In just two months, the total TVL of RWA (Real World Assets) has risen from 13th to 10th. According to the current development situation, RWA should be among the top six DeFi within the next year and further narrow the gap between CeFi and DeFi. Today, we will continue to sort out the topic of RWA and take a look at the current status of the RWA industry, the sub-fields that need attention, and the future potential of RWA.

Currently, DeFi is mainly focused on on-chain activities in areas such as trading, lending, and LP, but in the long run, I believe that RWA will eventually become a reality and be widely adopted, expanding the scale of DeFi loans from the current billions to trillions.

1. What is RWA

There are various tangible and intangible assets in the real world, such as commodities, real estate, bonds, stocks, collectibles, etc. The so-called RWA, in simple terms, is the process of converting assets in the real world into digital assets using blockchain technology.

This transformation has two main benefits:

In terms of DeFi, it allows on-chain users to gain access to the significant returns generated by real-world businesses.

On the CeFi side, it has the ability to bring new users into DeFi and gain more liquidity while improving transparency.

2. Current status of the RWA industry

As of the time of writing this article, it is August 8th, and it has been four months since I last published an article on the topic of RWA in the official account. I am really surprised to see how fast everything has developed in this field since then. It can be said that in just a few months, RWA has made significant progress again, highlighting the use cases of DeFi.

Next, let's take a look at two more interesting sets of data:

-The number of RWA-related token holders doubled in one year (only on the ETH chain).

-Traditional institutions and large companies have been launching new products to leverage blockchain technology and improve the accessibility of existing services. As shown in the figure below.

3. RWA sub-areas that need attention

At present, among the sub-fields related to RWA, I suggest that you focus on the following three areas:

The first one is US Treasuries

When everyone saw the obvious macro resistance, the tokenization of US Treasuries began to gain adoption. Currently, its risk-free return rate is now over 4%, which is much higher than the average lending rate of the top DeFi protocols. This directly caused the outflow of funds from DeFi.

Therefore, some protocols have found a way and opportunity to allow stablecoin holders to buy U.S. Treasury bonds. We can roughly divide these protocols into two categories, one is asset management (portfolio managers manage for you), and the other is Reledred (representing actual products). As shown in the figure below.

Each of the protocols mentioned above has its own unique processes, mechanisms, and fee structures. According to data from the RWA_XYZ platform, the TVL of all such protocols has grown from $100 million at the beginning of 2023 to an impressive $680 million at present. As shown in the figure below.

The second one is Private Credit

Private lending specifically refers to the opportunity for users to earn higher returns (albeit with higher risk) by investing in private credit loans from businesses. Personally, I prefer this sub-sector because the loans can be sent to real businesses and generate real returns based on the business model.

If you are also interested in this sub-field, you can query it through the Centrifuge platform, which will mark the capacity of each funding pool and tell you where the funds will flow to. As shown in the figure below.

The third one is Real Estate

Of course, the real estate mentioned here does not refer to the real estate in China. As you know, the real estate here is impossible to have any connection with RWA. The reason why I talk about real estate as a sub-field of RWA is mainly because I hope to draw your attention and be very careful, because there are many regulatory risks that you cannot foresee when investing in international real estate.

If you want to invest in this sub-sector, you need to first have specific knowledge to justify the risks, benefits, and entry price (e.g., buying a portion of a luxury apartment in a country) of investing in tokenized real estate. I have seen online before that some middlemen will increase the price per unit area by 100% and sell it to DeFi users.

4. Future potential of RWA

A research report by BCG (Boston Consulting Group) also shows that the tokenized asset market is expected to reach $16 trillion by 2030. If we consider that anything that can be tokenized can be represented as RWA on the chain, then theoretically, I think the value of RWA is still underestimated. The future development potential of RWA is actually huge, and it only takes time. Maybe in the near future, RWA will become an important catalyst to attract funds from the stock market.

At this stage, if you are a yield seeker, tokenized US Treasury bonds can provide you with a decent yield to fight inflation. If you are interested in the private credit field, you will also find very good yields (over 8-10% annual interest rate) when you do DD (due diligence) on the business model.

If you want to learn more about RWA and plan to participate in it after reading the above, I will tell you three key criteria for effectively using RWA, which are to ensure the safety of your principal, maximize yield, and pay attention to convenience. Then, you can look for and pay close attention to reliable RWA projects.

Of course, in the following series of articles on project analysis of Hualihuawai, I will continue to regularly organize and publish more projects with potential and development prospects for everyone to learn and refer to.

Well, that’s all I shared today through “Talking about Li and Beyond”. Let’s summarize and review it together. This article mainly sorted out the current status of the RWA industry, the RWA sub-fields that need attention, and the future development potential of RWA. I hope today’s sharing can be helpful to everyone.

Special thanks to: 0xTindorr, 0xTHades

Disclaimer: The above content is only a personal point of view and analysis, and is only for the purpose of popular science learning and communication among the majority of enthusiasts. It does not constitute any investment advice. Investment is risky, please treat it rationally, improve risk awareness, and abide by the relevant laws and regulations of the country and region where you are located!