James Bachini

Investing In Real World Assets Through DeFi

rwa real world assets defi

Real world assets (RWA) are tokenized digital forms of traditional finance assets.

A centralized entity will raise capital by selling tokens and investing the proceeds in to an underlying asset or strategy. This has become particularly popular with bonds and treasuries due to recent rises in interest rates.

The market leaders in this field by TVL are outlined below, all data is at time of writing October 2023, latest figures can be founder here.

stUSDTJustin Suns staked USDT which offers a yield bearing return for USDT on the TRON network4.66%$1786m
Ondo FinanceMarket leader on Ethereum offering different products for treasuries and high yield bonds5.01%$204m
RealTokenTokenized real estate where US properties are fractionalized into digital tokens, rent is paid to token holders~9%$88m
MatrixDockTokenized treasuries for accredited investors on Ethereum5.13%$83m
TangibleUSDR product is a stablecoin backed by UK real estate properties6.43%$56m
BackedTokenized treasury bonds and high yield corporation bonds.5.26%$46m

There is a more in depth look at the two leading tokenized treasury protocols Ondo Finance and MatrixDock here:

Are Real World Assets Decentralized?

Real world assets are rarely decentralized because a centralized entity needs to have legal ownership and custodial responsibility for the underlying asset.

This doesn’t negate the impact that these products can have with a DeFi ecosystem where the infrastructure that they are traded on and used is fully decentralized.

For example many tokenized treasury products require accredited high net worth individuals meet KYC standards to mint or redeem the tokens but degenerates can trade them openly on secondary markets such as Uniswap without meeting the stringent requirements of being an accredited investor.

At a fundamental level this benefits financial inclusion by democratizing the availability of financial products and opportunities to everyone.

real world assets decentralized

Benefits Of Real World Assets

  • Liquidity – Digital asset tokens are traded 24/7 across decentralized exchanges where there is often significant liquidity available at the click of a button.
  • Efficiencies There is potential for DeFi to reduce the cost of ownership when trading and holding real world assets. This is dependent on the custodians and protocol passing those efficiencies along to the end users.
  • Financial Inclusion Many individuals globally lack access to traditional markets and banking systems. The integration of real world assets into DeFi provides an alternative path to asset ownership, making it more inclusive and affordable.
  • Transparency Blockchains are transparent by nature allowing for increased openness and accountability.
  • Innovation The blockchain sector attracts some of the brightest minds in the world. The potential to create new products and services on top of, and in replacement for, tradfi incumbents is an exciting prospect.
  • Interoperability The blockchain ecosystem is designed for developers to build on the lego bricks of DeFi. We are only just seeing the start of what is possible with tokenized stocks, real estate and bonds.

Sustainable Yield In RWA

Yield farming in DeFi has been criticized in the past for being unsustainable. We have seen protocols give away governance tokens to attract liquidity and capital moves from one hot new product to the next.

Real world assets offer a more sustainable path to generate yield on digital asset holdings. The returns might not be exciting but for investors concerned more about wealth preservation 5-10% is an attractive proposition. Take this into consideration against an investment in the stock markets which is expected to return an average of 7% a year with significant volatility.

I don’t believe RWA tokens are the killer product that DeFi was built for but they do serve a purpose, a flight to safety and a sustainable yield on stablecoin holdings.

We’ve seen the industry grow consistently throughout the bear market to now exceed $2 billion USD. As the protocols become more established and security perception increases I can see them gaining further traction in the years to come.

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Thank you.

James Bachini

Disclaimer: Not a financial advisor, not financial advice. The content I create is to document my journey and for educational and entertainment purposes only. It is not under any circumstances investment advice. I am not an investment or trading professional and am learning myself while still making plenty of mistakes along the way. Any code published is experimental and not production ready to be used for financial transactions. Do your own research and do not play with funds you do not want to lose.