RWAs: Diversification

Janak9955

Stablecoins are not only the first but also the most prominent category of RWAs (Real World Assets). Other asset classes are also making their way onto the blockchain. Currently, there is $3 trillion (approximately 1% of global wealth) stored on the blockchain. This is another astonishing figure. Holders of this wealth can do two things with it. They can simply use it as a store of value or use it to exchange for other things.

So far in the history of cryptocurrencies, when they exchange cryptocurrencies, they mostly swap them for another cryptocurrency, hoping to sell at a higher price or generate some returns. The problem with these cryptocurrencies is that they are highly correlated and highly volatile. As the cryptocurrency asset class matures relative to other asset classes, diversification is inevitable.

Diversification is a simple but proven need. The world's largest hedge fund, Bridgewater, has built its entire philosophy (All Weather Portfolio) on this idea: combining unrelated sources of income can produce higher risk-adjusted returns. They have grown to become the largest asset management company in the hedge fund industry, proving investors' demand for diversification. Similarly, the demand for BTC ETFs is strong because they provide an unrelated source of income for TradFi asset allocators.

RWAs are the crypto natives' answer to the demand for diversification, enabling them to access new sources of income that are unrelated and less volatile. RWAs for crypto natives are like BTC ETFs for TradFi asset allocators.

In 2023, MakerDAO grew its RWA portfolio from almost zero to $4 billion in less than a year, which amazed us. Today, most of it is in U.S. Treasury bonds. Recently, BlackRock and Coinbase jointly launched a $100 million tokenization plan for U.S. Treasury bonds. Ondo holds $200 million in U.S. Treasury bonds. Franklin Templeton also has a $300 million on-chain U.S. Treasury bond fund. The race is on.

Compared to $150 billion in stablecoins, $4 billion may seem like small change. But this is mainly because stablecoins have been around for nearly a decade. On the other hand, by definition, U.S. Treasury bonds only became attractive in the post-zero interest rate era that started two years ago. Users need more time to adapt to the reliability of new products. Do they track indices correctly? Is the creation and redemption process seamless? Is there enough liquidity in the secondary market?

Following U.S. Treasury bonds, the next step is U.S. stocks and U.S. real estate. Legal challenges are real, but once these issues are resolved, there is no fundamental reason to suppress demand for tokenized U.S. stocks and U.S. real estate (similar to U.S. Treasury bonds). We expect that most of the demand for U.S. stocks and real estate will come from overseas. The international demand for U.S. stocks and real estate has not been met, primarily due to capital controls, difficulties in creating brokerage accounts, and friction in global capital flows. In Russia, ordinary people are prohibited from participating in the U.S. market due to the Ukraine war. If U.S. assets can be freely traded on the blockchain as RWAs, all international investors need to do is find a way to convert fiat into cryptocurrencies. No more financial mazes.

Kapil334

Let's learn about it.

Yamini003

This is something worth looking into to see what kind of diversification there is.

Ritu13

It's also worth looking into this diversification.