Centrifuge announced the launch of a new Centrifuge App to replace Tinlake. The new Centrifuge App has improved the speed of KYC and investment participation, added KYB (Know Your Business) process automation, and laid the foundation for subsequent multi-chain support. The previous Tinlake will be automatically migrated to the new application. According to official data, Centrifuge currently has a TVL of US$201 million and total financing assets of US$397 million.

**Token function: **Centrifuge Chain’s native token CFG is used as an on-chain governance mechanism, and CFG holders can manage the development of the Centrifuge protocol. At the same time, CFG is also used to pay Centrifuge Chain transaction fees.

**Project advantages:**1. The financing threshold is low, and at the same time, investors can obtain income from real assets. Centrifuge basically simulates the process of corporate credit in traditional finance; 2. Committed to compliance, Centrifuge is based on the legal structure of asset securitization in the United States.

Project risk: Loan overdue default risk, according to rwa.xyz data, Centrifuge has 10,194,481 US dollars of loans overdue for more than 90 days.

（3）Clearpool

Clearpool is a DeFi lending protocol that provides institutions with unsecured loans. Clearpool has two products, Prime and Permissionless. Clearpool Prime is only available to whitelisted institutions, and no collateral is required to borrow on Prime. Borrowers create pools of funds with specific terms in the core smart contract. After the pool is created, borrowers can invite any other whitelisted institution to fund the pool. Loan assets are automatically transferred directly to the borrower’s wallet address without the need for Clearpool custody. Clearpool Permissionless requires the borrower to be a whitelisted institution, but not the lender.

Agreement Income: 5% of all interest payments collected by Clearpool as an agreement fee.

**Agreement Status:**Clearpool accumulatively generated loans of 398 million US dollars, the current loan balance is 16.58 million US dollars, and the Permissionless TVL is 20.78 million US dollars.

**Token Functionality:**CPOOL is Clearpool’s utility token and governance token. CPOOL holders can vote on the whitelist of new borrowers.

Advantages of the agreement**: **The advantage of Clearpool is that it does not require collateral at all and its loan issuance only needs to go through the agreement itself, which greatly improves the efficiency.

**Protocol risk: **Unsecured, once the market environment turns bad, Clearpool’s current whitelist and credit scoring mechanism can hardly prevent borrowers from defaulting.

4.4 Public Fixed Income

（1）Swarm Markets

Swarm Markets provides a compliant DeFi infrastructure for RWA token issuance, liquidity and trading, and is supervised by German regulators. Swarm Markets combines an on-chain compliance layer with regulatory clearance to tokenize U.S. Treasury bills and stocks. SwarmX, the issuing entity, acquires publicly traded equity securities as the underlying assets of on-chain tokens, which are held by institutional custodians.

Protocol Income: Swarm will receive 25% of the pool exchange fee or 0.1% of the assets exchanged (whichever is greater).

**Agreement Status:**Swarm currently provides TSLA (Tesla), AAPL (Apple) stocks and TBONDS01 (iShares US Treasury Bond 0-1 Year ETF), TBONDS13 (iShares US Treasury Bond 1-3 Year futures ETF) bond ETF. On April 25th, Swarm officially announced that it will launch BLK (BlackRock), COIN (Coinbase), CPNG (Coupang), INTC (Intel), MSFT (Microsoft), MSTR (MicroStrategy), NVDA (NVDA) stock tokens .

Token Functionality: $SMT is the native token of Swarm Markets, which can enjoy trading discounts and rewards. When traders choose to pay with $SMT, they can get a 50% discount on the agreement fee. $SMT holders can enjoy loyalty rewards, and the specific ratio will vary according to different levels. Similar to the concept of centralized exchange platform currency.

Protocol advantages and risks: The advantage of Swarm is that it provides more choices for DeFi users, combining blockchain and traditional assets, and mixing TradFi and DeFi. Of course, Swarm currently offers fewer stocks and bonds, and its depth cannot be compared with traditional markets.

（2）Acquire.Fi

Acquire.Fi is a cryptocurrency M&A marketplace that simultaneously offers everyone real-world gains from fractional equity in cryptocurrency companies, traditional businesses, and real-world assets. In Acquire.Fi, equity will be NFTized and can be bought and sold through the secondary market. Sellers in the market, sellers, and buyers in the investment pool need to pass KYC (subsequent, investments below $250 may not require KYC).

**Agreement Earnings:**Acquire.Fi uses multi-structure commissions. For business values below $700,000, the commission will be fixed at 15% of the sale price. The commission will be reduced to 8% between $700,000 and $5 million. Commissions over $5 million will be further reduced to 2.5%.

**Agreement status: **Currently, the Acquire.Fi market provides equity sales of many companies including NFT market, metaverse, media, DAO and other tracks. According to official statistics, 2k+ online business sales have been completed.

**Token function: **$ACQ is Acquire.Fi’s utility token. Staking $ACQ can enjoy exclusive investment pool, encrypted M&A transaction flow, LP mining rewards and other exclusive advantages.

Agreement Advantages: Sell your business online with Acquire.Fi without having to buy a separate service, contact a web host, and get more attention. Compared with other platforms, it has the advantage of being more convenient and faster.

Agreement risk: M&A or equity purchase through Acquire.Fi still has legal risks, especially when the buyer and seller are not within the same legal entity.

4.5 Summary of financial products

The lending agreement is the most successful example of an RWA project. The unsecured lending model has been welcomed by institutions in the bull market, but it is also a catalyst for the arrival of the bear market, so the most difficult part of the credit agreement is the risk of default. Projects based on U.S. debt and U.S. stocks are relatively mature, and users can also obtain higher returns in a bear market. There are few TradFi projects, and the current business is still focused on financing for small and medium-sized enterprises.

