Real-world asset (RWA) protocols are decentralized applications that allow real-world assets to be tokenized and traded on decentralized platforms. These assets range from stocks and government bonds to real estate and commodities, and they are also known as asset tokenization protocols. DeFi provides certain advantages over TradFi by making the smart contracts transparent and enabling a wide degree of financialization of these assets by making them divisible, transferable, and tradable on decentralized platforms.
The top uncollateralized lending protocols for institutions in TrueFi and Maple increased by 26.6% and 117.8% in 2023 respectively. Centrifuge, a real-world asset tokenization platform, surged by 32% year-to-date. In comparison, the gains recorded by the DeFi pulse index (DPI) in the same period was 13%, while Glassnode’s index of DeFi blue-chip tokens lost 7% since the start of the year. Recent data from Nansen found that the governance tokens of RWA protocols surged significantly in January and April, thanks to the rising interest in them.
TradFi interest boost RWA activity. The top RWA protocol by total locked value, Ondo Finance, is a DeFi platform that enables stablecoin holders to directly invest in exchange-traded funds (ETFs) managed by top-tier asset managers like BlackRock and Pimco. U.S. bonds of more than $100 million have been issued via Ondo, per DeFiLlama data. Goldman Sachs, Microsoft, and Deloitte have eyed digital asset tokenization by partnering with the blockchain startup Digital Asset. German technology giant Siemens issued a digital bond on a public blockchain worth $64 million in February 2023.
The RWA assets account for 25% of the largest decentralized stablecoin DAI’s collateral, having increased from zero before the start of the year. MakerDAO, the community-led DAO, has approved the conversion of centralized stablecoins like USDC to U.S. Treasury bonds. 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 the price action and activity among RWA protocols. These protocols enable non-collateralized lending for institutions. Some of the top-ranked RWA protocols by TVL, like Ondo Finance, MatrixDock, and RealT, do not have a governance token attached to them. Nevertheless, these protocols have attracted usage thanks to the chances of a potential airdrop in the future.
Notably, the non-collateralized lending protocols carry the risk of debt default. FTX’s collapse led to a significant decline in Maple Finance’s price and pushed the protocol to the brink of insolvency. The yields of the U.S. Treasury bonds are also set to fall once the Fed starts cutting its benchmark interest rates, which could make these assets less attractive.
Nevertheless, it is encouraging to see the increasing tokenization of real-world assets and their financialization through DeFi finally catching positive momentum as they gain institutional support. A lot more needs to be done, and the ecosystem development in these areas is ongoing. By allowing real-world assets to be traded on decentralized platforms, DeFi is making it possible for anyone with an internet connection to invest in real-world assets and share in their returns. It is further expected that the governance of RWA protocols will become increasingly decentralized, which will allow for a more open, transparent, and democratic way of managing financial services.
The future looks bright for DeFi and RWA protocols as more companies and institutions recognize the benefits of tokenization and blockchain technology. The growing interest in these protocols is expected to lead to more innovation, increased adoption, and greater accessibility to financial services for everyone. While risks and challenges remain, the potential advantages of RWA protocols in DeFi are significant, and their growth and development are worth watching.
