RWA Industry Report: The Integration of TradFi and Decentralized Finance

Preface

In recent years, the market value of cryptocurrencies has surpassed one trillion dollars, but it is still far below mainstream asset classes and commodities. Against this backdrop, "RWA"(Real World Asset, the concept of real-world assets) has begun to gain traction in the crypto space. RWA refers to the tokenization of real-world assets and their introduction to the blockchain, allowing assets to be traded and circulated on the blockchain. Although RWA has enormous potential for expanding the market value of cryptocurrencies, its definition, advantages, and development prospects still require in-depth discussion.

This article will analyze the current status and future of RWA from different perspectives, with the core viewpoints as follows:

• The development direction of RWA is the bidirectional integration of the real and virtual worlds, which will construct a new financial system based on permissioned chains under multiple regulatory frameworks.
• It is necessary to rationally view RWAization, not all assets are suitable for RWAization.
• Countries around the world are actively promoting legal frameworks related to blockchain, while the blockchain infrastructure is also continuously improving.
• Different RWA projects have similar principles, but their specific operating mechanisms each have their own focus.

1. Background of Asset Tokenization

Asset tokenization is the process of recording asset ownership onto the blockchain in tradable digital tokens. This makes assets easier to divide, enables fractional ownership, and enhances liquidity. The basic principles of asset tokenization include: acquiring real-world assets, on-chain tokenization, and distributing to users.

The current market size of RWA is approximately $600 billion and is expected to grow rapidly in the future. As of November 2024, the total locked value of RWA token assets (TVL) has reached $6.512 billion.

There are mainly two perspectives on the understanding of RWA:

1. Crypto Perspective: DeFi protocols integrate RWA as a more stable source of income, such as MakerDAO investing in US Treasury bonds.

2. TradFi(TradFi) Perspective: RWA is a two-way integration of traditional finance and DeFi, aimed at empowering traditional finance with DeFi technology.

2. RWA's Transformation of TradFi

RWA solves many problems of the traditional financial system through blockchain technology:

1. Improve market accessibility, enabling small investors to participate in high-value asset investments.

2. Improve liquidity and price discovery capabilities, enabling low-cost trading of illiquid assets.

3. Improve market efficiency and reduce clearing and settlement costs.

4. Enhance traceability and programmability, improve transparency.

3. Classification of RWA Projects and Representative Projects

1. Institutional-grade permissioned blockchain: Polymesh Private

2. Stablecoin: Tether(USDT) etc.

3. Real Estate: Propy, etc.

4. Securities Market:

   • Stock Tokens: Backed Finance, etc.
   • Bonds: Hong Kong Government Digital Green Bonds, etc.

5. Carbon Credits: Toucan, etc.

6. Art and Collectibles: Crypto Punks, etc.

7. Precious Metals: PAX Gold(PAXG) etc.

4. Challenges Faced by RWA

1. Regulatory and compliance issues: Lack of clear regulatory guidance, complex cross-border compliance.

2. Technical Issues: The underlying blockchain technology is still under development, and interoperability needs to be improved.

3. Disconnect between hype and reality: Some projects focus too much on marketing and lack real value.

4. Security Issues: Risks such as data inconsistencies between on-chain and off-chain, and vulnerabilities in smart contracts.

Conclusion

RWA is expected to become a key area for the large-scale application of blockchain. For TradFi, RWA is a new financial instrument empowered by blockchain technology. Achieving large-scale application of RWA requires improving legal regulations and enhancing blockchain interoperability, among other things. As obstacles are overcome, people are expected to easily manage tokenized assets and achieve seamless transactions in the future.