The development space of institutional credit business is very limited. User income mainly comes from stable coins + protocol tokens, and due to non-full mortgages, borrowers need to bear certain bad debt risks. In the bull market stage, the risk-free return of DeFi is also very high, so the institutional credit business may not be sustainable.

We believe that national debt or monetary funds similar to those launched by Ondo are potential directions in the future. First, these funds are already popular choices for investors in traditional finance, and the risk is relatively low; second, they provide different options for users on the chain. At the same time, the threshold is lowered.

Although the RWA project in the financial field is at an early stage, there are already many interesting use cases. With the strengthening of the composability of various protocols, many gameplays and high-yield projects may be produced, which is a subdivision track worth looking forward to.

4.6 Real Estate Concept

（1）RealT

RealT is a real estate tokenization platform, established in 2019, mainly serving real estate projects in Detroit, Cleveland, Chicago, Toledo, Florida and other states in the United States. Investors can purchase RWA tokens to realize investment in real estate. To date, the platform has processed over $52 million in real estate tokenization for 970 homes.

There is no native ecological token in the agreement, and $DAI (XDAI/WXDAI) is used for value exchange within the ecology, and realtoken is issued for each real estate asset to obtain rent sharing as collateral.

Token packaging process:

• **Off-chain: **A third-party real estate management agency confirms the property ownership according to the real estate contract, and divides the members’ rights and interests into equal units; tenants’ rent is converted into US dollars through real estate management services. Legal support: RealToken submits documents to apply for securities exemptions in accordance with Regulation D and Regulation S of the US Securities Act, and RealToken shall not be provided or sold within the United States or for Americans or for the benefit of Americans.
• **On the chain: **realtoken investors need to use the stablecoin DAI deposit and loan services of the RMM application (RealT market maker) in exchange for realtokens as collateral according to the price of the oracle machine, which is sent to the chain in the form of DAI every day The digital wallet address of RealToken related to the rental contract is 1/30 of the total amount of DAI for daily payment.

**Agreement income: ** No specific income model was found. The possible income comes from the deposit and loan interest rate difference of the DAI fund pool, and the rent commission on the off-chain and on-chain.

**Agreement status: **The current agreement market size is $10.51m, the total supply of XDAI is $3.224m, the supply APY6.94%, the total loan is $2.54m, and the borrowing APY9.93%. At present, there are 40+ properties available for investment in the market within the agreement.

Current status of user income: There are 17 users with weekly rental income > 1k DAI, and the highest income is 6187.83DAI/week.

**Agreement advantages: **The agreement has maintained a market size of tens of millions of dollars since its issuance in 2019, and has continuous real cash flow income.

**Agreement risk: **Affected by the market price of real estate leasing and the relationship between supply and demand, there is a difference between the expected rental income and the actual rental income.

（2）Tangible

Tangible is a RWA tokenization project that provides users with access to RWA tokenization by launching a native revenue stablecoin, Real USD. RWA physical objects include but are not limited to artworks, high-end wines, antiques, watches, and luxury goods.

Token packaging process:

• Off-chain: There are four tokenized product categories on the platform, including gold, wine, watches and real estate.

1. For the transaction and storage of gold bars, Tangible uses the services of PX Precinox in Switzerland.
2. For wine, they partner with London-based Bordeaux Index.
3. For the watches, they partnered with UK-based BQ Watches.
4. For real estate, Tangible creates a native special purpose vehicle (SPV). These are the legal entities set up for each property. SPVs manage properties by finding tenants, collecting rent, or managing maintenance. All properties are rented out, and rental income is paid to TNFT holders in USDC.

• Legal support: Every UK-based property has its own UK SPV. This is because real estate cannot be tokenized directly. However, legal entities can. Real estate TNFT holders have title to the SPV, which gives them a beneficial title to ownership of that real estate. However, legal ownership of both remains with Tangible’s legal entity, BTS TNFT Ltd, registered in the UK. Tangible also has an entity of the same name registered in the British Virgin Islands.
• On-chain: Tangible launched a real estate-backed native yield stablecoin Real USD (USDR), users can use TNGBL or DAI to mint USDR at a ratio of 1:1. On Tangible, users can use USDR to purchase valuable physical goods, including but not limited to artwork, fine wine, antiques, watches, and luxury goods. When a user purchases RWA listed on Tangible, TNFT (“Tangible non-fungible token”) will be minted to represent the real thing. Tangible will deposit the physical item in a physical vault and send TNFT to the buyer’s wallet. TNFT can be transferred and traded freely.
• Ways to guarantee excess mortgage rate & liquidation mechanism:

1. If the CR of USDR drops below 100%, half of the rental income will be kept in the USDR collateral vault. Therefore, daily rebalancing will be reduced by 50%. In other words, USDR holders will earn less interest until CR returns to 100%.
2. Vaults backing USDR always hold a diverse portfolio of liquid assets for fast liquidation (such as DAI, protocol-owned liquidity, and TNGBL).
3. If all DAI and other reserves are depleted, the real estate TNFT will be liquidated. In this case, users will receive pDAI instead of real DAI. pDAI is an IOU Token that represents a claim on real DAI and can be cashed out once liquidation is performed.

Protocol revenue: TNFT owners need to pay storage fees. For example, the storage fee for gold bars is 1% per year. When redeeming, shipping costs must be paid by the person redeeming TNFT.

**Agreement status: **Agreement TVL $33,665,846, total collateral price $35,367,224. According to the USDR white paper, the mortgage structure should theoretically be as follows: 50 - 80% tangible real estate; 20 - 30% tokens; 20 - 30% liquidity owned by the agreement; 5 - 10% insurance fund; 0 - 10% TNGBL. The actual USDR collateral structure is as follows, which is quite different from the proposed mortgage structure:

**Token function: **$TNGBL locks passive income USDC after minting NFT; as a reward Token to encourage the use of the market and subsidize USDR income; it can be used to mint USDR.

