Real World Assets (RWA) Explained: Top Promising Projects to Watch

     The DeFi market once peaked at under $180 billion, a stark contrast to the traditional financial market's estimated $900 trillion. The traditional market's valuation is tens of thousands of times larger than DeFi's. This raises a crucial question: why not bridge this immense volume of real-world assets onto the blockchain?

     This is a monumental undertaking, and numerous blockchain projects are actively developing solutions to achieve it. These products are designed to help users from traditional finance access crypto and blockchain technology. Simultaneously, they empower DeFi users to diversify their portfolios and maximize returns by gaining exposure to real-world assets.

Within the crypto sphere, projects offering such products fall under the umbrella of Real World Assets (RWAs). While the term itself isn't new, it has recently garnered significant market attention. So, what exactly are Real World Assets, and what is the potential of this sector? Let's explore these questions in this article!

I. What Are Real World Assets (RWAs)?

     Real World Assets (RWAs) refer to tangible or intangible assets that hold value outside of the blockchain and cryptocurrency ecosystem. These can include traditional assets such as real estate, stocks, bonds, commodities, fiat currencies, or any other asset with inherent real-world value.

     RWAs are tokenized or represented on a blockchain to create digital versions. This process allows investors to participate in traditional finance or, conversely, enables traditional investors to engage with the blockchain and DeFi platforms. The integration of RWAs offers significant benefits, including improved liquidity and enhanced interoperability between the blockchain and the real world.

The development of Real World Assets began with pioneering projects like MakerDAO, Goldfinch, and TrueFi. These initiatives introduced early models, such as accepting government bonds as collateral, tokenizing real-world assets on the blockchain, and enabling crypto asset holders to invest in real-world assets.

     Initially, products related to Real World Assets were limited to government bonds. However, the scope has expanded, and it's now possible to bring virtually any real-world asset onto the blockchain. For optimal security and liquidity, the focus remains on high-value and highly liquid assets like bonds, stocks, commodities (gold, silver, etc.), and fund certificates.

II. The Potential of Real World Assets

     The most evident and significant potential of Real World Assets (RWAs) lies in bringing a massive volume of real-world assets onto the blockchain. This move won't just propel the growth of DeFi; it stands to ignite an explosion across the entire Crypto and Blockchain industry. Even a small fraction of real-world assets flowing into DeFi could cause its growth to multiply by tens or even hundreds of times.

     The Real World Assets sector also serves as a crucial bridge, allowing users from traditional finance to access Crypto. They can leverage real-world assets as collateral to generate capital for further investment in the crypto market. Conversely, DeFi users can utilize their crypto assets to invest in real-world assets, with the common goal for both being profit generation.

     Real World Assets usher in an era of unprecedented commerce between decentralized finance and centralized finance. This creates a truly global market for all asset types. Imagine a Vietnamese individual being able to invest in US government bonds or bonds from any country, or using shares from any company as collateral to borrow crypto assets.

     The convergence of these two markets will significantly expand the overall size of the global financial market. Both sectors will mutually support each other's development, with real-world assets boosting capital for the crypto market, and vice versa. Each market naturally gains access to new customers, fostering a more interconnected and robust global financial landscape.

III. Promising Projects in the Real World Assets Sector

1. 1. MakerDAO

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3.      MakerDAO is a CDP (Collateralized Debt Position) protocol that currently ranks third by TVL (Total Value Locked) in the DeFi market. The project allows users to collateralize assets to borrow its stablecoin, DAI. Initially, the protocol only accepted crypto tokens as collateral. However, a proposal was later passed to accept Real World Assets (RWAs).
4.     Since the acceptance of Real World Assets, MakerDAO's TVL and user base have grown rapidly, with RWAs now accounting for over 50% of the assets in MakerDAO's vault.
5.     Beyond this, MakerDAO has even deployed a portion of its USDC reserves to Coinbase to earn interest. Furthermore, Maker has plans to utilize the stablecoins within its vault to acquire short-term bonds, aiming to generate additional returns from its treasury assets.
6. MakerDAO facilitates access to Crypto assets within the DeFi market for holders of real-world assets. However, the strategy of using assets from MakerDAO's vault to purchase short-term bonds introduces a degree of risk. In the event of a large volume of user withdrawals, the protocol might struggle to meet demands, or significant market volatility could lead to widespread liquidations.

