Exploring the Potential of RWA: The Next Major Application Track After Dollar Stablecoins?

Real World Assets, abbreviated as RWA, refers to traditional assets tokenized through blockchain technology, a process that gives these assets a digital form and programmable characteristics. Within this framework, various types of assets, ranging from real estate and infrastructure to artwork and private equity, can be transformed into digital tokens. These tokens not only serve as digital symbols of asset value but also contain multidimensional information corresponding to the physical assets, such as asset nature, current status, historical transaction records, and ownership structure. Broadly speaking, the widely used USD stablecoin is also a form of RWA, that is, the tokenization of the US dollar. This article will gradually introduce how RWA is set to become the next scalable application track after USD stablecoins.

RWA assets, with their unique multi-dimensional advantages, have the potential for large-scale application in the blockchain ecosystem. Their high asset correlation and transaction transparency can establish investor trust, while enhanced liquidity and cost efficiency vigorously promote market vitality and diversity. The introduction of smart contracts further improves operational efficiency while simplifying compliance and auditing processes. These core features collectively pave the way for RWA to become the next large-scale application track after the US dollar stablecoin, indicating its broad prospects in the blockchain and the entire financial sector. Of course, there are various types of RWA assets; which assets will achieve large-scale application on-chain first? What are the risks or challenges of onboarding different assets?

Overall, the main tokenization markets that are currently easier to achieve and have begun to take shape are fixed income assets and rare metal assets. Although the market size for gold tokenization has exceeded 1 billion USD (, primarily represented by projects like $PAXG and $XAUT ), from the perspective of the current pain points and demands of DeFi, which seek standardized assets that can bring real yield on-chain, developing RWA starting from fixed income assets such as U.S. Treasuries/U.S. Treasury ETFs is currently a relatively easier and more efficient approach.

Why is RWA needed?

( DeFi Perspective:

From the DeFi TVL data, it can be seen that since the UST depegging in May 2022 triggered market panic and massive sell-offs, the TVL of the DeFi sector has been on a downward trend. Currently, projects and narratives are struggling to attract off-chain funds, and there is a need to introduce new narrative structures and participants. Drawing on the characteristics of RWA, bringing real-world assets on-chain to provide genuine asset value may be the best solution at present.

At the same time, in order to retain on-site funds or attract off-site funds, the high yield that DeFi can provide is a key data point that funds pursue. However, the Ponzi-like yield of $UST has led to a lack of trust among investors in high yields. RWA can effectively address this issue by adding real yields backed by more realistic world assets to the protocol.

![RWA Potential Discussion: Is the Next Large-Scale Application Track After US Dollar Stablecoins?])https://img-cdn.gateio.im/webp-social/moments-2f76b07564e30edaf1b939d9f525f469.webp###

( TradFi Perspective:

1. Limitations of strong regulatory controls and liquidity tools

Despite the significant progress made by traditional financial systems in asset segmentation and liquidity, such as through Real Estate Investment Trusts ) REITs ### and Exchange-Traded Funds ( ETFs ), these tools are still subject to strict regulation and structural limitations. For example, REITs and ETFs often need to meet a series of complex compliance requirements, which not only increase operational costs but also limit product innovation and market participation. Therefore, although these tools have improved asset liquidity to some extent, there is still considerable room for enhancement.

2. Limitations in the Private Loan Sector

In private markets, especially in the private credit sector, there are various restrictions and unmet demands. These markets are often manually operated, slow, opaque, and have high operating costs. The capital matching process involves multiple steps, from finding and qualifying investors and investment opportunities to initial capital allocation, followed by secondary trading and management of assets. These factors lead to irrational capital allocation and suboptimal customer experience.

3. The "black box" problem of complex financial products

When creating complex financial products, traditional financial systems often face the "black box" problem, which refers to a lack of transparency and traceability, making it difficult to penetrate the underlying assets. This opacity not only increases risk but also limits the trust and participation of market participants. By mapping underlying assets onto the chain and packaging them into products through the composability of smart contracts on-chain, regulators only need to supervise the custody of the underlying assets, allowing the process of transforming simple financial products into complex financial products to remain open and transparent, thus resolving this issue. Regulatory conveniences may enhance the diversity and liquidity of on-chain financial products compared to traditional financial methods.

Overall, the demands and challenges facing TradFi mainly focus on improving liquidity, increasing transparency, and reducing costs. RWA provides effective solutions to these issues through tokenization and blockchain technology. Especially in the fields of private markets and complex financial products, RWA is expected to bring unprecedented transparency and efficiency, thereby addressing the core bottlenecks of the traditional financial system. By introducing RWA, the traditional financial system is expected to achieve higher capital efficiency, broader market participation, and lower transaction costs, thus promoting the healthy and sustainable development of the entire financial ecosystem.

At the same time, it is not difficult to observe that both traditional institutions in TradFi and project parties in DeFi have been deeply involved in the RWA field for many years, seeking opportunities for synergy and integration between the two. Here, it is necessary to mention a recently popular concept - Bitcoin ETF, and by referencing the concept of RWA, we can extend to a new concept - CWA (Crypto-World Assets).