Token secondary market performance:

• $TNGBL is only circulated on uniswap and has not been supported by centralized exchanges. The liquidity is poor. The daily trading volume is mostly hundreds to thousands of dollars. The highest single-day trading volume in history is $32,000. The market value of the project is $110 million. The upper currency holding address is 1,021.
• The stablecoin USDR has been trading well since it was issued at the end of March. Multiple DEXs have been launched, supporting ETH, BSC, polygon, op, and arbitrum. The 30d average daily trading volume is $0.7m, the price is >$1, and the current price is $1.053.

**Advantages of the agreement: ** Create a TNFT market, and obtain a large number of circulating tokens to lock, and also introduce other physical goods to buy, including art, high-end wine, antiques, watches, luxury goods, etc.

**Agreement risk: **SDR unanchor risk. Centralization risk, the team is both the TNFT issuer and the custodian of the underlying assets.

（3）LABS Group

LABS Group was originally positioned as a real estate tokenization platform, allowing homeowners to tokenize their houses to raise funds without an intermediary, and investors can also access other real estate agents with higher liquidity through the secondary market. currency. Currently, LABS Group has launched a Web3 vacation platform Staynex, which provides members with the right to use global resorts every year and can earn rewards by holding membership. Tokenize “stay” through blockchain technology and embed it into NFT, so that hotels and resorts can create, design and mint their own timeshare plans on NFT. NFT represents membership status and number of days of stay .

Due to the cross-border investment involved, LABS Group’s exchange was approved by the government after submitting a complete set of business plans with the government. LABS Group has obtained a compliance license for retail investment.

**Agreement income: **LABS Group’s primary platform, secondary exchange, and decentralized lending platform can obtain various business benefits such as consulting fees, transaction fees, listing fees, and handling fees.

**Agreement status: **The resort industry is rich in resources, owns 60 hotels, and cooperates with Arsenal Football Club as its official hotel membership platform. At present, LABS Group is the project with the best performance in real estate RWA track tokens. $LABS is supported by centralized exchanges such as kucoin, gate, and bitmart. It once broke through $35 million, and then the trading popularity declined. In the past year, the single-day trading volume was <$100,000, the market value was $1.47m, the FDV was $6.66m, and the number of currency holding addresses on the chain was 11,911.

The community is very popular, with 58,000 followers on Twitter, 19k followers on Telegram, and 511 online users.

**Token function: **Mainly used as a reward token, other functions include governance (voting), there is a repurchase and destruction mechanism, and 80% of it is planned to be destroyed, including 50% in the first stage. In addition, 10% will be drawn from each transaction on the platform % will be sent to the liquidity pool for permanent locking. There have also been phased staking activities before, such as staking $LABS for football game predictions (the activity has ended.

Agreement Advantages: The timeshare model adopted, that is, a person has the right to use a vacation property at a specific time of year, is very popular in today’s digital nomad culture. In addition, the team has its own resort industry resources, owns 60 hotels, and cooperates with Arsenal Football Club as its official hotel membership platform.

**Protocol risk: **Token value capture is poor, mainly used as rewards, and empowerment is mainly on NFT. And timeshares have their downsides: high annual management fees, difficult sales, unscrupulous players and scams.

Summary

At present, the overall market scale of real estate projects in RWA is very small, with insufficient liquidity and poor mechanism transparency. Large centralized entities are required to intervene for endorsement and supervision. The utility tokens issued by relevant agreements are generally poorly accepted in the encryption market. . The main reason is that physical assets need to be strictly regulated, and the project party also needs to perform complicated operations on the ownership of assets.

The tokenization of real estate can solve: 1. The cross-regional and instant transactions of the blockchain can solve the problem of low liquidity of existing real estate; 2. The threshold is low, and retail investors can also invest in real estate globally to obtain benefits. However, the most difficult problem to solve in real estate tokenization is real estate certification and valuation. The certification determines the authenticity of real estate information, and the valuation determines the price of loans and liquidations. The Tangible project has made bold attempts in these aspects: use the Chainlink oracle machine to price RWA tokens, and the information of the oracle machine mainly comes from the price provided by hometrack.com; in terms of the authenticity of the real estate, Tangible uses the third-party auditor cooperation mode to independently verify Property ownership. In these projects, we can see that before the real estate is put on the chain, third parties are still required to participate, including evaluation, finance, legal and other related institutions. These all require process compliance and legal perfection.

4.7 Carbon credit concept

Carbon credit refers to the amount of carbon dioxide that a company can reduce or neutralize through the organization’s Verified Carbon Standard (Verified Carbon Standard), which is similar to the “voluntary emission reduction (CCER)” in my country’s carbon trading system. .

(1) Toucan

Toucan Protocol is a protocol deployed on Polygon, the goal is to convert carbon credits into tokens, so as to promote carbon credit transactions using decentralized financial means, and ultimately promote carbon neutrality. The carbon credits traded by Toucan Protocol come from the carbon offsets registered on Verra. Verra is a non-profit organization that registers carbon credits.

Token packaging process:

Toucan’s carbon stack consists of three modules: Carbon Bridge, Carbon Pools, and Toucan Registry.

• Carbon Bridge

Anyone can bring their carbon credits on-chain through Carbon Bridge. Toucan only supports carbon credits withdrawn from the Verra registry, and Carbon Bridge is an irreversible one-way bridge.

1. At the initial stage of bridging, an ERC721 NFT BatchNFT will be minted to represent a batch of carbon credits;
2. Permanently withdraw the tokenized carbon credits from the Verra registry and obtain a unique serial number;
3. Write the serial number received from Verra, and BatchNFT links to the exit entry in the original registry;
4. BatchNFT automatically submits for review after updating the serial number;
5. After being approved by Toucan Verifier, it will become a batch of fully tokenized carbon credits, and users can fragment them into ERC20 tokens TCO2 at any time.

