Stablecoins, tokenized government bonds, decentralized private lending, NFTs with physical backing, climate and regenerative finance in DeFi – these are all part of the realm of Real World Assets (RWA). But how can RWAs be integrated with blockchain and cryptocurrencies? This article is sourced from Sanjay Raghavan’s column “7 Real World Asset Trends in 2024 That Will Unlock the Future of Finance,” and has been compiled, translated, and written by Carbon Chain Value.
Table of Contents:
1. Stablecoins: The Foundation of Programmable Currency
2. Tokenized Government Bonds: Bridging Traditional and Decentralized Finance
3. Private Lending: Empowering Small and Medium Enterprises through DeFi
4. NFTs: Revolutionizing the Financing of Collectibles
5. Consumer Brand NFTs: Enhancing Customer Engagement
6. Climate and Regenerative Finance in DeFi
7. Tokenized Deposits and Wholesale Bank Settlement: Transforming Cross-Border Transactions
In the ever-changing financial landscape, the past two years have brought us a series of unique challenges. The most significant of these is the inflation in the United States, which reached a staggering 9.1% in June 2022, prompting the Federal Reserve to implement a series of aggressive interest rate hikes (which are still ongoing).
At the same time, the cryptocurrency industry has experienced its own storm, with major projects such as Terra/Luna, Celsius, Voyager, and FTX, as well as banks like Silvergate, Signature, and Silicon Valley Bank, facing challenges.
Amidst this turmoil, blockchain builders continue to forge ahead, and the realm of Real World Assets (RWA) has become a beacon of innovation and resilience. Essentially, tokenizing real-world assets involves creating an investment tool on the blockchain that is associated with tangible assets such as real estate or cars, or anything else that can exist in physical form. Once ownership is recorded on the blockchain, assets can be traded, divided, or securely held.
Entering 2024, the following seven RWA trends will reshape the financial landscape:
With federal regulation on the horizon, stablecoins – the epitome of programmable currency – are on the cusp of transformative growth, fundamentally changing our perception of money. In the United States, two issuers dominate this space – Circle (which issues USDC as a multi-chain solution) and Paxos (which provides tokenized solutions like PYUSD for Paypal). Globally, stablecoins have a market value of approximately $125 billion and form the infrastructure layer that powers the value internet. Stablecoins offer stability and flexibility, revolutionizing global payments, remittances, e-commerce, trade finance, and more.
Tokenized government bonds represent the true fusion of traditional finance and decentralized finance. With risk-free short-term government bond yields rising from near-zero in early 2022 to approximately 5.4% in October 2023, companies such as Franklin Templeton, Ondo, Backed, Maple, Open Eden, and Superstate have led the way in tokenizing short-term US Treasury bonds and bank deposits. According to data from token and analytics platform RWA.xyz, this new asset class currently has a market value of $700 million. Tokenized government bonds are breaking barriers and providing new avenues for investment and financial inclusivity.
The US private lending market is valued at $1 trillion, and the global private lending market is valued at $1.7 trillion. However, small and medium-sized enterprises have long struggled to access this market. DeFi lending protocols such as Centrifuge, Goldfinch, Credit, Maple, and Huma are changing the game, opening the gateways to debt capital from public markets, banking systems, and traditional private lending institutions.
Private lending platforms like RWA.xyz focus on specific industries or regions and currently estimate an active loan volume of $550 million, which is expected to continue growing in the coming months.
The global annual art sales exceed $65 billion (with the US alone accounting for $30 billion), highlighting the immense opportunities in the art market. However, the traditional art and collectibles market lacks liquidity and comes with high costs (auction houses typically charge 15-20% fees for small items). The global collectibles market (including coins, stamps, books, comics, art, toys, etc.) is estimated to be worth $400 billion and also suffers from a lack of liquidity. Marketplaces like eBay and some smaller niche platforms cater to this industry’s needs, but lending options are generally limited to higher-interest pawnshops.
Fortunately, decentralized protocols like 4K and arcade.xyz are changing this paradigm. By bringing physical collectibles onto the blockchain, lending against assets like Supreme T-Shirts and comic books has become a reality. These initiatives democratize lending, allowing collectors from around the world to access loans.
Leading consumer brands, including Nike, Adidas, Louis Vuitton, and Coca-Cola, are embracing NFTs. From Starbucks on Polygon to rumored private blockchains by Amazon, big brands are leveraging blockchain to enhance their digital footprint, customer engagement, and entertainment experiences. Whether on public blockchains (Starbucks on Polygon) or private blockchains (surrounding the Amazon rumors), these brands are shaping the future of consumer interaction by incorporating gaming and metaverse elements.
With increasing attention on environmental, social, and governance (ESG) issues, blockchain technology is driving positive changes in the $2 billion and growing carbon market. Companies like Flowcarbon are harnessing the potential of blockchain to enhance transparency in this critical market. To achieve the goals of the Paris Agreement, this market must grow 15-fold by 2030. Blockchain’s accuracy and transparency throughout the carbon lifecycle are essential for promoting a sustainable future.
Blockchain technology is reshaping how banks handle tokenized deposits and wholesale settlements. While central bank digital currencies (CBDCs) may not be an immediate concern in the United States, especially if private issuers can be regulated at the federal or state level, some banks are experimenting with blockchain technology for tokenized deposits and internal or interbank wholesale settlements. Pilot projects by industry giants like Citigroup and JPMorgan Chase demonstrate the potential of real-time cross-border transactions. This field will continue to expand in the coming months, improving the efficiency of global finance.
These RWA trends herald the arrival of a new era in finance, offering solutions to long-standing challenges. While their market values may seem small at present, their transformative potential is immeasurable. Stablecoins, tokenized government bonds, decentralized private lending, NFTs with physical backing, consumer brand NFTs, climate and regenerative finance in DeFi, and tokenized deposits/wholesale bank settlements are not just trends – they are the foundation of a more inclusive, efficient, and sustainable financial future. In 2024, these innovations will undoubtedly lead the way, bringing unparalleled opportunities for businesses and individuals.