14 June 2024

A brutal hit to the market this week. Bitcoin is down by 6% but is somehow holding on to critical $66,000 level. Altcoins, however, are bleeding strongly. This market reaction maybe attributable to the US Fed indicating a delay in interest rate cuts. It is likely that June will remain choppy. But hey, maybe it’s the right (and final) time to load up for this bull run. As they say, every dip is an opportunity…

There is a silent narrative that is building up in crypto – real world assets (RWAs). We deep-dive into this ecosystem and pick likely winners for your consideration.

First up, lets dive into the top-3 stories and macros of the week.

Top-3 stories of the week:

1

2

3

The newsletter is put together by Giottus Crypto Platform. You can read all the previous issues of Cryptogram here.

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WEEKLY MACROS

• Total crypto market cap - $2.43 trillion - DOWN  8.0%

• Bitcoin price - $66,762 - DOWN 6.2%

• The dollar index (DXY) - 105.33 - UP 1.2%

• Bitcoin Dominance - 55.51% -  UP 1.6%

• Crypto Fear and Greed Index - 74 - Market is in Greedy State

THE HOT TAKE

Rise of Real World Assets (RWAs)

Over the past few months, we've witnessed a 180-degree shift in the global stance on crypto driven by US. Against all odds, Bitcoin and Ethereum ETFs have been approved in the US along with a legislation to prevent the creation of a CBDCs. Crypto is even starting to become a significant topic in the upcoming US presidential campaign.

For all big financial institutions, the message is clear: Crypto is not going away so better to get familiar with it and start exploring its different use cases.

In that sense, it seems like a no-brainer to think that the real world asset tokenization sector has massive growth potential ahead. RWAs are one of the most promising narratives in the crypto industry.

What are RWAs?

In layman's terms, RWAs fragment physical assets, allowing your generic retail market participants to participate in investments otherwise made for “big players”, RWAs do this by breaking down assets into smaller units making it accessible for everyone.

Tokenization is the process of converting ownership rights for RWA into a digital token on a blockchain. This creates a digital representation of an asset that can be traded and managed on a blockchain.

RWA tokenization also aims to unlock liquidity in emerging markets and promote financial inclusivity. RWA tokenization keeps up the growth pace.

Why is this a big deal?

The core thesis behind DeFi was that blockchain could create a better standard for exchanging different assets seamlessly. In that sense, RWAs are simply about recognising DeFi's value proposition and extending it to every tradable asset to build the next generation of markets—one that is more transparent, secure, fair, and open.

Fractional ownership is something a lot of people would be interested in, especially when you have proof that your ownership is 100% tied to a physical asset.

What if you could pay with a stablecoin and buy a fraction of Monalisa or Taj Mahal, if those assets are tokenized and generate revenue from ticket sales? There are multiple use cases and the ecosystem is evolving.

Evolution of RWA

1. USD-pegged stablecoins: Fiat-backed stablecoins were the first usecase of RWA tokenization and in recent years, this market has grown massively. Today, the two biggest fiat-backed stablecoins USDC & USDT have a collective market capitalization of over $145 billion, up from around $5 billion at the beginning of 2020.

2. Commodity Backed Tokens: The tokenization of precious metals also emerged as another popular application of RWAs. Some examples include Tether Gold (XAUT) or PAX Gold (PAXG) which are tokens backed by physical gold.

3. Tokenized Treasuries: Total tokenized treasury products have doubled since the start of the year and have grown 10X since the start of 2023.

What lies ahead?

The tokenization trend is just getting started and is expected to continue growing fast. According to the Boston Consulting Group, the tokenization of global financial assets is estimated to be a $16 trillion market by 2030. To put this into a perspective, the whole crypto market cap today is less than $2.5 trillion.

How can you benefit from this trend? Invest in top RWA tokens!

Ondo Finance (ONDO)

One of the standout applications both in the RWA sector and in crypto as a whole is Ondo Finance, which tokenizes assets like US Treasuries. This year Ondo’s TVL has seen strong and steady growth.

It allows retail and qualified investors on-chain access to bond markets through products like USDY (a tokenized note secured with U.S. Treasuries) and OUSG (short-term U.S. Treasuries).

Pendle Finance (PENDLE)

Pendle has grown exponentially by capturing tokenized yield and becoming a go-to protocol for speculating on points. It dominates the yield swap market, which is expected to grow with more integrations and products.

Realio Network (RIO)

Realio is a platform that provides access and liquidity to private equity. They plan to eliminates the barriers to invest in, and trade, exclusive private equity alongside the biggest names in traditional finance.

PolyMesh (POLYX)

Polymesh is an institutional-grade permissioned blockchain built specifically for regulated assets. A pioneer in the RWA space, Polymesh crypto (POLYX) is a two-year-old specialized permissioned blockchain designed for regulated assets such as securities, tokens, and NFTs.

TrueFi (TRU)

TrueFi is a Uncollateralized Lending Marketplace. They provide a modular infrastructure for on-chain credit and connects lenders, borrowers, and portfolio managers via smart contracts governed by $TRU. The protocol currently has a TVL of $23.8 M and have originated $1.7 B in total loans.

There are still regulatory hurdles to be crossed

While RWA holds several benefits and appear to be the next best thing, there are some obstacles in its mass adoption.

• Tokenization of RWAs happens via Special Purpose Vehicle (SPV) which is costly, complex, and inefficient

• Most jurisdictions in the world do not have a legal framework for direct, on-chain issuance of RWAs

• There are no big secondary markets or liquidity for RWAs, few have popped up in recent times.

You need to set up a Special Purpose Vehicle (SPV) in an off-shore and tax-friendly jurisdiction, which purchases, holds and manages the RWA, and then you tokenize the SPV holding the RWA.

Unfortunately, only a handful of jurisdictions allow direct, on-chain issuance of RWAs - for example, Switzerland passed the so-called "DLT Law" which created a legal assurance and process for direct on-chain issuance.

Key takeaway

According to Crypto Koryo’s dashboard, the real-world asset narrative has been the 2nd best-performing narrative this year, outperforming AI.

While we believe the RWA (Real World Assets) narrative to outperform this bull cycle, the sector needs to work on regularization across geographies and collateral settlement mechanism in order to act as a catalyst.

As the RWA ecosystem matures, addresses regulatory hurdles, and continues to innovate, we can expect to see this transformative technology reshape the financial landscape as we know it, bringing the power of decentralized finance to the world of real-world assets. The future of finance is tokenized, and the revolution is just beginning.

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If you have any questions or feedback for us, write to us at [email protected]. You can check out the previous issues here.

Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.