BatchNFT can be used to mint an equal amount of fully fungible ERC20 token TCO2, 1 TCO2 token represents 1 carbon credit, and its value is 1 tCO2e.

The TCO2 token contract still carries all the attributes and metadata of an NFT, making it specific to a particular project and year, since voluntary market carbon credits trade at very different prices. TCO2 is an umbrella term for fungible tokenized carbon credits. When you fork the BatchNFT, the ERC20 token will be prefixed with TCO2-, followed by an informative name including registry of origin, project, year, etc. For example: TCO2-GS-0001-2019.

• Carbon Pools Bundling multiple project-specific tokenized TCO2 tokens into more liquid carbon index tokens enables price discovery of different types of carbon assets. Each pool has a unique configuration with specific logic that dictates which tokens TCO2 can deposit into it.

The Toucan team has cooperated with KlimaDAO to deploy the first Carbon Pool, namely the Base Carbon Tonne (BCT). The threshold requirements of the Base Carbon Tonne pool are: TCO2 tokens must be Verra VCU (Verified Carbon Units), and their Year must be 2008 or later.

TCO2 tokens that pass the logical screening can be pledged in Carbon Pool, and depositors receive Carbon Pool tokens (such as BCT). Users can redeem at any time. The redemption will burn Carbon Pool tokens and send the basic tokens to the user. When redeeming, you can choose automatic redemption (the lowest TCO2 in the exchange ranking) and selective redemption (pay a fee to redeem specify TCO2).

There are currently 2 Toucan Carbon Pools, BCT (Base Carbon Tonne) and NCT (Nature Carbon Tonne)

Agreement source of income:

• Exchange Carbon Pool token fee If you choose to switch selectively when exchanging Carbon Pool tokens, Toucan Protocol will charge a fee, part of which will be used to burn low-value carbon credits, and the other part will be given to Toucan for the establishment of the agreement. The BCT pool exchange fee is 25%, and the NCT pool exchange fee is 10%.
• Bridging carbon pool fees This fee is currently set to 0.

**Agreement status: **Toucan has been launched since October 2021, and currently supports Polygon and Celo. The carbon credits on the Carbon Bridge chain are 21,889,951 tons, the offset carbon credits are 298,173tCO2e, and the carbon supply is 19,908,799 (BCT and NCT pools Medium pledge amount), total liquidity $2,946,585 (total liquidity of BCT and NCT of each exchange).

Token Function:

• NCT is the abbreviation of Nature Carbon Tonne, and it is a standardized reference token linked to all carbon credits deposited in Nature Carbon Tonne;
• BCT is the abbreviation of Base Carbon Tonne, which is a standardized reference token linked to all carbon credits deposited in Base Carbon Tonne;

Staking TCO2 tokens that pass the logical screening in the carbon pool will obtain the corresponding tokens; otherwise, the two tokens can be used to exchange tokenized carbon credits.

Protocol Advantages**: **To a certain extent, realize the tokenization of carbon credits and improve the liquidity of carbon credits;

Protocol risk**: **Toucan Carbon Bridge is an irreversible one-way bridge, and the actual off-chain credit cannot be redeemed after the tokenization process starts; Verra Registry currently does not support carbon credit tokenization, and it is forbidden to withdraw credit based on The practice of creating tools or tokens that Toucan chose to withdraw from the original registry to prevent double counting is not an optimal solution.

（2）Flowcarbon

Flowcarbon, a blockchain startup founded by WeWork co-founder Adam Neumann, hopes to vertically integrate the entire carbon credit lifecycle, providing strategies and solutions from carbon project initiation and financing to credit sales and corporate carbon portfolio management. In May, it completed a financing of US$70 million, led by a16z, and participated by General Catalyst and Samsung Next. Currently, the carbon credit spot market is not yet online. Goddess Nature Token (GNT) will be the first bundled token.

Token packaging process:

• Minting tokenized carbon credits All requests to tokenize carbon credits are submitted through the form on the Flowcarbon website. After submitting a tokenization request, Flowcarbon verifies the information with the designated registration authority. Once the account’s ownership, project type, and credit amount are confirmed, the carbon credits are transferred to a bankruptcy-segregated special purpose vehicle (SPV). Once the batch information is verified and credits are deposited into the SPV, a new instance contract is created,

• Exit (Retirement) A token holder initiates a token withdrawal to Flowcarbon, specifying the amount she wants to withdraw. This will reduce the balance of the token holder and increase her withdrawal amount. Exited tokens are transparently accumulated in the contract until they exceed a pending batch size. Once the threshold is reached, the bankruptcy-segregated SPV exits the carbon credits in the underlying registry.

• redeem Redemption is the process by which token holders exchange their GCO2 tokens for actual off-chain credits. Token holders initiate the redemption process by submitting a request to Flowcarbon. Once a request is approved, Flowcarbon confirms that the requester has an account with the appropriate registry. The GCO2 tokens are then burned by the GCO2 smart contract, and physical carbon credits are then transferred from the bankruptcy-segregated SPV to the account of the requesting entity.

There is a standard 2% fee on redemption. If a GCO2 holder requests to redeem 100 GCO2, they will receive 98 off-chain carbon credits.

• fluidity

GCO2 tokens can be deposited into a bundle in exchange for bundle tokens using Flowcarbon’s dApp. Bundle tokens are issued on a one-to-one basis; if a GCO2 token holder deposits 50 GCO2 into a bundle, she will receive 50 bundle tokens in return. Bundled tokens are intended to provide liquidity so users can purchase bundled tokens directly. Bundled tokens are also withdrawable and redeemable.

