BlackRock Knows RWAs Are a ‘Multitrillion-Dollar Opportunity’ – Kinto Co-Founder

The crypto markets' focus on real-world asset (RWA) tokens will peak in 2024, and many entities in the traditional finance (TradFi) industry are also integrating blockchain and asset tokens into their portfolios.

Cointelegraph Markets spoke with Victor Sanchez and Alan Keegan, co-founders of RWA-focused blockchain project Quinto, to explore the market potential of RWAs. Both shared their thoughts on the reasons for the rapid growth of RWAs and why they believe “big institutions” like BlackRock are bullish on the asset class.

Cointelegraph: What would you say is the reason for the rapid growth of RWAs this year?

Victor Sanchez: Interest will always exist because of the obvious advantages: eliminating middlemen (and their costs), an incredibly liquid and efficient 24/7 market, and a transparent ledger. RWAs and TradFi have now found a safe, secure, scalable and usable place in the spaces and processes we have implemented at Kinto.

CT: Can you share your thoughts on why BlackRock is so good at RWAs?

VS: RWAs are a multi-trillion dollar opportunity, and these large institutions know that blockchain technologies can go from 0 to 100 in one bull market.

I believe that missing that train was simply not an option, despite the fact that there was a daily issue of Tornado Cash Dust.

CT: Can you explain in a few sentences what liquidity can be unlocked from RWAs and how this increases the bottom line of fund managers?

Alan Keegan: Being able to transfer assets globally, 24/7, with T+0 settlement is a huge benefit in itself once the regulatory barriers to using blockchains to transfer securities are removed.

But the ability to execute any arbitrary transaction neutrally and atomically makes many types of transactions simpler and more cost-effective. This means over-borrowing, stripping yields, asking for bad debt collateral, and even a dollar-denominated stablecoin with an LTV of nearly 100%. [loan-to-value] It can be done automatically with a click of a button or a trigger depending on the conditions.

It's hard to think of any form of transaction that won't be improved by being on-chain to unlock the potential of using blockchain as a layer of financial infrastructure once we've done the regulatory work.

CT: Given the amount of dispersed and tied up liquidity, what is the unlocked capital that RWAs can free up, and how can this process be done?

VS: RWAs face unique liquidity and utilization problems. The last bull and bear markets have proven to institutions that for some types of transactions, the Diff infrastructure offers advantages compared to traditional options, even in difficult market conditions – with variable liquidity and over-lending, for example.

However, even if tokenized, most RWAs today cannot be used for this on-chain. As an open network, we can unlock the value that institutions need by doing KYC at the chain level.

CT: Is there a difference between DeFi and RWAs?

VS: There are a few, but the lines are starting to blur, and that's a good thing. Many of the RWAs that are beginning to receive tokenization today are highly regulated products that meet strict requirements in the real world.

“Historically, RWAs have been missing a key aspect of DeFi: the ability to collect. We're fixing that,” he said.

CT: Can you explain how RWAs will fix the complexity problem that plagues DeFi?

As of today, RWAs need their own compliance frameworks, KYC systems, etc. In essence, they are controlling who you are, what you can hold and who you can send. If you think about this problem with L1 or KYC'd L2, basically this means that even for different DApps or protocols with the same use case, you need to go through their process, and they don't “talk to each other.”

This is why we believe that the correct abstraction model to KYC is at the L2 level, so everyone is under the same rules and capabilities, which allows RWAs to flow freely, write and do more.

CT: What are the current counterparty challenges with TradFi's requirements to manage counterparty risk?

In any network, it doesn't matter if we are talking about L1 or L2, you are free to send anything to anyone, 24/7. This is the promise of crypto, and in 99.9% of cases it is very good.

However, in a compliance environment where you need to know exactly who is sending what and why, this becomes a true compliance-related nightmare.

“In our discussions with Trad-Fi, this associated issue is one of the most cited reasons for not being on chain, followed by safety and usability.”

CT: What is Kinto doing to bridge the gap between TradFi and RWAs?

VS: Kinto is security-first L2. At Kinto, every individual or corporation is KYC/KYB. [Know Your Business] At the chain level. This information is never released without the user's consent from the KYC provider (we call this user-owned KYC) and resolves counterparty requirements.

In addition, by doing this at the chain level, for the first time, we will enable the integration of these RWAs, which will allow products that can only exist on Kinto.

CT: RWAs seem to be mainly for institutional investors and fund managers. How and when can retail investors get RWA pie?

VS: As a result of the regulation we have proposed in the previous questions, these institutions and accredited investors have easy access to these products.

However, as we facilitate interoperability requirements and protocols for other security components (AML, fraud detection, Sybil resistance, etc.), we can offer products to a wider audience in Kinto than anywhere else.

CT: What is your utopian vision of what a full RWA approach would look like in TradFi, and what would that mean for the average investor?

AK: Here is Kinto's future dream. On Kinto, tokenized traditional ETFs can be offered as liquidity in an AMM such as Uniswap or Curve. Your bank can connect to your wallet, which is used for on-chain payments, and automatically approves and lends the on-chain money market and tokenized document as collateral for your home.

Corporate treasuries can be kept on-chain, and corporate debt issuance can happen via DApp. Any modern financial asset can be sold and traded on-chain, and any modern financial service can be provided on-chain.

“Our mission is not only to provide the first permissionless decentralized network to support every traditional financial institution and decentralized financial protocol. It is to provide the best infrastructure option to host the financial system of the future.”

This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.