As a seasoned researcher with a background in finance and fintech, I find the surge of tokenized real-world assets (RWAs) beyond intriguing. Having closely observed the evolution of blockchain technology and its potential to disrupt traditional finance, this development is another testament to the transformative power of decentralization.
The value of tokens representing real-world assets (excluding stablecoins) has soared beyond $12 billion, as reported by Binance.
As a crypto investor, I’ve noticed a substantial surge in our digital asset market, primarily fueled by the rise of tokenized U.S. Treasuries. Major financial titans like BlackRock and Franklin Templeton have been actively involved in this growth, as per a Binance Research report published on September 13.
This total excludes the $175 billion stablecoin market, which remains separate from RWAs.
Breaking down traditionally hard-to-trade assets, such as real estate, government bonds, and commodities, into smaller parts (fractions) makes them more approachable for a larger number of investors. This process also simplifies tasks like record maintenance and transaction settlement, which could revolutionize the way traditional finance handles asset trading and management.
The market value of tokenized U.S. Treasury funds alone has exceeded $2.2 billion, according to the report.
As a crypto investor, I’m thrilled to note that BlackRock’s BUILD Treasury product has surged ahead, amassing almost $520 million in assets, with Franklin Templeton’s FBOXX trailing closely behind at $434 million. This remarkable milestone was reached in under five months following the market crossing the $1 billion mark in late March, as per the latest report.
U.S interest rates
The analysis revealed that high U.S. interest rates have significantly contributed to the growth of tokenized Treasury bonds, as they provide enticing yields that draw investors searching for reliable income.
Nevertheless, the Binance Research report highlights that potential decreases in interest rates by the Federal Reserve might diminish the allure of income-generating assets such as tokenized Treasuries. Still, they suggest that substantial rate drops would be required to significantly influence demand.
Other forms of RWAs
Apart from Treasuries, the Binance Research report delved into various sectors of the on-chain RWA market beyond government bonds, specifically private credit, digital assets representing commodities, and virtual property in real estate.
The tokenized private credit market is valued at approximately $9 billion, but it still represents only 0.4% of the $2.1 trillion global private credit market in 2023.
Despite the fact that the on-chain private credit market is currently valued at just about 0.4% of its total size, which stands at approximately $9 billion, it has shown significant growth and the number of active loans has increased by around 56% over the past year.
Binance Research
Risks of RWAs
Despite this growth, Binance Research highlighted several risks associated with RWAs.
Initially, it’s worth noting that Regulated Widely Adopted (RWA) protocols tend to favor centralized structures due to regulatory obligations, sparking worries about control and visibility. Furthermore, these protocols heavily depend on external intermediaries for asset management, which introduces additional levels of reliance on third parties.
The complexity of these systems can sometimes outweigh the yields they generate, the report noted, leading to questions about whether the returns justify the operational challenges.
Furthermore, maintaining privacy and adhering to regulations continue to be significant concerns. Zero-knowledge technology is proving to be an effective solution that can strike a balance between fulfilling regulatory obligations and preserving user independence.
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2024-09-13 21:46