DeFi world has witnessed impressive growth, with a peak total value locked (TVL) of less than $180B in 2021 compared to the traditional financial market’s staggering $900 trillion. This stark contrast begs the question: Why not bring a significant portion of real-world assets into the blockchain?

This article explores the potential of real-world assets (RWAs) in the blockchain space, emphasizing their role in both expanding DeFi and bridging the gap between traditional finance and the crypto world. It also highlights some promising projects in the RWA sector.

The Rise of Tokenized Real-World Assets

Tokenized treasuries, a subset of RWAs, have experienced a remarkable 450% growth since the beginning of 2023, contributing significantly to the $1.66B added to RWAs this year.

The Composition of Real-World Assets

August 14, the on-chain value of RWAs reached $3.1 billion, comprising various asset types:

  • Gold and precious metals: 37.3%
  • Equities: 1.63%
  • Carbon offsets: 0.41%
  • Money markets: 22.98%
  • Treasuries: 20.04%
  • Real estate: 4.38%
  • Private credit: 13.27%

RWAs that inherently yield-bearing make up 61% of the cumulative RWA market cap.

Driving Factors Behind RWA Expansion

The recent growth of RWAs can be attributed to the increasing demand for off-chain sources of yield. Yield-bearing RWAs, including treasuries, money markets, real estate, and private credit, have added $1.44B, accounting for 87% of the total value added to RWAs in 2023.

The Potential of Real-World Assets

The integration of RWAs into blockchain has the potential to drive exponential growth in both DeFi and the broader crypto and blockchain industry. Even a small percentage of real-world assets entering DeFi could result in substantial growth.

RWAs act as a bridge, allowing traditional finance users to access the crypto world by collateralizing real-world assets for crypto investments. Conversely, DeFi users can leverage their crypto assets to invest in real-world assets, all with the common goal of seeking profits.

RWAs facilitate global trade between decentralized and centralized finance, making it possible for individuals, even from countries like Vietnam, to invest in various global assets. This includes government bonds, stocks from different countries, and more, using these assets as collateral to borrow crypto assets.

The synergy between these two markets supports their mutual development and allows them to naturally attract new customers.

Promising Projects in the RWA Space

  1. MakerDAO:

MakerDAO Real World Assets
MakerDAO is a CDP protocol with Top 2 highest TVL in the DeFi market. The project allows users to collateralize assets to borrow the stablecoin DAI. Initially, the protocol only accepted tokens as collateral. Later, the project passed a proposal to accept Real World Assets.

Since accepting Real World Assets, TVL and users on MakerDAO have grown rapidly. Real World Assets make up over 50% of the assets in MakerDAO’s treasury.

Not stopping there, MakerDAO has also sent a portion of its USDC assets in the treasury to Coinbase to earn interest. Additionally, Maker has plans to use the stablecoins in its treasury to purchase short-term bonds, aiming to increase profits from the assets in its treasury.

MakerDAO enables individuals holding assets from the real world to access the world of crypto assets in the DeFi market. However, the product that uses assets from MakerDAO’s treasury to buy short-term bonds carries some risks. If a large number of users withdraw their funds, the protocol may not be able to respond in time or market volatility could lead to a mass liquidation.

2. Cogito Protocol:

Cogito Protocol is a revolutionary platform in the world of Decentralized Finance (DeFi) that aims to address some of the major challenges faced by the DeFi space. It acknowledges the problems of unsustainable yield farming, risky credit offerings, and large idle stablecoin supplies in the DeFi sector and proposes innovative solutions.

The key aspects of Cogito Protocol include:

  • Tokenized Traditional Financial Assets: Cogito Protocol offers three investment products through smart contract vaults: GFUND (Green Bond Fund), SFUND (Sovereign Bond Fund), and XFUND (Tech/AI Equity Fund). These funds represent traditional financial assets like green bonds, sovereign bonds, and tech/AI equities, catering to different risk appetites and providing stable returns.
  • Transparency and Trust: The tokens representing these investment products are ERC-20 tokens on the Ethereum blockchain, backed 1:1 by the underlying assets and USDC stablecoin. This ensures transparency and trust for investors.
  • Risk Management: Cogito Protocol prioritizes risk management, providing comprehensive risk disclosures. It addresses smart contract risk, interest rate risk, credit risk, and liquidity risk, aiming to mitigate these inherent risks associated with fund investments.
  • Integration of AI: The protocol explores the integration of Artificial Intelligence (AI) into fund management, especially for XFUND. AI can dynamically reweight the fund, analyze real-time data, and optimize portfolio holdings, potentially maximizing returns and lowering operational costs.
  • GCOIN: Cogito Protocol introduces GCOIN, a permissionless yield-bearing stablecoin backed by tokenized green bonds and USDC. It acts as a payment currency for the Regenerative Finance sector, aligning with impact-driven initiatives.

Cogito Protocol’s mission is to bring more maturity and stability to the cryptocurrency industry by offering secure, compliant, and diversified investment options that bridge the gap between traditional finance and the blockchain world. It primarily targets professional investors but also provides an offering for retail investors through GCOIN. The protocol’s integration of AI and innovative fund management strategies sets it apart in the DeFi space, aiming to provide sustainable solutions to the challenges faced by DeFi.

    The Importance of Real-World Assets (RWA)

    • Increasing DeFi Market Cap: RWAs inject capital into the DeFi market, expanding its overall market cap.
    • Expanding DeFi Applications: The integration of the real world with DeFi leads to the creation of new, valuable applications for the user community.
    • Removing Geographic Barriers: Tokenizing real-world assets eliminates geographic barriers, enhancing global asset utilization and liquidity.
    • Optimizing Capital Flow: RWAs optimize capital flows globally, benefitting the DeFi market.
    • New Projects: The growth of RWAs spawns new projects that support RWA applications and add value to the community.
    • Enhancing Investment Opportunities: RWAs provide DeFi users with new investment opportunities and access to diverse yield sources.
    • Leveraging Blockchain and DeFi Advantages: RWAs enable traditional finance users to leverage the advantages of blockchain and DeFi, enhancing liquidity and reducing transaction costs.

    Conclusion

    The DeFi and RWA markets, while showing remarkable growth, are still minuscule compared to the vast real-world asset pool. The integration of these markets represents a strategic move that could become a significant trend in the near future.

    Bringing RWAs into the blockchain is an essential need, offering numerous benefits to both the cryptocurrency market and traditional finance. While this sector is still in its early stages with unresolved issues, user acceptance could trigger a substantial boom for crypto in the coming years.