RWA: From Concept to Implementation, How Do Real Assets Rise?

RWA stands for Real World Assets, which refers to the digitization and tokenization of real-world assets through blockchain technology for representation and trading in the Web3 ecosystem. These assets include real estate, commodities, bonds, stocks, artworks, precious metals, intellectual property, and more. The core concept of RWA is to leverage blockchain technology to bring traditional financial assets into the decentralized finance ( DeFi ) ecosystem, achieving more efficient, transparent, and secure asset management and trading.

The significance of RWA lies in enabling relatively illiquid assets in the real world to achieve liquidity through blockchain technology, allowing participation in the DeFi ecosystem for lending, staking, trading, and other operations. This method of connecting real assets with the blockchain world is becoming an important development direction for the Web3 ecosystem.

RWA is essentially a bridge between crypto-native assets and traditional assets. Crypto-native assets are typically implemented through smart contracts, where all business logic and asset operations are completed on-chain, adhering to the principle of "code is law." In contrast, traditional assets such as bonds, stocks, and real estate operate under the legal framework of the real world, protected by government laws. The tokenization rules proposed by RWA require both the on-chain technological support of smart contracts and the protection of underlying assets by real-world laws.

RWA tokenization is not just about issuing tokens on the blockchain; it involves a whole set of complex processes that relate to real-world assets off-chain. It typically includes: the purchase and custody of underlying assets, establishing a legal framework connecting tokens and assets, and finally, the issuance of tokens. Through this process, off-chain laws and regulations along with relevant operational procedures are integrated, granting token holders legal rights to claim the underlying assets.

The Development History of RWA

The development of RWA can be divided into three stages:

1. Early Exploration Stage ( 2017-2019 )

• 2017: The concept of RWA began to take shape, with some pioneering projects like Polymath and Harbor exploring the feasibility of tokenizing securities.
• 2018: Projects like RealT attempted to tokenize real estate.
• 2019: The TAC Alliance was established to promote the standardization of RWA and cross-platform interoperability.

2. Preliminary Development Stage ( 2020-2022 )

• 2020: Projects like Centrifuge gained attention for tokenizing invoices and other assets for financing.
• 2021: Maker DAO introduced RWA as collateral.
• 2022: Traditional financial institutions began to lay out RWA, RWA Alliance was established.

3. Rapid Expansion Phase ( from 2023 to present )

• Large asset management companies such as BlackRock and Fidelity are beginning to experiment with tokenizing part of their assets.
• Regulatory agencies such as the US SEC and the European ESMA are beginning to develop regulatory frameworks related to RWA.

Main Application Areas of RWA

1. Real Estate Industry

Real estate tokenization can improve asset liquidity, reduce investment thresholds and risks. Representative projects include:

• Tangible: Focused on the tokenization of physical assets such as real estate and precious metals.
• Landshare: Allows small investors to participate in real estate investment.
• PropChain: A blockchain-based global real estate investment platform.
• RealT and RealtyX: allow partial ownership of U.S. real estate through tokens.

2. Fiat Stablecoin

Introducing fiat currency into the blockchain in the form of stablecoins, such as USDT, FDUSD, USDC, etc. Among them, USDT is the largest stablecoin by market share, pegged 1:1 to the US dollar.

3. Lending Market

RWA can bring more collateral options to the lending market. In DeFi protocols such as Maker and Aave, RWA can include real estate, accounts receivable, and other assets as collateral, expanding the range of pledgeable assets.

4. Bonds and Securities

Issuance, management, and trading of bonds and securities through blockchain to improve efficiency and transparency. Representative projects include:

• Maple Finance: Provides a way to create and manage loan pools on-chain.
• Securitize: Provides issuance, management, and trading services for tokenized securities.
• Ondo Finance: Provides tokenized short-term government bond funds and other products.

RWA Market Size

The RWA market has been rapidly developing since May 2023. According to DeFiLlama data, the current TVL related to RWA has reached $6.3 billion, an increase of 6000% year-on-year. RWA.xyz data shows that there are 62,487 RWA asset holders, 99 asset issuers, and the total value of stablecoins amounts to $169 billion.

Several well-known Web3 companies predict that the total market value of RWA could reach $16 trillion by 2030. As an emerging sector, RWA is strongly transforming the DeFi market, but its development is closely related to the laws and regulations of various regions and may face policy restrictions.