Agreement income:

Unbundling, swapping, exiting and redemption functions all have associated dynamic fees, with more recent carbon credit actions being more expensive than longer carbon credit actions. This is to incentivize the retirement of old carbon credits. Dynamic fees are implemented through “rake back” contracts. When one of the functions is activated, the contract performs that function on behalf of the user account, and the rebate contract decides how much of this maximum fee should be sent back to the requester. For example, the maximum fee is 15%, if Sarah requests that 100 bundled tokens be unbonded into GCO2 for 2020. The bonded token contract will automatically charge 15GCO2 in the fee account, and 85GCO2 will be sent to the rebate contract. The rebate contract will contain logic about what the fee actually is; 2020 is a relatively new year, and the actual fee is 10%. So in this case the rebate contract would take 5GCO2 from the fee and send 90GCO2 back to Sarah.

**Protocol advantages:**Flowcarbon provides a “two-way bridge” that allows GCO2 tokens to be exchanged for basic carbon credits off-chain.

**Protocol risk:**Transfer carbon credits to SPV and create tokens to realize on-chain transactions, failing to truly realize the tokenization of carbon credits.

（3）PERL.eco

PERL.eco is Perlin’s latest project focused on bringing real-world bio-ecological assets to the blockchain, with one of the first assets available being tokenized carbon credits. At present, the product has not been officially launched.

Token packaging process:

PERL.eco has partnered with AirCarbon Group, operator of the fully regulated carbon exchange ACX, to establish the PERL.eco Carbon Exchange (PCX), with PFC obtained directly from supply-side carbon projects and partners by PERL.eco (PERL. eco Future Carbon, tokenized carbon credits of high-quality carbon projects audited by PERL.eco, which have not yet been issued) and other high-quality carbon assets and retail transactions on PCX.

**Agreement status: **Token $PERL has been listed on Binance, but the social media attention is low, the project progress is slow, and the white paper has not been updated for more than a year. It is planned to carry out the PFC pilot soft launch in Q3 of 2023 and the early prototype release of PERL.eco Carbon Exchange (PCX); the PCX Alpha version will be released in 2023Q4, and the PCX Beta version will be released in 2024.

Token Function:

$PERL is the governance token of PERL.eco. PERL plays a key role in defining the incentive system, building a broad stakeholder base, and facilitating the flow of economic value in the network. PERL holders can vote on this fee model and distribution, among other important decisions. By participating in governance, users can be rewarded with airdrops of carbon credits to offset their emissions.

**Protocol advantages: **Cooperate with regulated carbon exchanges to reduce risks;

**Agreement risk: **PERL.eco only acts as a dealer, which increases the exposure of the target, but does not really improve its liquidity.

Summary

The carbon credit market under the chain has problems such as lack of price discovery, poor liquidity, and poor market transparency. The Web3 carbon credit project is committed to establishing a trading pool through the tokenization of carbon credits to provide better liquidity for carbon credit transactions.

However, the Web3 carbon credit project faces problems such as strong isolation and low credibility, and because carbon credits are affected by the registry of origin, projects, years, etc., the prices are not consistent, and it is difficult to achieve true homogeneous tokenization. For example, Toucan, which already has certain transaction data, currently only supports two types of carbon credit carbon index tokens, which can only be pledged through logical screening. Flowcarbon currently only plans to offer one type of bundled token, which needs to meet three requirements. In addition, the carbon credit trading process is relatively complicated, and it is impossible to bypass some centralized verification agencies managed by independent non-governmental entities, such as Verra and Gold Standard. Verra has made it clear that it does not currently support carbon credit tokenization. Blockchain technology can change the problems existing in the traditional carbon credit trading market in many ways, but there is still a long way to go in improving credibility and enhancing market unity and liquidity.

4.8 Vertical public chain

It is precisely because of the diversification of asset attributes in the real world that the realization of asset tokenization requires a dedicated public chain to meet the needs of institutional users. Including: 1. Stronger security and privacy; 2. More convenient operation, such as providing tools such as SDK; 3. Diversification and operability of token standards; standard process system.

In terms of token standards, from the perspective of Ethereum’s ERC-20 standard, the issuer cannot implement token recovery, share management, identity management, batch processing, off-chain authorization, etc., which brings challenges to asset management. Greater difficulty. Therefore, the existing public chain cannot realize the complex operation of asset management in the existing financial market. A new public chain is needed to build a new token standard.

（1）Polymesh

Polymesh is an institutional-grade Layer1 blockchain tailored for regulated assets such as security tokens, with a market capitalization of $90 million. Binance has recently announced to be one of its nodes. Polymesh is a public permissioned blockchain that uses the Nominated Proof-of-Stake (NPoS) consensus model developed by Polkadot to clarify the roles, rules and incentives of the network. Inspired by ERC-1400, the token standard on the chain provides more functionality and security to facilitate the issuance and management of assets on the chain.

Polymesh’s core team has backgrounds in finance, technology, and law. Most have experience building the first security token platform and spearheading ERC–1400 at Polymath. Team members are public, team information see:

Project advantages/features

• Designed for supervision: due to regulatory restrictions, unlicensed public chains such as Ethereum may be difficult to meet the transaction of RWA assets, so the vertical application chain specially established for RWA came into being.
• Transparency guarantee: All issuers, investors, stakers and node operators need to complete the identity verification process, that is, customers need to conduct due diligence. Node operators, in particular, must be licensed practicing financial entities. This increases network security. On-chain interactions can be traced back to known real-world entities. All transactions are authorized by licensed entities.
• Prevent hard forks: Forked chains will cause major legal and tax issues for physical asset tokens. POLYX’s industry-leading governance model prevents hard forks.
• Confidentiality: Polymesh has designed a secure asset management protocol that enables the issuance and transfer of confidential assets. Comply with the confidentiality requirements of real-world market participants for positions and transactions.
• Instant settlement: Inheriting Polkadot’s GRANDPA finality gadget, combined with the above identity verification requirements, compliance verification, and no hard fork, Polymesh transactions can be settled instantly.

