Interpreting Binance Research's RWA Report: U.S. Treasury Yields Drive Track Development, Protocol Ecosystem Matures

Written by: Jie Xuan Chua, Binance Research

Compiled by: Deep Tide TechFlow

Introduction

The narrative around RWA has been gaining momentum recently.

With a continuously expanding user base, the tokenization of real-world assets (RWA) is in a phase of rapid growth. In an environment of ongoing interest rate hikes by the Federal Reserve, investors are reaping substantial returns through tokenized U.S. Treasury bonds.

Recently, Binance Research released a report on the state of the RWA market, providing an in-depth analysis of the current development status, ecosystem, and key participants of RWA.

The report indicates that traditional financial institutions are also actively positioning themselves in the RWA market. Firms like Goldman Sachs and Fidelity have launched related services, while some institutions are building private chains for asset tokenization. Regulatory bodies are also exploring RWA regulatory directions.

The report predicts that by 2030, the total value of tokenized assets will reach $16 trillion, indicating significant growth potential. RWA is profoundly changing the way assets circulate, ushering in a new era of integration between traditional and digital assets.

Deep Tide has compiled and interpreted this report, systematically outlining the development trends of RWA to provide readers with a comprehensive understanding of this emerging and rapidly evolving market.

Key Points:

• As user adoption increases and large institutional investors get involved, the tokenization of real-world assets (RWAs) continues to gain momentum;
• Coupled with relatively low yields in decentralized finance (DeFi), rising interest rates have driven the growth of RWAs, particularly tokenized government bonds.
• Investors are currently effectively lending over $600 million to the U.S. government through the tokenized government bond market, receiving returns at an annualized yield of about 4.2%.
• It is expected that by 2030, the market size for tokenized assets will reach $16 trillion, showing enormous growth potential compared to $310 billion in 2022.
• Many protocols have integrated RWAs or are participating in their growth. This report briefly introduces MakerDAO, Maple Finance, and Ondo Finance.

Definition of RWA and Market Overview

Definition of RWA: Assets that are collateralized and brought onto the blockchain through tokenization, including real estate, bonds, commodities, etc.

Types of RWA:

• Tangible Assets: Real estate, commodities, collectibles
• Intangible Assets: Bonds, stocks, carbon credits, etc.

By tokenizing RWA, market participants can enjoy higher efficiency, greater transparency, and reduced human error, as these assets can be stored and tracked on-chain.

General Process of RWA Tokenization:

1. Origin: Asset issuers, token platforms, and relevant parties discuss the on-chain matters;
2. Conceptualization: Discussion, conceptualization, and finalization of offer terms;
3. Subscription: Interested participants decide on their investment scale and subscribe to the asset;
4. Minting and Distribution: Tokens are minted on-chain and distributed to investors. The raised amount is distributed to the asset issuer;
5. Secondary Trading: If the tokens are tradable, a secondary market can be established to facilitate token trading;
6. Maturity Phase: When the investment term ends, participants receive principal and additional returns. Tokens are burned.

RWA Ecosystem Overview:

The RWA ecosystem is becoming diversified and steadily expanding. The report categorizes RWA-related projects into two main categories:

• RWA Rails: Provide the regulatory, technical, and operational conditions that RWA relies on, referred to as rails (meaning guidance or infrastructure).
• Asset Providers: Focus on initiating and creating various assets that drive RWA demand, including real estate, fixed income, stocks, and others.

In the ecosystem overview, subcategories can be further explained as:

1. Blockchain Infrastructure: Permissioned and public chains specifically for RWA, providing infrastructure for RWA.
2. Securitization/Tokenization Services: Services for bringing RWA on-chain.
3. Compliance Services: Ensuring that investors and issuers comply with regulatory requirements.
4. Real Estate: Developing and creating demand for real estate collateralized RWA.
5. Climate Assets: Developing and creating demand for climate asset collateralized RWA.
6. Private Credit: Developing and creating demand for private credit collateralized RWA.
7. Public Credit/Stocks: Developing and creating demand for public credit and stock collateralized RWA.
8. Emerging Markets: Developing and creating demand for emerging market RWA.
9. Trade Finance: Developing and creating demand for trade finance collateralized RWA.

RWA Growth Status and Outlook

Overall Situation:

The RWA market is in its early stages of development but has already seen increasing adoption and rising Total Value Locked (TVL).

According to protocols tracked by DeFi Llama, RWA has become the 10th largest category in DeFi, with a total locked value of approximately $6 billion. At the end of June, RWA ranked 13th. This significant rise is largely attributed to the launch of stUSDT in July, which allows USDT stakers to earn RWA-based yields.

Currently, there are over 41.3K RWA token holders on the Ethereum blockchain. While this may not seem like a large number, the number of token holders has significantly increased compared to a year ago, more than doubling. Last year's figure was approximately 17.9K.

The Rise of U.S. Treasury Bonds:

Yield is a Key Incentive: U.S. Treasury bonds are widely regarded as the benchmark for risk-free assets in traditional financial markets. Against the backdrop of rising interest rates, U.S. Treasury bond yields have steadily increased, now comfortably surpassing DeFi yields.

