Real World Asset (RWA) protocols have become a hot trend within DeFi circles.
A Real World Asset (RWA) protocol is a decentralized application that allows entities to tokenize and exchange real world assets. These assets range from stocks and government bonds to real estate and commodities. They are also known as asset tokenization protocols.
DeFi provides certain advantages over TradFi by making smart contracts transparent and allowing a wide degree of financialization of these assets by making them divisible, transferable, and tradable on decentralized platforms.
Leading institutional unsecured lending protocols in TrueFi and Maple are up 26.6% and 117.8% in 2023. Centrifuge, a real-world asset tokenization platform, is up 32% year-to-date .
By comparison, the gains recorded by the DeFi Pulse Index (DPI) in the same period were 13%. Whereas, Glassnode’s index of topline DeFi tokens has lost 7% since the start of the year.
Recent data from Nansen found that RWA protocol governance tokens increased significantly in January and April thanks to growing interest in them.
Previously, experts suggested that many “DeFi veterans have already implemented RWA-based strategies, however, the lack of sufficient RWAs on-chain severely hampers ecosystem development.”
This is changing due to increased tokenization of real world assets.
TradFi interest drives RWA activity
The leading RWA protocol for total value locked, Ondo Finance, is a DeFi platform that allows stablecoin holders to invest directly in exchange-traded funds (ETFs) managed by top-tier asset managers like BlackRock and Pimco. More than $100 million in US bonds have been issued through Ondo, according to data from DeFillama.
Goldman Sachs, Microsoft, and Deloitte have all taken a look at digital asset tokenization by partnering with blockchain startup Digital Asset. German tech giant Siemens issued a digital bond on a public blockchain worth $64 million in February 2023.
RWA assets represent 25% of the largest decentralized stablecoin DAI collateral, having risen from zero before the start of the year.
MakerDAO, the community-run DAO, has approved the conversion of centralized stablecoins like USDC to US Treasuries. The DAO accepts tokenized government and corporate bonds and commodities as collateral for minting DAI.
So far, debt market protocols like Maple Finance, Truefi, Goldfinch, and Clearpool have led price action and activity among RWA protocols. These protocols allow unsecured loans for institutions.
Some of the top-ranked RWA protocols by TVL, such as Ondo Finance, MatrixDock, and RealT, do not have a governance token attached. However, these protocols have attracted use thanks to the possibilities of a possible airdrop in the future.
In particular, unsecured loan protocols carry the risk of debt default. The FTX collapse led to a significant drop in the price of Maple Finance and brought the protocol to the brink of insolvency.
US Treasury yields will also fall once the Fed starts cutting its benchmark interest rates, which could make these assets less attractive.
However, it is encouraging to see the increasing tokenization of real world assets and their financialization through DeFi finally gain positive momentum as they gain institutional support.
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