Token Function:

$POLYX, native token. Under the guidance of the Swiss financial regulator FINMA (Swiss Financial Market Supervisory Authority), the currency is classified as a utility token under the country’s laws. POLYX is used for governance, securing the chain through staking, and creating and managing security tokens.

The inflation rate of the token is 10.12%, which is relatively normal.

POLYX Token Circulation Chart

ecosystem:

Existing participants in the Polymesh ecosystem include cryptocurrency exchanges, veteran players in the tokenization space (Polymath), and companies with sizable security token portfolios (RedSwan). The Polymesh Association aims to foster further development through two programmes:

• Funding Program is available to individuals and businesses building open source functionality in Polymesh.
• Ecosystem Development Fund is available to businesses with integrated Polymesh closed-source technology.

The current main ecology includes:

• Tokenise – the first digital asset CSD, brokerage and exchange – has chosen to build its infrastructure on Polymesh and has started creating digital assets
• **DigiShares - ** a white label tokenization platform - becomes the first Polymesh Ecosystem Development Fund recipient to integrate Polymesh
• Stably – a regulatory compliant stablecoin infrastructure provider and creator of the USDS token – is working to launch the first stablecoin on Polymesh
• **ABC Tokens - ** a tokenized real estate provider - uses Polymesh to offer investors decentralized commercial real estate

An overview of the Polymesh ecosystem in October 2022

Asset tokenization mechanism:

• Configure security token Deploy security tokens on the blockchain to represent physical or digital assets. On Polymesh, tokens are created at the protocol layer, eliminating the need to add smart contracts for each security token at the top of the chain. Tokens can be easily configured using basic programming languages and the Polymesh SDK or using the tokenization platform for issuers wanting a completely no-code approach.
• Set compliance rules Set ownership and transfer rules flexibly using Polymesh’s compliance engine. Make sure that transfer restrictions can be enforced and that your tokens comply with regulatory requirements such as KYC/AML requirements, as well as securities regulations.
• Token distribution Mint your tokens with one click and send them to existing shareholders, affiliates or reserve accounts, while enforcing wider compliance requirements. Set pricing based on what makes sense for your tokens and (if required) appoint a qualified custodian to manage the collection in a safe and secure manner.
• Manage corporate actions

Execute corporate actions on-chain to resolve interests, restructuring, capital allocation and voting. Issuers only need to enter a few details. From there, the engine can determine entitlement, schedule record dates, allocate capital (if needed), and update records.

Project Status:

Currently, there are already 3.8K accounts and 357M $POLYX tokens are pledged, accounting for 47.7% of the total circulation. 43 node operators. The daily transaction volume on the chain ranges from 2K to 11M $POLYX. During April 20, the number of on-chain transfers reached 138M as Binance announced it would become its node operator.

The number of transactions on the Polymesh chain

In the future, Polymesh will introduce smart contract functions and bring defi applications, NFT support, etc.

Project Evaluation:

Technically speaking, Polymesh utilizes the development framework of polkadot, but it is not a parachain. Inherited the security and technical superiority of Substract. From the perspective of ecological development, Polymesh provides the issuance and management tools of RWA tokenization on the chain that can be independently set to meet the needs of various asset tokenization. Provides an institutional-level solution for RWA tokenization, but there are two risk points: (1) Identity verification ensures a certain degree of transparency and security, but in case of problems, a supporting insurance plan is required; (2) Attracting The entry of institutional developers is the key, and more cooperation is needed.

（2）MANTRA Chain

MANTRA (formerly MANTRA DAO) was established in 2020 and is part of the MANTRA ecosystem Omniverse. Others include MANTRA Nodes and MANTRA Finance. The market value of the project circulation is about 19 million US dollars. MANTRA Chain is an L1 blockchain built on the Cosmos SDK, aiming to become a collaborative network between enterprises, attracting enterprises and developers to build any application from NFT, games, Metaverse to compliant DEX. MANTRA Chain can interoperate with other ecosystems of Cosmos through IBC cross-chain, and is also compatible with EVM chain.

The MANTRA project straddles the concept of RWA and Hong Kong, and has raised one time in total. The main investors include LD Capital, Waterdrop Capital, GenBlock Capital, etc.

Project advantages/features:

• Strong identity system: MANTRA Chain has a powerful decentralized identity (DID) module to meet all KYC and AML requirements. This module helps to develop products that can take advantage of enhanced features and ecosystems.
• Complete ecosystem chain: With MANTRA Finance as the main line, nodes, DAO organization and public chain infrastructure have been developed.

Token Function:

$OM is the native token of OMniverse, and its functions include governance, network staking, DAO token deposit and withdrawal/airdrop rewards. MANTRA Chain’s native token $AUM will be launched soon.

Ecosystem and status:

The first dApp on MANTRA Chain is MANTRA Finance, which aims to become a globally regulated DeFi platform, bringing the speed and transparency of DeFi to the opaque TradFi world, allowing users to issue and trade RWA tokens.

Currently, some yield-based DeFi products based on cryptocurrencies have been launched, followed by the launch of a central limit order book (CLOB) DEX, which will provide swap functions and traditional financial products such as debt, stocks and other real world assets (RWA ).After the successful launch of these products, MANTRA Finance intends to expand its decentralized exchange (DEX) offering by offering derivative products.

Project Evaluation:

The MANTRA project started in 2020 and was developed based on Polkadot, but it has not been well developed. The project route has also undergone many major changes, and the product progress is slow. At present, there is no launch of related RWA products or corresponding solutions for enterprises and institutions.

