Real-World Assets: The Next Frontier in the Encryption Space

The original intention of cryptocurrency was to create a more transparent, accessible, and efficient global economic system, rather than just short-term speculation. However, most current crypto narratives remain limited to on-chain activities, and there are still very few practical applications that truly benefit the average consumer. There are trillions of dollars in assets in traditional markets waiting to be disrupted by blockchain technology, which presents a tremendous opportunity for systematic improvement of the global economy.

The emergence of decentralized finance ( DeFi ) has greatly unleashed the potential of blockchain. DeFi applications have advantages such as atomic settlement, low cost, high transparency, composability, and user autonomy. Common DeFi applications include peer-to-peer payments, synthetic assets, spot trading, asset management, lending markets, insurance, and derivatives.

Despite the numerous benefits that DeFi brings, its main limitation lies in the fact that most of DeFi currently constitutes a relatively closed-loop economic system, lacking connection with traditional economic systems. The rapid growth of DeFi is largely driven by capital rotation games and unsustainable high yields. This is akin to using a supercomputer to play simple games, with its potential not yet fully realized.

The DeFi industry has flourished in the past two years, but with a series of black swan events and the onset of a bear market, the total locked value ( TVL ) has significantly dropped from its peak. Many protocols have shown unsustainability, token prices have plummeted, and overall yields are also declining, gradually approaching traditional financial levels.

Compared to traditional finance, DeFi has advantages such as on-chain transparency, composability, flexibility and efficiency, and low barriers to entry. However, traditional finance still has advantages in areas such as investor protection and market linkage.

Real-world assets ( RWA ) refer to tangible assets that exist in the physical world, such as real estate, commodities, and artworks. RWA constitutes an important part of global financial value, with a total scale reaching several trillion dollars. Combining RWA with DeFi brings new opportunities to traditional assets.

Currently, several large financial institutions are making moves in the RWA sector. Goldman Sachs has launched a blockchain bond platform, Hamilton Lane has introduced its flagship fund to Polygon, Siemens has issued digital bonds on a public blockchain, Mitsui is achieving asset management through digital securities, and MakerDAO has introduced RWA as collateral to support the DAI stablecoin.

The main applications of RWA in DeFi include: stablecoins, synthetic tokens, and lending protocols. Stablecoins are one of the most successful use cases of RWA. Synthetic tokens allow derivatives tied to real-world assets to be traded on-chain. The DeFi lending model provides an efficient way for capital aggregation and distribution.

The RWA on-chain protocol is mainly divided into two categories: stock and physical asset markets, and fixed income markets. Among them, fixed income is the main market in the RWA field, with more active trading and a richer variety of products.

Some well-known RWA on-chain protocols include: Backed Finance( tokenized ETF stocks), Ondo Finance( tokenized bonds), Maple Finance( credit markets), Centrifuge( structured credit), Goldfinch( decentralized credit), etc. These protocols generally offer higher yields than typical DeFi protocols.

In the future, there may be Layer 1 public chains specifically designed for RWA to meet the unique permission requirements of RWA protocols. Projects such as Inatain Markets and Provenance blockchain are exploring this direction.

With the exhaustion of the DeFi narrative and the immense potential of the real asset market, the advantageous characteristics of DeFi bring new opportunities to traditional assets. For example, tokenized offline assets can connect to global markets. The recent banking crisis has also accelerated the development of gold tokenization. A new narrative of DeFi empowering the real economy may emerge, bringing broader application prospects for blockchain technology.