Real World Assets (RWA) in Cryptocurrency: Opportunities and Challenges

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Real World Assets (RWA) in Cryptocurrency: Opportunities and Challenges

Real world assets (RWA), or traditional financial assets that have been tokenized, could be a significant trend in the cryptocurrency market in 2023. RWA includes stocks, bonds, mortgages, and other assets. The adoption of RWA presents opportunities for the cryptocurrency market, but it also raises several questions about how to adopt RWA, which existing protocols are working on it, and what challenges need to be addressed. 

What is the value of RWA?

The adoption of real world assets (RWA) in the cryptocurrency market could potentially increase the volume of cryptocurrency assets as it could replicate the size of a traditional financial market. This could lead to greater volume of crypto assets through various portfolio, basket, and hedging strategies.

What products are RWA?

Real world assets (RWA) in decentralized finance (DeFi) include traditional financial assets that have been tokenized and can be traded or invested in. One example of an RWA product is a decentralized strategy vault that replicates US treasury bills. By staking their assets in the vault, users can earn returns that are similar to t-bill returns. There are several protocols working on RWA, each with its own focus. Some examples include:

  • Ostium : This protocol is focused on synthetic commodities, or digital assets that are designed to track the price of real-world assets.
  • Goldfinch: This protocol creates pools of credits, which are used to fund projects or investments. It is currently the largest RWA protocol.

What could be problematic for the RWA?

There are several potential challenges associated with the adoption of real world assets (RWA). These challenges include:

  1. Collateral: Scalability and accessibility of collateral can be issues. In a scenario of high demand or illiquidity, the actions of token buyers could affect the market. In traditional finance (cefi), there are regulations in place to address market manipulation, but it is unclear how these regulations would apply in DeFi. 

  2. Regulation: Some assets may only be available in certain regions, and the collateral holdings corporation is often a centralized entity. This could create regulatory risks if authorities, such as the CFTC, find that assets are being sold in areas where they are not authorized. 

  3. Taxation: There may be issues with double taxation and low yields in RWA investments. For example, a 4% yield on US treasury bills could be subject to taxes both at the collateral fund level and at the individual investor level, resulting in yields of 1-2%. This may not be as attractive as yield farming in DeFi.
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