（3）Realio Network

Realio Network, formerly an end-to-end digital asset issuance and P2P trading platform focusing on real estate private equity investment, is headquartered in New York and established in 2018. Currently, Realio has established its own L1 blockchain network, developed based on the Cosmos SDK, and the mainnet was launched in April. The Realio platform uses blockchain technology to provide a series of services, including tokenization, digital asset issuance, and secondary market transactions. It provides applications including realioVerse and the upcoming Freehold wallet. In the future, it will not only involve real estate, but also securities.

Realio’s platform also includes offerings such as KYC/AML compliance, investor accreditation and investor management tools, which also serve third-party issuers to digitize their assets and raise funds within the network. All actions need to meet SEC compliance requirements.

The information of team members is disclosed, and there are many consultants in the field of finance and real estate.

Project advantages/features:

• Security Guaranteed: One of the unique features of Realio is the distributed key management system. Staking validators and delegators who help ensure security. Binding $RIO or $RST will get their share of block rewards based on their contribution amount.
• Compliance: All token offerings need to meet SEC compliance requirements.

Ecological Construction:

At present, the Realio Network mainnet has just launched, but Realio’s native tokens $RIO and $RST have already been released, and the project party has also launched the Realio Platform Wallet and Realio.fund investment platform.

• Realio Platform Wallet Realio Wallet is a non-custodial multi-chain wallet that currently supports Bitcoin, Ethereum, Algorand, Stellar, Raven, and Fusion, including any assets on these multi-chains, and supports more blockchains under development. The wallet is a non-custodial wallet, which simplifies the storage of private keys and transaction signing, and the function of accessing DeFi and other ecology will be launched soon.
• Realio.fund

A P2P investment platform that provides multi-chain, real-time token issuance tools, fully automatic compliance process functions, and investments can use cash or cryptocurrencies supported by Realio.

Token Function:

The blockchain network adopts the original dual-token equity proof model, $RIO and $RST, with functions such as network pledge, governance, and key management.

$RST is issued by Realio in cooperation with Algorand in 2020. It is an equity token whose holders are technology platforms and network maintainers. $RST is sold as an Algorand Standard Asset (ASA) and is interoperable with other supporting blockchains and platform features such as RealioX. RST tokens will be sold privately worldwide based on Regulation D 506 © and Regulation S exemptions. Currently, there is no secondary public market trading. $RST is a hybrid digital security that enjoys platform revenue distribution and can also be mortgaged to earn verifier rewards on Realio Network. The maximum supply is 50 million, sold through pre-sale and Security Token Offering products on the realio.fund platform.

$RIO is the native gas and utility token of Realio Network. It is issued on multiple chains. It is currently issued on the Ethereum, Algorand and Stellar networks. There is no pre-mining, and additional issuance is through validator block rewards and liquidity mining. The maximum supply is 75 million and the circulating market cap is about $1 million. OKX and MEXC have been launched, and the daily trading volume has increased from March to May, about 1 million to 4 million US dollars.

Project Status:

Currently the platform is still focused on cryptocurrency trading. At the same time, a liquidity mining fund $LMX for the BTC ecology has also been launched. Token holders can also participate in other DeFi ecology, similar to stETH. The number of Twi fans is 29.7K.

The Alpha mainnet has been launched, and the network pledge function is currently limited. According to the Realio project roadmap, the realioVerse virtual digital real estate project will be launched in 2023 Q3, and the Land Bank will be built on it. Players can buy and sell land, build houses, and make money.

Changes in $RIO Token Circulation and Number of Holders

Project Evaluation:

The project is still in its early stages, but the entire team has been established in 2018, but apart from issuing tokens, it has not carried out any tokenization projects related to RWA or real estate. Future development is still unknown. Blockchain construction or ecology does not have any new technologies or marketing points, and it is difficult to see any advantages now.

Summary

Although the Ethereum ecosystem is huge, most of the existing RWA projects are also built on the basis of Ethereum. However, Ethereum is not completely suitable for the development of the RWA track, including the anti-censorship of nodes and insufficient public chain performance. In particular, various real-world assets need to be implemented in token standards and smart contracts, which requires a new infrastructure support to meet the characteristics of programmability, verifiability and compliance with the existing regulatory system. At present, RWA’s vertical public chain has taken into account the above requirements. However, the development of the entire track is currently slow, with few users and developers participating. The bottom layer of the public chain is still developed based on existing public chain technologies, such as Polkadot and Cosmos. The existing public chain competition seems to have been finalized, and attracting users still requires the support of upper-level applications.

1. **The end of the public chain is the alliance chain? ** The concept of the alliance chain is not unfamiliar, and its development time is comparable to that of the public chain. However, due to its strict access and review system, it has no wealth effect on users and seems to be excluded from the encryption world. A consortium chain refers to a blockchain in which several organizations or institutions jointly participate in the management. Each organization or institution controls one or more nodes to record transaction data together, and only these organizations or institutions can read and write data in the consortium chain. and send transactions. Well-known alliance chain projects include Hyperledger and Blockchain Service Network (BSN).

The alliance chain has the following characteristics: (1) “Partial decentralization”, each node usually has a corresponding entity organization, and can only join or exit the system with the approval of the alliance. The number of nodes is limited, and the data will not be disclosed by default, but verification of transactions or release of smart contracts requires alliance permission; (2) Strong controllability, once the block information of the public chain is formed, it will not be tampered with, but in the alliance chain as long as all Most of the institutions reach a consensus, and the block data can be changed; (3) The transaction speed is fast, there are not many nodes, and it is easy to reach a consensus.

