Despite the stagnant growth of TVL in DeFi – a consequence of unfavourable market sentiments and elevated interest rates hindering liquidity and decelerating capital inflows – Real-World Assets (RWA) have made notable strides. They have shown impressive growth over the last year, demonstrating the resilience and potential of this asset class.
The protocols handling RWA have exhibited a remarkable trajectory, recently exceeding $1B in TVL. The driving force behind this growth is primarily the offering of fixed income products supported by Treasury bills, corporate loans, and real estate yields.
Additionally, MakerDAO, has effectively leveraged DAI loans to cultivate an alternative income stream. This strategy has resulted in the creation of $2.5B in loans that generate revenue as they are invested in various fixed-income opportunities.
With the incorporation of RWA, MakerDAO has escalated its annual recurring revenue and is set to generate $100M annually. This was made possible by leveraging the high-interest-rate environment to strategically invest in interest-generating opportunities.
The RWAy to Growth (pun intended)
RWA protocols have facilitated not only access to traditional finance yields on-chain but also the democratization of these yields to underserved communities. For individuals residing outside the US, accessing high Treasury bill yields can be challenging due to various regulatory and geographical constraints.
The tokenization of assets could significantly increase the accessibility of investment and lending opportunities. If one is seeking a loan, traditionally, one relies on a bank’s discretion. However, creating a loan on-chain, supported by a variety of tokenized assets as collateral, exposes the loan request to a broader pool of potential investors.
This also intensifies competition with traditional finance, potentially benefiting consumers through more competitive and less predatory interest rates.
Of course, one must consider the potential risks. The most critical of these is recourse. There needs to be a framework that ensures investor protection, providing mechanisms to recover loans in the event of a default. This necessitates the establishment of a legal structure for loans and the implementation of appropriate liquidation mechanisms.
Another concern is the potential for serving individuals engaged in criminal activities, which could be challenging to regulate on-chain.
Despite these challenges, we are likely to witness more innovative methods to onboard RWAs on-chain, thereby enhancing the utility of everyday assets.