#Gate 2025 Semi-Year Community Gala# voting is in progress! 🔥
Gate Square TOP 40 Creator Leaderboard is out
🙌 Vote to support your favorite creators: www.gate.com/activities/community-vote
Earn Votes by completing daily [Square] tasks. 30 delivered Votes = 1 lucky draw chance!
🎁 Win prizes like iPhone 16 Pro Max, Golden Bull Sculpture, Futures Voucher, and hot tokens.
The more you support, the higher your chances!
Vote to support creators now and win big!
https://www.gate.com/announcements/article/45974
Can RWA tokenization become a new growth point for Decentralized Finance? Challenges and opportunities coexist.
RWA Tokenization: A New Direction for the Future of Decentralized Finance?
Blockchain technology has brought trust, liquidity, transparency, security, efficiency, and innovation to the financial system. However, the crypto industry is currently in a bear market, making it difficult to find new growth points. In this context, RWA(Real World Assets) tokenization has become a highly关注的新赛道.
RWA tokenization aims to bridge the gap between traditional finance and crypto finance, bringing hundreds of trillions of dollars of real-world assets onto the blockchain. This could become the key for the crypto industry to surpass bull and bear cycles. Although RWA tokenization has always been a goal in the blockchain space, progress has been relatively slow due to limitations such as technology and regulation.
Recently, as several institutions begin to lay out their strategies, the RWA sector has once again become a hotspot. Currently, RWA projects display a variety of characteristics, primarily focused on DeFi, with high yields and high risks, gradually entering the public eye. However, there are still overall issues such as poor liquidity, being in the early stages, and a lack of price discovery mechanisms.
The future explosion of the RWA track depends on the development of infrastructure and the improvement of the regulatory system. Token standardization and compliance are essential for the development of the RWA track. Despite facing numerous challenges, the industry continues to move forward. Many innovative projects have emerged, especially in areas such as US Treasury bonds and stocks, small and medium-sized enterprise financing, and physical assets. The main characteristics of these projects include:
These features help address the regulatory, centralization, on-chain and off-chain identity, asset valuation, and other issues faced by RWA tokenization. In the future, we expect to see more projects enriching the RWA track ecosystem.
1. New Narratives Brewing in the RWA Track
After more than a year of bear market, the cryptocurrency market has severely shrunk in market capitalization, with continuous outflows of funds, lackluster on-chain activities, a significant decline in DeFi yields, and severe mutual liquidation in the market. In this situation, it is hard to imagine what the driving force for the next bull market in the crypto industry will be. There is still a significant gap between the cryptocurrency market and traditional financial markets.
However, from some significant events that occurred during the bear market, we can see potential opportunities. The main reason for the bankruptcy of several large institutions in 2022 was the use of altcoins for financing and lending, which further exacerbated loan liquidations when the prices of altcoins plummeted, creating a death spiral. It is evident that institutions and credit drove the bull market in 2021, and also contributed to the bear market in 2022. In fact, credit has driven the development of businesses worth trillions of dollars and much of the global economy. The potential it contains is enormous.
Currently, more and more protocols in the DeFi market are entering traditional credit markets such as equity and debt financing. Although this brings some risks, it is the only way to bring the over $80 trillion traditional financial market onto the chain. To bridge the huge gap between the crypto market and traditional finance, what we need to do is the tokenization of real-world assets.
In the first half of this year, traditional and crypto industries began to pay attention to the RWA sector. Goldman Sachs announced the official launch of its digital asset platform GS DAP, which has helped the European Investment Bank (EIB) issue 100 million euros in two-year digital bonds. Shortly thereafter, Hamilton Lane, a private equity firm managing over 100 billion, tokenized part of its 2.1 billion dollar flagship equity fund on the Polygon network and sold it to investors. Electrical engineering giant Siemens also issued 60 million euros in digital bonds on the blockchain for the first time.
Some government agencies are also beginning to experiment with RWA, including the Monetary Authority of Singapore ( MAS ), which will collaborate with JPMorgan and DBS Bank. In April, Binance announced that it would become a Layer 1 blockchain Polymesh node operator. DeFi protocols such as MakerDAO, Aave, and Maple Finance are active in the RWA space, and more crypto investment firms are seeking RWA projects.
Currently, there are over 50 projects in the RWA sector, mainly focused on financial assets, including fixed income, TradFi, with a small portion in real estate and carbon credits. Recently, RWA concept tokens have generally risen, with some increasing by more than 10 times. Does the buildup in the first half of 2023 indicate that RWA will lead the crypto narrative in the coming years?
2. The Past and Present of RWA
The concept of RWA is not unfamiliar in the blockchain industry; the earliest RWA project was the "asset on-chain" BTM BitShares. Currently, the most successful RWAs are the digital dollars USDT and USDC, which map the US dollar onto the chain and enable tokenization. Stablecoins subtly influence the entire crypto industry and have now become an important cornerstone.
RWA stands for the tokenization of real world assets (, which is the process of converting the ownership value ) of tangible or intangible assets and any associated rights ( into digital tokens. This allows for digital ownership, transfer, and storage of assets without a central intermediary, with value mapped to the blockchain and traded. RWA can be tangible or intangible assets.
Tangible assets include: real estate, artworks, precious metals, vehicles, sports clubs, racehorses, etc.
Intangible assets include: stocks and bonds, intellectual property, investment funds, synthetic assets, revenue sharing agreements, cash, accounts receivable, etc.
