RWAs: Should we invest at this time?

A lot of people are talking about RWAs recently (July 2023). RWAs aren't really a new thing, a lot of projects have come up over the years saying they will put assets on-chain. The most successful one so far is Ondo, but the rest have had lacklustre results.

I set out to try and understand better the whole RWA industry to determine if we should invest in it.

**What problems do RWAs solve?**

There are a few problems that these RWA projects say they solve:  

1. Remove the need for centralized clearing (which then allows 24/7 trading, improved liquidity etc)
2. Transparency of funds, especially with proof of provenance, real-time monitoring of things like real estate, carbon credits
3. Allow crypto funds/whales to invest their crypto into tradfi yield or assets
4. Allow institutions to access capital on-chain
5. Allow institutions to invest funds on-chain
6. Facilitate CBDCs/regulated stablecoins based on some underlying asset/credit
7. Tokenize illiquid assets (art, real estate)

There might be more but I think these are the main ones that I have seen different projects say.

In the last few months, we have seen a few of these Treasury bond projects launch. And over the last few years, there have been many tokenization projects (Securitize, ADDX,  Tokeny, Tzero, Bitbond etc). There are also quite a few of these projects that tokenize real estate and offer yield.

The biggest question I have with all these is: Is there **demand** for these tokens?

To answer this, I think we can try looking at some on-chain data:
1. Here is a Dune dashboard that tracks the market cap of the different tokenized treasury bond projects so far:  [https://dune.com/steakhouse/tokenized-securities](https://dune.com/steakhouse/tokenized-securities)
2. Here is another dashboard that focuses more on the holder count and on-chain activity of RWA tokens: [https://dune.com/j1002/rwa-narrative](https://dune.com/j1002/rwa-narrative)
3. This dashboard breaks it down by subsectors: [https://dune.com/cryptokoryo/rwa](https://dune.com/cryptokoryo/rwa)Here is Defillama’s RWA dashboard: [https://defillama.com/protocols/rwa](https://defillama.com/protocols/rwa)

It does seem like the market cap for tokenized TBILLs and USG bonds has been growing a lot. But the trading volumes for these products are not as high. Ondo is the market leader.

I think Ondo’s success is due a lot to them having Flux Finance, which allows people to access their treasuries in a permissionless way, whereas some other competitors require investors to be accredited and KYCed.

Centrifuge, a RWA loan protocol that has been around for a few years, saw an interesting spike in institutional loans starting from Jan 2023, but its token price did not really increase over the next few months. However, when I checked where this institutional loan increase is coming from, it’s actually BlockTower, which is a crypto firm anyway, not really a tradfi one. The actual NFTs minted (for lenders) is still quite low, just that their tokenized assets have increased: [https://dune.com/j1002/centrifuge](https://dune.com/j1002/centrifuge)

I think based on this, what we can say right now on the demand is that many crypto funds and some whales are interested in T-Bills and other government bonds, especially in a higher rate environment. I have a feeling actually whales, who can’t or won’t do KYC/accreditation, actually have a greater role in the market.

However, I don’t see much evidence for other kinds of assets having significant demand.

There is one question that I still have, namely: If regulators offer more clarity, will tradfi institutions actually want to adopt tokenized RWAs?

My hypothesis is no, most tradfi institutions are comfortable with their existing solutions, and they are generally wary of crypto. It will take a long time to educate the market, and in the meantime, it could become quite a fragmented market, where investment might not be very profitable for us.

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