RWAs, or real world assets, are a big narrative in the crypto world. It’s crypto’s best shot of integrating with traditional finance. Simply put, it’s taking traditional assets and tokenizing them on public-ledger blockchains. Maker, Centrifuge, Maple Finance, Ondo, and a handful of others are leading this charge.
While the narrative makes sense, how impactful will RWAs in their current form be?
Maker currently earns somewhere around 70-80% of protocol revenue via stability fees against RWAs. Maker’s RWA portfolio consists of several managers and different kinds of debt instruments. Blocktower’s RWA vault manages investment grade bonds; the Monetalis Clydesdale vault comprises short-term t-bill ETFs; the Huntingdon Valley Bank vault is made up of construction, real estate, and business loans issued by the bank. Amongst the bigger names, Societe Generale also has an RWA vault with Maker.
RWAs in Maker are a way for traditional asset managers to tokenize their portfolio and access DAI liquidity against it. Not any Tom, Dick, or Harry can take a loan out against RWAs. It’s not exactly the perfect specimen for crypto’s biggest selling point — open, permissionless markets. But as we’ll see, this is a consistent theme in the RWA space.
Ondo Finance allows KYC-ed and accredited investors to buy U.S. treasury instruments on-chain. Maple’s cash management pool is more or less the same thing. Maple has taken steps away from permissionless lending in the aftermath of the FTX crisis which caused the Orthogonal default on the platform. And RWAs at large seem to be trending in a more permissioned direction, with KYC and accreditation becoming a requirement across the board.
The revenue generation potential here is fantastic. So from a pure business lens, yeah, it looks like the current approach to RWAs is sound. But when you place that next to what crypto and public-ledger blockchains at large are supposed to be, it doesn’t paint the rosiest picture.
Keep in mind RWAs can be censored and seized. The real asset exists in the traditional system — the tokenized variant is simply a representation of that asset in an on-chain environment. Regulators could theoretically clamp down on issuers/vault owners on Maker and force them to wind down their DAI loans and kill the RWA. Yes, they can be a source of new capital inflows to the ecosystem. But they also pose a significant risk to the integrity of several protocols. Personally, I’m not super interested in RWAs. They are a cool narrative, but I would prefer to spend my time on projects trying to onboard real people rather than financial institutions. I can’t deny what RWAs are trying to do is important for the ecosystem in the long-run. I just think my time is better spent looking at other kinds of products.
All signs point towards the RWA space consolidating power in a few players and becoming a TradFi-friendly path into crypto. If it acts a means of creating fresh capital in digital asset markets (like Maker), then the net effects are still positive. The way I see this playing out positively is for large investors to own traditional assets on-chain, take out leverage against them in stablecoins, and use that to play the real crypto-native markets.
However, creating a closed-KYC-only ecosystem is a net negative for the high-level goals of this technology. I guess we just have to wait and see how this all plays out.