• 2. Maple Finance

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•      Maple Finance is a decentralized credit protocol that connects lenders and borrowers. The protocol supports two types of loans: fixed-term and open-term. Maple Finance involves three main parties: borrowers, lenders, and pool delegates.

  - Institutional Borrowers can access financing options on Maple Finance.

• - Lenders can earn() yield on their assets by lending to borrowers.
• - Pool Delegates are credit professionals who assess, manage, and underwrite the loans.
•     Maple Finance initially focused on uncollateralized lending, but it has increasingly shifted its focus towards RWA-backed loans. Previously, its uncollateralized crypto lending activities led to significant challenges, including over $50 million in bad debt.
•     Today, Maple Finance is a market leader in the private credit space, with over $332 million in outstanding loans, demonstrating its pivot and success in the RWA-backed lending sector.

1. 3. Centrifuge

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3.      Centrifuge is a project built on Polkadot that bridges real-world assets (RWAs) into DeFi. It provides the infrastructure for other dApps to easily expand their integration of real-world assets. Recently, Centrifuge launched a product called Prime, designed to bring the real-world credit market to decentralized institutions, protocols, and stablecoins.
4.     Through Centrifuge Prime, institutions can construct credit portfolios tailored to their precise needs. Instead of purchasing a generic offering, investors can build a portfolio that aligns with their specific risk appetite and investment horizons.
5.     With yields ranging from 4% to over 13%, Centrifuge Prime offers a diverse set of solutions to meet the requirements of any institution or protocol.

1. 4. JustLend

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3.      JustLend is the Lending protocol with the largest TVL in the TRON ecosystem. The project recently launched a new product that allows DeFi users to indirectly invest in real-world assets (RWAs). Specifically, users deposit USDT to receive stUSDT, and their funds are then used to invest in real-world assets proposed by JustLend DAO.
4.     This product offers high returns for investors and addresses a significant issue in DeFi: the relatively low profitability of stablecoins. However, the risks include the real-world assets not generating expected interest or facing liquidity challenges in converting assets between DeFi and CeFi (Centralized Finance).
5.     These issues can lead to considerable limitations in linking crypto-deposited assets with real-world assets. For example, the process involves converting users' USDT to USD, then using that USD to invest in real-world assets, and subsequently converting back from real-world assets when withdrawing funds.

IV. Personal Outlook

     The RWA (Real World Assets) and DeFi markets are still incredibly small when compared to the vast amount of real-world assets. Connecting to this immense potential market presents an opportunity to accelerate the growth of the industry even further. Therefore, in the upcoming cycle, this sector is poised to be a strategic play or a major trend in the market.

     If this vision holds true, where should we focus to find investment opportunities? In my opinion, we first need platforms or protocols that support the tokenization of RWAs. Following that, we'll need protocols that facilitate the movement and utilization of RWA Tokens, such as DEXs (Decentralized Exchanges), Lending protocols, CDPs (Collateralized Debt Positions), and Farming platforms. Alternatively, protocols that directly accept RWAs as collateral for loans will also be key.

     Another niche that projects could tap into is bringing Web3 users closer to RWAs, helping investors diversify their portfolios.

To realize these plans, Crypto needs concrete evaluations of RWA products. Furthermore, RWA assets must possess good liquidity to ensure easy liquidation. This aspect will require the expertise of third parties.

     Naturally, the process of transferring assets between the real world and the blockchain will have some delays. This is one of the biggest risks in applying blockchain to RWAs. Any dApp or platform that can effectively support or offer solutions to this problem will have a significant opportunity for growth.

V. Conclusion

     The integration of RWAs into Blockchain is an inevitable necessity. It not only brings numerous benefits to the cryptocurrency market but also aids in the development of the traditional market. As this sector is still nascent in its initial stages, there are unresolved issues. However, once it matures with a full suite of products and widespread user acceptance, it promises to be a massive explosion for Crypto.

I hope this article has clarified what Real World Assets are and provided you with a new perspective and valuable insights!

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