( RWA and CWA

As Bitcoin gradually becomes a mainstream investment category, major financial institutions are actively applying for the approval of Bitcoin ETFs. This trend not only marks the gradual integration of crypto assets into the traditional financial system but also provides us with a new perspective to consider these assets: namely, the concept of CWA)Crypto-World Assets###. CWA has many similarities with RWA, mainly in terms of asset standardization and improved liquidity. However, unlike RWA, which primarily focuses on the tokenization of real-world assets, CWA is the standardization of crypto assets and the financial products associated with them in the real world. The prototypes of both can be seen in the on-chain issuance of US Treasuries/US Treasuries ETFs and the approval and issuance trading of Bitcoin ETFs in the real world.

Like RWA, CWA also faces a series of regulatory and compliance issues. However, due to the decentralized and cross-border nature of crypto assets, these issues are more complex in the context of CWA. For example, the approval of Bitcoin ETFs requires addressing multiple regulatory challenges, including but not limited to asset custody, price manipulation, and market regulation. However, the introduction of CWA is expected to further enhance the liquidity and market participation of crypto assets. By combining crypto assets with traditional financial products, CWA can not only attract more traditional investors into the crypto market but also provide existing crypto investors with more investment and risk management tools.

Whether it's RWA or CWA, the underlying demand and reasons for their emergence can be traced back to the launch of risk-matching segmented products to enhance financial efficiency. Efficient financial markets encourage speculative behavior, which further drives the demand for more assets and investment opportunities. Against this backdrop, both traditional financial institutions and DeFi platforms require RWA and CWA to facilitate the flow of capital, thereby attracting more users and capital. As new forms of financial innovation, RWA and CWA not only meet the market's demand for diversified assets and stable returns but also promote the flow of funds into more efficient areas. By breaking down the barriers between TradFi and DeFi, RWA and CWA are expected to drive the entire financial ecosystem towards a more efficient, transparent, and sustainable direction. This not only enhances the overall efficiency of financial markets but also provides investors with more investment choices and better risk management tools. This is also an important basis for the large-scale application of RWA.

Why U.S. Treasury Bond ETF Assets?

( education cost

Let us think about why the US dollar stablecoin has become the domain of large-scale application of cryptocurrencies? Why not Bitcoin or other native cryptocurrencies in the coin circle, or why not stablecoins of other countries' fiat currencies?

First of all, the education cost for users is an important but often overlooked consideration. For most users, understanding and accepting new financial products and technologies requires time and effort. Secondly, compared to other fiat stablecoins, USD stablecoins are more easily accepted by users globally, and the US dollar itself is the world's primary reserve currency and transaction currency. Its wide range of cross-border use cases greatly reduces the cost of educating users. Therefore, leveraging users' understanding and trust in the US dollar, stablecoins pegged to the dollar can gain market trust more quickly. At the same time, due to the global dominance of the US dollar, related educational materials and resources are easier to standardize and globalize, further reducing the difficulty of education in multilingual and multicultural environments. Lower user education costs are often one of the important factors in achieving scalable applications.

Similarly, this is also why we adopt US Treasury-related assets rather than bonds issued by other sovereign countries. US Treasuries are widely regarded as one of the safest assets globally, and their high credibility and liquidity in the global financial markets reduce the resistance for users to accept new financial products or investment channels. The high market transparency and auditing standards provide users with strong informational support, thus lowering the costs of ongoing education and market promotion. Additionally, the stability and global liquidity of US Treasuries help shorten the learning curve for users, making it easier to accelerate the adaptation and acceptance of new users through community interaction and social validation. Of course, issues of transparency and auditing cannot be ignored. The US financial market is characterized by high transparency and strict auditing, which also provides reliability and credibility for US Treasury assets.

![RWA Potential Discussion: Is the next large-scale application track after the US dollar stablecoin?])https://img-cdn.gateio.im/webp-social/moments-f2387145fe21495b232e33b7eb090f72.webp###

( Real Yield Rate

Tether)$USDT###, as the most widely used dollar stablecoin in the field of crypto assets, has always faced issues of transparency and compliance of reserve assets. The lack of transparency provides Tether with the opportunity to possibly issue $USDT without adequate reserves, thereby conditionally using the issued funds for other financial activities to generate profits. These profits are not returned to $USDT holders, but instead belong to Tether. This is particularly concerning in the current DeFi environment as it raises questions about how to more fairly distribute such potential profits among members of the DeFi ecosystem. In this context, U.S. Treasury bonds, with their relatively stable, standardized, and lower-risk characteristics, have become a worthy consideration as the underlying asset for stablecoin issuance. On this basis, U.S. Treasury bond ETFs not only reduce regulatory risks compared to U.S. Treasury assets but also make it easier for issuers to acquire this portion of assets and profits.

Overall, US Treasury bond ETFs have become a strong option that can solve the transparency and counterparty risks brought by $USDT and other centralized stablecoins for issuers like MakerDAO, while also having the potential to drive the acceptance of crypto assets among the public. Using US Treasury bond ETFs as underlying assets not only provides a more transparent and regulated investment avenue but also allows for a more equitable distribution of investment returns to all participants, thereby meeting both public acceptance and regulatory requirements within the DeFi ecosystem.