Assets always seek the most profitable avenues, and to demonstrate the utility of RWA, today's investors can invest in tokenized Treasury bonds without leaving the blockchain, thus leveraging real-world yields.

Market Size and Returns: The tokenized Treasury bond market is currently valued at approximately $603 million, with investors effectively lending this amount to the U.S. government, yielding an APY of about 4.2%.

Product Types: Protocols and companies in the Treasury bond market include Franklin Templeton, Ondo Finance, Matrixdock, etc. Compound's founder Robert Leshner recently announced the establishment of a new venture called "Superstate," which has filed with the U.S. Securities and Exchange Commission to set up a short-term government bond fund using the Ethereum blockchain as an auxiliary record-keeping tool.

Future Outlook for RWA

Market Space Forecast: According to a report by the Boston Consulting Group, by 2030, the market size for tokenized assets is expected to reach $16 trillion.

By the end of this decade (2030), this will account for 10% of global GDP, a significant increase from $310 billion in 2022.

This estimate includes on-chain asset tokenization (more relevant to the blockchain industry) and traditional asset fractionalization (exchange-traded funds "ETFs," real estate investment trusts). Considering the potential market size, even capturing a small portion of the market would be a boon for the blockchain industry.

Protocols Engaging in RWA Business

Maple Finance:

Business Model:

• Maple Finance is an institutional capital network that provides infrastructure for running on-chain lending operations for credit experts.
• Connects institutional borrowers and lenders.
• There are three key participants: borrowers, lenders, and pool agents.

Market Size:

• Maple Finance is one of the market leaders in the private credit space.
• Currently, it has issued over $300 million in outstanding loans.

Product Returns:

• Launched a product collateralized by U.S. Treasury bonds in April.
• Target annualized yield is the 1-month Treasury bond yield minus a 1% fee.
• Provides cash management solutions for users holding stablecoins.

Business Value:

• Users can earn on-chain Treasury bond yields without leaving the traditional market.
• High on-chain transparency allows real-time monitoring of asset conditions.
• Helps expand the scope of decentralized finance.
• Provides an outlet for stablecoins to earn yields.

Maker DAO:

Business Model:

• MakerDAO lends DAI stablecoins through collateralization.
• Borrowers deposit collateral into Vaults to obtain DAI loans.
• Types of collateral include crypto assets and RWA.

Market Size:

• MakerDAO is one of the leading protocols in the decentralized finance space, ranking third in total locked value.
• RWA assets account for nearly half of total assets, approximately $2.3 billion.

Key Data:

• The contribution of RWA revenue has significantly increased to around 50% over the past year.
• Recently purchased $700 million in Treasury bonds in June, bringing its total Treasury bond holdings to $1.2 billion. The diversified collateral base allows MakerDAO to leverage the current yield environment while diversifying its risks.

Ondo Finance:

Business Model:

• Provides blockchain-based investment products and services for institutional investors, allowing them to purchase products like bond funds by depositing USDC, receiving equivalent tokens, which are burned upon redemption to return USDC;
• Offers four types of real asset-based products, such as money market funds and short-term government bonds.
• Product annualized yields range from 4.5% to 7.76%.

Market Size:

Holds nearly 26% of the tokenized Treasury bond market, ranking second.

Business Value:

• Allows investors to access blockchain-based institutional-grade investment products, expanding the investor base for traditional assets.
• Users can earn yields from bonds, money markets, and other products on-chain, with tokenization improving asset liquidity.

Noteworthy Developments in RWA

Asset tokenization has been termed a "killer application" for TradFi by JPMorgan, becoming a buzzword. In 2023, it was referred to as "the next generation of the market" by BlackRock CEO Larry Fink.

Interestingly, in addition to DeFi protocols, traditional financial institutions are also showing increasing acceptance of RWA tokenization:

Firstly, global asset manager Franklin Templeton has launched its own fund on a public blockchain; additionally, institutions are beginning to explore building their own private blockchains for asset tokenization. Looking ahead, it is not unimaginable for traditional exchanges to facilitate the development of secondary markets. The trading of tokenized RWA may become more widespread as adoption rates rise.

Key Events and Timeline for RWA are summarized as follows:

Conclusion

The tokenization of real-world assets provides a powerful use case for blockchain technology, potentially ushering in the next wave of users into the cryptocurrency space.

By offering greater transparency and efficiency, tokenization could serve as an attractive alternative to existing mechanisms. We have witnessed early signs of institutional adoption: traditional companies are exploring technologies that can address the inefficiencies of current solutions. The surge in RWA is also a positive development for cryptocurrency investors, who can now access more opportunities beyond the crypto ecosystem. In addition to leveraging the increased yields of Treasury bonds, the integration of risk-weighted assets has brought more stable assets into DeFi, enhancing the diversity of collateral space. Looking ahead, we hope that the continuous innovation and development potential of RWA will bring more use cases and contribute to the adoption of cryptocurrency.

Original report link:

https://research.binance.com/static/pdf/real-world-assets-state-of-the-market.pdf