Real-world asset (RWA) protocols have become a highly sought-after topic of discussion within the decentralized finance (DeFi) community.
An RWA protocol is a decentralized application that facilitates the tokenization and trading of real-world assets. These assets can include stocks, government bonds, real estate, and commodities. They are also referred to as asset tokenization protocols.
DeFi offers certain benefits compared to TradFi by making the smart contracts visible and allowing a broad range of financialization of assets by making them fractional, transferable, and able to be exchanged on decentralized platforms.
The uncollateralized lending protocols TrueFi and Maple, which are popular among institutions, have seen a rise of 26.6% and 117.8%, respectively, in the year 2023. Furthermore, Centrifuge, a platform for tokenizing real-world assets, has grown by 32% since the start of the year.
In contrast, the DeFi Pulse index saw an increase of 13% in the same timeframe, while Glassnode’s index of DeFi blue-chip tokens has dropped 7% since the beginning of the year.
Recent data from Nansen has revealed a significant increase in the governance tokens of RWA protocols during January and April, likely due to the heightened interest in them.
Previously, it had been suggested by experts that many DeFi veterans were already utilizing strategies based on RWA, however, the lack of adequate RWA on the blockchain was preventing the growth of the ecosystem.
This is a result of the increased tokenization of real-world assets.
TradFi interest boost RWA activity
Ondo Finance, the top RWA protocol by total locked value, is a DeFi platform that allows stablecoin holders to invest in exchange-traded funds managed by renowned asset managers such as BlackRock and Pimco. According to DefiLlama data, more than $100 million worth of United States bonds have been issued through Ondo.
Goldman Sachs, Microsoft, and Deloitte have taken notice of digital asset tokenization by collaborating with the blockchain startup Digital Asset. In February 2023, German technology giant Siemens released a digital bond on a public blockchain worth $64 million.
The RWA assets make up 25% of the collateral backing the largest decentralized stablecoin Dai (DAI), a figure that has risen from nothing since the beginning of the year.
MakerDAO, a decentralized autonomous organization led by the community, has given the okay for centralized stablecoins such as USD Coin (USDC) to be converted into U.S. Treasury bonds. The DAO allows tokenized government and corporate bonds and commodities to be used as collateral for the production of DAI.
Thus far, Maple Finance, TrueFi, Goldfinch, and Clearpool have been the driving force in terms of price and activity within risk-weighted asset protocols. These protocols allow for institutions to access non-collateralized loans.
Despite not having a governance token, protocols such as Ondo Finance, MatrixDock and RealT, which are among the highest rated by total value locked, have still drawn in users due to the potential for an airdrop in the future.
S&P states that the DeFi securitization of real-world assets presents both risks and opportunities in terms of credit.
Notably, the risk of debt default is present in non-collateralized lending protocols. The failure of FTX caused a sharp decrease in Maple Finance’s value and brought the protocol close to bankruptcy.
As the Federal Reserve begins reducing its benchmark interest rate, the yields of U.S. Treasury bonds are expected to decrease, potentially making them less appealing.
Despite this, it is heartening to observe the tokenization of tangible assets and their financialization through DeFi finally gaining traction, bolstered by institutional backing.
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