RWA Ecosystem Development

With traditional capital and Web3 companies entering the field, strong projects in the RWA track are gradually emerging. Projects like Centrifuge, Maple Finance, Ondo Finance, and MakerDAO have become leaders in the RWA sector in terms of technology and ecological layout.

Centrifuge: Real Asset On-Chain Protocol

Centrifuge is a platform for tokenizing real-world assets on-chain, providing decentralized asset financing protocols. It collaborates with DeFi lending protocols such as MakerDAO and Aave and real-world borrowers to facilitate the circulation of DeFi assets with real assets.

Since its establishment, Centrifuge has raised multiple rounds of financing, totaling $30.8 million. It has currently tokenized 1,514 assets, with a total financing asset value of $636 million, reflecting a year-on-year TVL growth of 23%.

The core architecture of Centrifuge includes:

1. Centrifuge Chain: An independent blockchain built on Substrate, used for managing asset tokenization and privacy protection.
2. Tinlake: A decentralized asset financing protocol that allows issuers to generate NFTs from assets and use them as collateral to obtain liquidity.
3. On-chain asset net value ( NAV ) calculation: Ensure that investors and issuers can transparently see asset pricing and status.
4. Layered Investment Structure: Provides three different levels of borrowing with varying risk and return: subordinate, intermediate, and senior.

In the complete lending process, real assets are tokenized into NFTs through Tinlake, serving as collateral for issuers to obtain liquidity from the fund pool, while investors provide funds to the fund pool.

Although Centrifuge ranks first in terms of attention for RWA projects, its TVL has been continuously declining due to factors such as the bear market in 2022 and unmet project expectations in 2024, currently standing at only $497,944.

ONDO Finance: Leading Tokenization of US Treasuries

Ondo Finance is a decentralized institutional-grade financial protocol focused on providing tokenized products of stable assets such as U.S. Treasury bonds and money market funds.

Ondo Finance has completed three rounds of financing in its history, raising a total of $34 million, with investors including well-known institutions such as Pantera Capital and Coinbase Ventures. Currently, there are 82 partners in four areas: chain support, asset custody, liquidity support, and service facilities.

Ondo Finance has performed excellently in the market, with its token ONDO currently priced at $0.6979, up 2448% from the Series A financing price. The TVL has significantly increased since April this year, currently reaching $538.97m, ranking third in the RWA sector.

Ondo Finance's main products include:

1. USDY( Dollar Yield Token ): backed by short-term U.S. Treasury bonds and bank demand deposits, compliant with U.S. regulations. It is divided into cumulative USDY and rebase rUSDY.

2. OUSG( Ondo Short-term U.S. Government Bonds ): Linked to U.S. short-term government bonds, providing ultra-low risk and high liquidity investment opportunities. Similarly divided into cumulative OUSG and re-basing rOUSG.

These products require user KYC. Ondo collaborates with Flux Finance to provide stablecoin collateralized lending services for tokens that require licensing investment, enabling permissionless participation at the protocol backend.

BlackRock BUIDL: The first tokenized fund on Ethereum

BlackRock BUIDL is an ETF launched by BlackRock in collaboration with Securitize, officially named "iShares U.S. Infrastructure ETF". BUIDL is similar to USDY, as it is a type of security where users can invest 100 dollars to receive tokens that maintain a stable value of 1 dollar, while also enjoying financial returns.

BUIDL is relatively complete in terms of compliance:

• Operated by a special purpose vehicle (SPV) established by BlackRock in the British Virgin Islands.
• Applied for Reg D exemption under U.S. securities law, open only to accredited investors.
• BlackRock Financial is responsible for asset management, investing in short-term U.S. Treasury bonds and overnight repurchase agreements.
• Securitize LLC is responsible for the tokenization process, with smart contracts automatically generating on-chain returns.

The BUIDL fund has performed well in the market, with a TVL stable at 502.41 million USD, ranking fourth in the RWA TVL standings. Although lacking in technological innovation, it occupies an important position in the RWA sector, relying on the strength and reputation of BlackRock.

Summary

1. The essence of RWA is to achieve the interoperability between real-world assets and on-chain assets, blurring the boundaries between DeFi and traditional finance.

2. RWA mainly involves fields such as securities, real estate, credit lending, and stablecoins, including tangible and intangible assets.

3. Compared to other sectors, RWA faces stricter regulatory requirements, which gives well-known companies a greater advantage.

Although the RWA track has broad prospects, caution is still needed when investing in related projects due to compliance uncertainties, and potential risks should be addressed at any time.