Due to the tokenisation wave, when traditional financial organisations increase their participation in Ethereum-based protocols, real-world asset (RWA) protocols outperform DeFi blue chips. This happens because of increased financial support, evident benefits of tokenisation, and the growing popularity of digital assets worldwide. In this article, the experts at Grapherex will share the current data about the RWA and crypto market and identify the key players.
What Is an RWA?
In the sphere of decentralised finance, real-world asset protocols (or just RWAs) are rapidly gaining popularity. Simply put, these innovative protocols are DeFi applications that allow various entities to tokenise and trade real-world assets, revolutionising the usual notion of crypto assets.
But what can one tokenise? Almost everything, from traditional stocks and government bonds to valuable real estate and commodities. RWA protocols, also referred to as asset tokenisation protocols, are expanding the possibilities of working with real-world assets in digital space.
Unlike traditional finance (TradFi), DeFi offers clear advantages by introducing transparent smart contracts. But it is not only this transparency that encourages users to engage. RWAs bring in a higher level of financialisation as assets become divisible, transferable, and tradeable on decentralised platforms.
What Is Crypto Collateral?
This article delves into the concept of uncollateralised lending protocols. Let’s first define this term. Collateral, in the context of lending, refers to an asset offered by a borrower to a lender as a form of security when obtaining a loan.
In traditional banking, an example of collateral is a mortgage, where the property, like a house or flat, serves as the collateral securing the loan. In cryptocurrency lending, this collateral takes the form of a crypto asset, serving as a guarantee for loan repayment. The crypto collateral is returned once the loan has been repaid in full.
Uncollateralised lending protocols refer to a type of credit system in which borrowers can obtain credit without the need for collateral. The loan offer is based solely on the borrower’s creditworthiness. These protocols use blockchain technology and smart contracts to facilitate transparent and automated loan repayment processes. Uncollateralised lending protocols increase access to credit for individuals and businesses that may not have sufficient assets to secure traditional loans.
Why Is Interest in RWAs Growing?
The major reasons for growing interest are new instruments for working with assets and huge support from top companies and even states. Let’s see an example.
Ondo Finance, the leading real-world asset protocol in terms of total value locked, is a prominent decentralised finance platform. Its approach allows holders of stablecoins to directly invest in exchange-traded funds (ETFs) managed by renowned asset managers such as BlackRock and Pimco. Ondo Finance has also facilitated the issuance of United States bonds worth over $100 million, as reported by DefiLlama.
Several other highly ranked RWA protocols, including MatrixDock and RealT, have gained substantial traction in terms of total value locked, even though they don’t have governance tokens. They have managed to attract users due to the high chances of a future airdrop.
Other reasons for RWAs becoming increasingly popular include:
- RWAs allow real-world assets such as stocks, bonds, real estate, and commodities to be tokenised, which diversifies the investor’s portfolio.
- Real-world assets provide a greater sense of stability and tangibility than purely digital ones.
- RWAs make assets accessible to a wider range of investors through fractional ownership and lower entry barriers.
- Blockchain ensures transparent and efficient transactions.
The Top Players
There are companies whose involvement signifies a growing interest in blockchain technology. Asset tokenisation has attracted the attention of major players like Goldman Sachs, Microsoft, and Deloitte, who have partnered with blockchain startup Digital Asset. Additionally, Siemens, a prominent German technology giant, made headlines by issuing a digital bond worth $64 million on a public blockchain in February 2023.
Uncollateralised lending protocols for institutions, TrueFi, and Maple have witnessed significant growth in 2023. TrueFi’s value has increased by 26.6%, while Maple has experienced a surge of 117.8%. Another notable player, Centrifuge, a platform specialising in real-world asset tokenisation, has recorded a surge of 32%.
Compared to the performance of the traditional DeFi blue-chip tokens, the gains achieved by RWA-focused platforms are much higher. To be more precise, the DeFi Pulse Index recorded a 13% growth, while Glassnode’s index of DeFi blue-chip tokens saw a 7% loss since the beginning of the year. Data from Nansen reveals a sharp rise in the governance tokens of RWA protocols in January and April, indicating increased interest and investment in this sector.
Previously, experts noted that the development of the ecosystem was being hampered by the lack of on-chain representation of real-world assets. But now, the growing attention we’ve talked about is indicative of a shift among DeFi companies towards RWA-based strategies. The landscape is now changing as real-world asset tokenisation becomes more prevalent.
The RWA Market Overview and Statistics
RWA assets have a notable impact on one of the largest decentralised stablecoins – Dai (DAI). Such assets now represent 25% of Dai’s collateral, a noteworthy increase considering that they were absent at the beginning of the year.
MakerDAO, the decentralised autonomous organisation governing the Maker protocol, embraced RWA assets and approved the exchange of centralised stablecoins like USD Coin (USDC) for US Treasury bonds. This move allows tokenised government and corporate bonds, as well as commodities, to be used as collateral for minting Dai. This way, MakerDAO aims to increase overall stability and flexibility.
The top platforms and chains implementing RWA assets include:
RWA Rankings by total value locked. Source: DefiLlama, June 2023
Among the RWA protocols, debt market protocols such as TrueFi (TRU), Maple Finance, and Goldfinch (GFI) are the leaders in terms of price action and activity. These protocols enable non-collateralised lending for institutions, offering innovative solutions in the DeFi space.
The Key Risks and Challenges
It is important to note that uncollateralised lending protocols come with inherent risks, especially the risk of debt default. The collapse of FTX, a well-known player in the industry, had a daunting impact on Maple Finance’s price and put the protocol at risk of bankruptcy.
In addition, yields of US Treasury bonds could face downward pressure if the Fed decides to lower its benchmark interest rate. As a result, lower yields will make these assets less attractive to investors. Such events highlight the potential vulnerabilities associated with uncollateralised lending protocols.
However, the increasing tokenisation of real-world assets and their financialisation through DeFi are gaining positive momentum. The fact that they are receiving institutional support is encouraging. It indicates a growing recognition of the value and potential of integrating RWAs into decentralised finance platforms.