Why map real-world assets to the crypto world?
Who would be interested in buying these real-world assets mapped to the crypto world?
My viewpoint is that even if there is motivation to map real-world assets to the crypto world, there will be limited demand and funds from those willing to purchase these mapped assets.
If there is limited demand and funding for these mapped assets, does it mean there are no opportunities in this space?
To answer this question, we need to explore the business model within this field.
The basic business model in this space is as follows:
Step 1: Select a real-world asset and determine its pricing.
Step 2: Issue tokens on the blockchain that are pegged to the real-world asset.
Step 3: Use oracle services to monitor the off-chain price and fluctuations of the asset, continuously updating the token's price and fluctuations.
Step 4: Develop various financial products and trading mechanisms based on the set oracle and mapped asset prices (e.g., fractional ownership, spot trading, futures, leverage, etc.).
After understanding this model, many readers may realize that it is essentially a traditional business model combined with well-established DeFi models and tools.
In fact, this model has already been implemented successfully in the crypto world, with MakerDAO being a perfect example. MakerDAO's issuance of DAI through the collateralization of USDC, a centralized asset (which I consider equivalent to real-world US dollars), embodies this model. Additionally, the founder of MakerDAO has launched a project that tokenizes US government debt, which further showcases the application of this model.
These concepts are not new.
Personally, I find limited interest at this point because it lacks imaginative space and seems rather dull.
However, let's continue to explore this model in depth.
Each step involves key players and participants. To identify opportunities as retail investors, we need to understand what these key players are doing in each step and how we can participate.
Step 1 involves pricing the asset.
As pricing real-world assets is involved, the pricing power undoubtedly lies in centralized institutions. Therefore, the biggest beneficiaries in this step are centralized institutions.
Here, retail investors have limited opportunities.
Step 2 involves token issuance.
Token issuance refers to tokenizing real-world assets on the blockchain, creating tokens that represent equivalent value to the real-world assets.
This step is controlled by the project team, and our opportunity lies in purchasing these tokens tied to real-world assets. However, as I expressed in a previous article, the appeal of such assets is relatively low compared to crypto assets.
Hence, I personally have limited interest in these tokens.
However, there is one aspect worth noting: in this business model, I believe that assets with substantial scale and consensus in the real world have the best chances of success. Such assets, when tokenized and brought onto the blockchain, are more likely to attract liquidity.
Mapping assets with limited scale and low consensus to the blockchain is not significant. Previous cases of tokenizing tea or rosewood failed partly for this reason.
To map large-scale assets with strong consensus onto the blockchain, who can do it better than traditional centralized institutions, especially traditional financial and credit institutions?
Therefore, for such projects to succeed, they inevitably need a deep reliance on centralized institutions.
Thus, for retail investors, there are limited opportunities in this step.
Step 3 involves the use of oracles.
This tool already exists in the current crypto world, with Chainlink being a prominent provider. It is highly likely that a new wave of oracles will emerge in this market because the "imaginative" space for them is vast.
For retail investors, our opportunity lies in buying the tokens of these oracle services. However, what kind of returns can we expect from holding these tokens?
Looking at Chainlink, we can see that the utility of its tokens is somewhat limited. The token utility issue is similar to that of Uniswap.
Even if these oracle tokens generate good returns, if we cannot share in those returns due to regulatory or other reasons, then what is the significance of holding these tokens?
Step 4 involves DeFi.
Once real-world assets are mapped to the crypto world and become tokens, we can trade these tokens on DEXs, use them as collateral for lending applications, or utilize them in stablecoin projects to generate stablecoins, among a range of other possibilities.
Corresponding to these use cases, a multitude of projects will emerge, each with its own governance token.
This step is familiar to us as crypto users.
In this step, retail investors have the opportunity to buy the governance tokens of these projects and derive returns from holding the tokens.
So, let's address the remaining two questions from yesterday:
Who would be interested in buying these mapped assets?
Why would people want to buy these mapped assets?
After examining these four steps, I believe that retail investors may not be particularly interested in purchasing the mapped tokenized real-world assets. Instead, they may be more interested in buying the governance tokens issued by projects based on these mapped assets, with the expectation of earning returns from these governance tokens.
However, how much return can we expect from these governance tokens?
If we look at the returns we have achieved from existing DeFi tokens, apart from the initial expectations and potential overshot due to luck or airdrops, there seem to be no solid, stable, and consistent returns.
Personally, I believe that the most promising returns from these DeFi projects are derived from governance tokens. However, the actual distribution of these returns to governance token holders has been limited due to regulation or other reasons.
Therefore, the overall benefits for retail investors in DeFi seem relatively limited.
Considering all these factors, the RWA space may not offer significant opportunities for retail investors.
Furthermore, even if there is "tremendous" "imaginative" space, it belongs to centralized institutions. Technically speaking, moving massively large real-world assets into the crypto world is entirely feasible. This space is ample enough for them to tell captivating stories and for centralized institutions to play their games.