(GenZ, digital natives).
That’s what I’ve been hearing.
“… We (Tradfi) have to go wherever the new generation is, the future is on-chain… composable, interoperable …!”
yada yada yada
This is what the panels say.
But what’s the real deal here?
Is there a product market fit, or are we seeing the same dead thing with tokenization all over again? Spoiler: it doesn’t look dead anymore.
While the naming suggests that RWA is any real-world asset tokenized on-chain—from sneakers and whiskey to real estate and art (you heard this story a thousand times)—what RWAs are often referred to today is specifically funds that hold treasuries, securities, equities, etc.
Those funds are managed either by asset managers (e.g., BlackRock) or fintech/defi platforms (e.g., Superstate).
But, why would one need a Tradefi fund on-chain?
I mean, we all get why Bitcoin ETFs make sense. Most folks don’t want to deal with wallets, and now they can “buy BTC” from within their Chase app. That’s a PMF.
However, it’s surprising to hear that something inverse to a Bitcoin ETF makes sense: putting old products on new rails. And yet it turns out someone needs this. And that person…
is me!
I was pretty surprised to learn this, actually.
So, who needs RWAs (specifically the tokenized funds)? The answer is, stablecoin holders.
I’m not used to saying this out loud, but I have been holding a certain amount of USDCs on my metamask for over 3 years now. Well, it is assumed that if you’re a crypto native and have money on-chain, you should do something with it, something that either makes you more money or something funny that makes you lose it.
There is a third option, it turns out, where a certain amount of capital you neither want to risk nor off-ramp, so you simply hold it on-chain in a stable asset.
When you think about it, HODLing a representation of a US Dollar on-chain for a few years without receiving any yield is ridiculous.
And yet, I heard an opinion that out of $234 billion stablecoin market, more than $100 billion just sit there. Which means every other person does this.
While those numbers aren’t necessarily accurate, it sounds reasonable to assume that this market is big enough for asset managers, like Blackrock, to go after.
For us (proud stablecoin holders 😐), those tokenized funds offer a product that hasn’t previously been available on-chain: safe yield.
This yield is about 4%, if not lower, plus management fees, which is less than what you get with defi (from 5% to 20% or even above 20% if you’re sophisticated in restaking or other riskier stuff).
But.
That, lower, 4% yield is expectedly safer. Safe 4 percent are better than safe 0 percent, right?
Market size and thoughts
According to stomarket.com, the security tokenization market currently stands at $63 billion, almost 30% of the stablecoin market size.
Is the RWA market limited to the stablecoin holders market (i.e., is it only the stablecoin holders who are willing to invest in treasury etc funds on-chain)? I think that’s a good question, and I don’t know the answer. Yet.
I’m curious if Bitcoin holders would be down to earn a small and safe long-term yield by:
putting their BTC as collateral to borrow stablecoins,…
which they’d put into the tokenized funds to earn interest… .
This interest they’d use to gradually repay the loan…
while leaving a small remainder to themselves (Bitcoin never sold; modest yield earned).
Among all the things, for this to make sense, it would require the interest rate for such borrowers to be somewhat lower than the interest they get by putting that money in a tokenized fund.
And that is not the case today.
The minimal borrow interest rate I’ve seen in crypto is 5%, while the yield from tokenized funds is a little south of 4%, but perhaps someone figures this out by, say, bundling those two services together and hence offering a cheap borrow interest rate.
Maybe that’s a terrible idea. At least it sounds complicated and a bit anti-crypto, but, again, it’s no worse than HODLING a US dollar on-chain!
I’ll end this with a joke
Do you know how BlackRock named their tokenized fund?
BlackRock USD Institutional Digital Liquidity fund—the acronym is BUIDL.
BUIDL!
While we HODL US dollars on-chain, the biggest asset manager on earth helps us out by launching a fund called BUIDL.
This world is insane (read that in Kurt Vonnegut’s voice).