Real-word asset tokens can reassure DeFi – market watchers.

A recent trend gaining traction in the cryptocurrency market is the tokenization of real-world assets (RWA) due to interest from major financial institutions such as BlackRock.

RWA token transfers ownership of financial or physical assets into digital tokens, providing immutable and immutable unity of ownership.

These tokens can then be issued, bought, sold and exchanged on many exchanges and networks.

Blockchain technology has allowed for the trading of illiquid assets like real estate and traditional markets like the United States Treasury using decentralized finance (DeFi) protocols.

The current market value of RWA tokens is around $7 billion and is expected to grow to $16 trillion by 2030.

First examples of simulation

The concept of tokenizing real-world assets is as old as cryptocurrency itself.

One of the first real use cases of the RWA token token is as a stable coin, where a single token represents a single currency, such as the US dollar.

Over time, the token's scope expanded to a wider range of assets, including bonds, stocks, fixed income and real estate.

The sector gained mainstream attention after the world's largest asset manager, BlackRock, launched its BUIDL asset token platform.

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In the year By 2023, the concept had become a staple of the Diffie industry.

A Bitfinex analyst told Cointelegraph that broader economic conditions and the integration of cryptocurrencies into traditional financial markets will affect the future of RWAs in DeFi.

“As financial markets increasingly recognize cryptocurrencies as a legitimate asset class, there will be more opportunities for RWAs to provide stability and real-world leverage to DeFi projects. This stability is critical, especially in a volatile economic landscape, and can increase the appeal and trust in DeFi platforms,” ​​he added.

RWA tokenization bridges the gap between TradFi and DeFi.

DeFi has historically prioritized cryptocurrency-native assets, but adding RWAs represents a significant shift.

This change will allow the DeFi sector to acquire a wider range of assets such as bonds, real estate, commodities and intellectual property. RWAs are the fastest growing asset class in DeFi.

While DeFi is known for reinventing finance by offering services such as loans, products, and other services, it is also particularly flexible. Stories of Statcoins' volatility, lack of liquidity, and widespread liquidity are common.

Graeme Moore, head of tokenization at the Polymesh Association, told Cointelegraph that RWAs reduce DeFi's dependence on volatile cryptocurrency markets by exposing them to a variety of assets.

Diversifying assets through RWA tokenization is reducing risk while providing consistent and stable results, Moore said.

“RWAs work beautifully on blockchain rails, and being able to hold RWAs and use them however you want will improve capital markets without the need for a central intermediary, in the same way that the internet has improved global communications,” he explained.

DeFi platforms are embracing various RWAs.

Over the past few years, more popular DeFi protocols have included RWAs for production products, algorithmic stablecoin support and liquidity, MakerDAO, and Aave.

MakerDAO was one of the first DeFi protocols that used RWAs as a token for the decentralized stablecoin Dai (DAI).

In November 2020, MKR (MKR) tokens held the first vote to integrate RWAs into the MakerDAO product.

Since then, RWAs have become critical to the financial viability of the Dai stablecoin and MakerDAO. This is reflected in the fact that RWAs account for 46% of the die distribution and also account for 48% of MakerDAO's expected annual revenue.

Kevin de Patol, CEO of DeFi market maker Keyrock, believes that RWAs in DeFi products are still in their infancy.

He told Cointelegraph that as the blockchain industry grows, there is a growing trend to introduce real-world assets, from treasury bills to corporate bonds.

PV01 cites the example of debt tokenization firm: “By bringing the US Treasury bill to the Ethereum blockchain, they have shown that even traditionally ‘boring' asset classes can benefit from tokenization. It facilitates investment and enables new use cases, such as using tokens as trading collateral.

According to De Patol, this has improved the risk of PV01's portfolio assets and increased the stability of its revenue streams, resulting in annual revenue of more than $100 million.

Sam McPherson, co-founder and CEO of Phoenix Labs, which contributes to MakerDAO's Spark lending protocol, told Cointelegraph that the growth in RWA adoption and revenue represents the convergence of the DeFi and TradFi worlds.

“As more institutional actors see the benefits of bringing assets on-chain, especially aligning old-world systems with real-time, this will prompt traditional investors to look at other DeFi products such as loans and stablecoins. Eventually, the benefits of tokenization will force all formal finance to be considered,” he said.

Frax Finance, another DeFi and algorithmic stable coin protocol, is using RWAs to improve the stability of the stablecoin, FRAX, and create unique DeFi products such as Frax Bond (FXB) tokens.

Frax uses an oracle that tracks the interest rate on the US Federal Reserve account – the interest rate banks earn on federal deposits.

This benchmark rate is generally accepted as the “meat-free rate” of the US dollar and the US economy.

Similarly, Mountain Protocol uses RWAs as a stable coin, USDM, an ERC-20 token backed by short-term US Treasuries.

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Aave DAO is using RWAs to generate revenue from crypto-native assets under its management that are potentially idle and productive. The protocol is using RWAs to expose themselves to off-chain products through the concept of RWA investing.

As many different RWAs join DeFi protocols, the ecosystem could see a wave of new financial tools and services.

Protocols will have an ever-increasing set of assets to work with, allowing the creation of new products that cater to different investor tastes while ensuring market stability and security on par with TradFi.