) 2.1 Current Status of the RWA Track
RWA track projects are diverse, mainly focusing on DeFi, and can be categorized into three types: 1. Fixed income projects based on off-chain assets such as US Treasury bonds, stocks, real estate, and artworks; 2. Public credit projects based on public market issuance or trading; 3. Trading market projects based on virtual assets such as carbon credits. In addition, there are infrastructure projects such as vertical public chains.
In terms of data, according to statistics from the RWA.xyz website, a total of 8 RWA lending protocols including Centrifuge, Maple, GoldFinch, Credix, Clearpool, TrueFi, and Homecoin have issued loans totaling $4.38b, with users able to achieve an average APR of 10.52%, primarily serving countries with below-medium development levels. The yields provided by these credit lending protocols are higher than those of most DeFi lending, but during the institutional default incident in 2022, Maple Finance experienced a $69.3 million debt default.
According to the Dune data analysis dashboard, the number of holding addresses for $wCFG, $MPL, $GFI, $FACTR, $ONDO, $RIO, $TRADE, $TRU, and $BST in Ethereum RWA projects is also continuously increasing, currently reaching 3.9k.
![Newcomer Science Popularization丨20,000 Words Detailed Explanation of RWA Tokenization Track: The Next Wave of Crypto Grand Narrative?]###https://img-cdn.gateio.im/webp-social/moments-a97f88872372b92acf1a2cf0ef6d8cae.webp(
) 2.2 Advantages of Asset Tokenization
Ideally, any valuable asset can be tokenized. The advantages of asset tokenization are also based on decentralized and blockchain technology, creating ecological applications to address the shortcomings of traditional finance, specifically:
###1( brings a potential huge market, attracting investors and retail investors
As leading financial institutions seek to benefit from the efficiency and economic possibilities brought by blockchain, the tokenization of real-world assets is gaining attention from institutions, and some tokenization products have already been developed. RWA projects will also stimulate investment returns in Decentralized Finance.
By tokenizing real-world assets, enterprises can utilize the DeFi ecosystem to obtain capital in a cost-effective manner and benefit from lower entry barriers and new financing methods, especially in emerging markets. At the same time, the DeFi ecosystem gains new opportunities for investment returns, access to diversified off-chain markets, and expansion of its traditional financial customer base.
)2( Improve capital flow efficiency and promote positive feedback for asset tokenization.
Traditional financial trading markets are labor-intensive, while blockchain technology can provide instant settlement and 24-hour trading, reducing the operational costs and market entry for participants. Furthermore, asset tokenization allows assets with poor liquidity in reality to be transformed into small share investment portfolios, and investors do not need a lot of paperwork, money, and time consumption. This brings about a fairer market while creating new business and social models, such as shared property ownership or shared rights.
In terms of securities, tokenization can become a useful tool for securitization, or for refinancing assets from low liquidity assets to more liquid secure instruments.
Bringing real-world assets on-chain and into the Decentralized Finance ecosystem will create unique collateral or investment opportunities, market efficiency, and liquidity that traditional markets cannot access. The improvement in capital efficiency will further promote the development of the RWA sector, creating positive feedback.
)3( Lowering the entry threshold for retail investors and increasing the liquidity of physical assets.
Tokenization eliminates the current barriers to splitting real-world assets, making it possible for most retail investors to access asset classes that are usually limited to a few high-net-worth individuals or institutional investors, especially in terms of physical assets. Retail investors can invest in cross-regional products or collectively invest in a property or a piece of art, which require extremely high thresholds in traditional finance. Moreover, these physical assets may have very low liquidity in small markets, but once on-chain, they will be accessible to investors worldwide. In addition, issuers can reach a broader investor base and create new asset classes. Retail investors can enter markets that were previously inaccessible and make more informed investment decisions based on transparent data.
) Leveraging the advantages of blockchain technology, RWA trading is more efficient and secure.
Blockchain technology ensures the transparency of on-chain payments and data flows, the immutability of transaction records, traceability, higher efficiency and lower operational costs, more robust risk management, clear ownership, and more advantages, as well as greater composability and a fairer market environment. In the future, as blockchain technology continues to develop, there will be higher performance public chains or layer2 solutions, stricter smart contract auditing mechanisms, and privacy projects based on zk technology to protect transactions. All of these provide solid ground for the development of the RWA track.
3. Prerequisites for the Explosion of the RWA Track
Asset tokenization is the only key point in the RWA track. Solving this key point also requires two foundations: one is the improvement of blockchain infrastructure, and the other is legal regulation. Blockchain involves the interoperability, security, and privacy of various protocols and tokens. Legal regulation concerns whether off-chain assets and on-chain identities have corresponding legal support. Many issues are actively being discussed, and here we mainly explore two: token standards and the review system.
( 3.1 Diversification of Token Standards
According to the on-chain token standards, Ethereum has ERC-721 and ERC-20, corresponding to non-fungible NFTs and fungible token standards, respectively. In traditional finance, asset attributes are diverse, including tangible and intangible assets. For use on the blockchain, we also need to create corresponding token standards for asset tokenization based on the attributes of the assets. Fungible tokens and non-fungible tokens have the following characteristics:
Most assets can also be tokenized using fungible token standards, while some assets, such as bonds and derivatives, may be better tokenized through non-fungible tokens. With the gradual rise of RWA projects, more may emerge.