These characteristics of the alliance chain undoubtedly point to the vertical public chain of the RWA track, but whether the alliance chain is the end of the RWA track, we do not think so: 1. The development of the encryption industry is inseparable from decentralization and openness, The alliance chain does not bring wealth effects, it can only be used as a technical means, and it is difficult to attract investors and institutions to enter the market; 2. The development of the RWA track, especially in terms of compliance and whitelist, does have some characteristics of the alliance chain , but the power of the alliance chain is too concentrated to achieve democratization and openness, and the concentration also represents a certain degree of opacity; 3. The advantages embodied by the alliance chain can be applied to the process of putting physical assets on the chain. At present, there are indeed many alliances The chain is doing similar things, but the effect is not good, so the underlying logic of the public chain is still needed. 2. Risks and Challenges

The RWA market is expected to reach $500 million by 2025. In the latest research report of Citibank, it has high hopes for the RWA track, and believes that this is the killer tool to drive the blockchain industry into the tens of trillions of dollars market. According to a statistics from BCG (Boston Consulting Group), it is estimated that by 2030, the RWA track may reach an overall scale of 16 trillion US dollars. The enormous potential that the RWA circuit presents is something we cannot ignore. However, today’s encryption industry is at a low point, and the overall market value has not surpassed that of Apple. In the past year, the industry has been frequently hit by regulations from various countries. The encryption industry is still in its early stages, and it will take a long time for the industry to achieve a market size of tens of trillions.

Looking at the development of the RWA track, there are still more problems than advantages.

**From the current situation, RWA projects generally face problems such as poor liquidity, high management costs, and complicated liquidation process. ** The project still has not solved the mechanism problem, and it is not as efficient as traditional finance. Some protocols themselves have very few users, but the native tokens have high valuations.

From the perspective of project types, there are many types, but the business scope of the head agreement is too limited, mainly credit lending projects based on stable coins. The risks of these projects are higher than other lending agreements, and they have not really brought off-chain assets into the chain, which makes the development of the RWA track too limited. Lending agreements based on securities, bonds, and real assets have not developed significantly.

**From the perspective of user behavior, the RWA project may not be able to accumulate strength in the bull market. **The real investment needs of users are the high returns brought by the RWA project on the chain. Since the low returns of DeFi in the bear market can no longer satisfy investors, and the yield of U.S. bonds can reach 5%, even many centralized wealth management products invest in U.S. bonds and U.S. stocks, which makes the RWA project of the U.S. debt concept popular. But once the encryption industry enters a bull market, can the rate of return of these RWA projects generally be higher than other DeFi protocols?

The fundamental reason for restricting the expansion of the RWA track is that the following problems have not been solved in terms of technology or process:

1. Regulatory Uncertainty

Supervision is the biggest difficulty facing the RWA track, and its uncertainty is reflected in two aspects:

• The imperfection of the law in the encryption industry, especially whether the token is a commodity or a security is still undecided. Currently, all cryptocurrencies except Bitcoin are classified as securities. Assets, issuers, trading markets, and even on-chain contracts and public-chain nodes all need to be regulated. In order to cooperate with the existing regulatory system, most RWA projects will conduct KYC/AML procedures for users.
• Real assets are geographically restricted. The core of RWA lies in the credit mechanism. The key to promoting global circulation is the establishment of internationally accepted bills, and the relevant bills should also have the ability to enforce. But at present, the resistance of RWA to compliance is still great. Perhaps a small number of crypto-friendly regions will become pilots, such as Hong Kong and Singapore.

1. Identity Solutions Based on the KYC/AML process, the RWA project requires strict review and verification of off-chain centralized entities and individuals. Among them, the real estate project Tangible has an SPV legal entity as an achievable path. However, most of the verification tasks are undertaken by the project party, and the degree of trust is unknown. At present, many private loans such as MAPLE and TrueFi have already experienced bad debts. To solve these problems, a third-party off-chain compliance agency is urgently needed to deal with the association between on-chain identities and off-chain entities. Related to this is the improvement of laws and regulations, identity and data privacy solutions, solutions for connecting on-chain and off-chain data, and other supporting legal and technical support.
2. Balance between decentralization and centralization

The core feature of blockchain technology is decentralization, and if the RWA project wants to cooperate with the review, it is inevitable to adopt centralized methods in all links, including the asset review process, vertical public chain nodes, user qualification review, etc., and even many processes They are all executed by the project party itself, and the smart contract of the blockchain has become a castle in the air. The prosperity of the RWA track requires the support of decentralization. In this regard, the introduction of more reliable third-party participation can solve the problem of over-centralization, and we can refer to ABS’s approach.

(4) Valuation, liquidation, protection and other mechanisms of off-chain assets

The price of off-chain assets, especially the market price of physical assets, is difficult to estimate. Although some websites will provide services for estimating market prices, the real price can only be reflected in market transactions. The valuation of the asset also has a huge impact on the liquidation mechanism, but since the collateral is not a liquid ERC-20 token, liquidating these assets to recover the lender’s capital will be much more troublesome than a loan using crypto collateral , Many private loans have already experienced bad debts. Some asset protection mechanisms are also facing challenges, such as who will keep these physical assets that may be transnational, such as artworks and real estate. These mechanisms are difficult to gain the trust of users until they are figured out.

The above problems all require the improvement of the infrastructure of the RWA track, including the infrastructure of the tokenization process, digital collateral infrastructure, custody platform, etc. Although there is great resistance to connecting traditional finance and encrypted finance, as the encryption industry continues to develop, more RWA projects emerge and explore the introduction of more valuable assets for web3, and we will see more and better solutions. There is still hope that the RWA track will be the narrative for the next bull run.

References:

1. Bitwu sees RWA: DeFi future water, unlimited liquidity,
2. Is RWA, which big institutions such as Binance and Goldman Sachs are vying to deploy, the next growth engine of DeFi or a flash in the pan?
3. Real World Assets: The Bridge Between TradFi and DeFi
4. Money, Tokens, and Games—Blockchain’s Next Billion Users and Trillions in Value