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| Jul 31, 2024

Connecting TradFi & DeFi with RWA Protocols

Connecting TradFi & DeFi with RWA Protocols

Overview of RWA Protocols

Real-World Asset (RWA) protocols are revolutionizing decentralized finance (DeFi). By enabling non-blockchain projects to tokenize and integrate tangible assets into blockchain networks, they forge a seamless link between traditional finance (TradFi) and DeFi, unlocking new investment opportunities for crypto investors.

Why RWA Protocols Are Compelling

Protocols are gaining attention for addressing a critical gap in the crypto landscape – limited investment diversity. While traditional finance offers a broad array of asset classes like stocks, bonds, real estate, and commodities, the crypto ecosystem has largely been restricted to digital assets like cryptocurrencies and tokens. RWA protocols bridge this gap by bringing tangible assets to the blockchain, allowing crypto investors to diversify their portfolios beyond digital assets. This hedges risk and leverages the appreciation of real-world assets, boosting portfolio performance with previously inaccessible asset classes within the DeFi space. This democratization of asset ownership is a key driver behind the growth of RWA protocols.

The rapid adoption of RWA Protocols

The demand for RWA protocols has surged significantly in 2024. The total value locked (TVL) in these protocols reached nearly $8 billion, marking a 60% increase since February. This figure, reported by Messari, excludes fiat-backed stablecoins and encompasses various sectors such as carry trade protocols, underwriting, yield-bearing stablecoins, commodities, securities, and real estate tokenization​​​ (1)​. In fact, a survey conducted by PwC revealed that 65% of institutional investors are planning to increase their exposure to real-world assets through blockchain technology in the next five years (2).

TVL Graph

Here are several RWA projects that have driven this growth:

  • Ondo Finance: Ondo’s TVL increased from $221 million to $500 million in the first half of 2024, reflecting strong growth in tokenized treasury products (3)​​.
  • BlackRock’s Institutional Digital Liquidity Fund (BUIDL): This fund has become the world’s largest tokenized treasury fund, contributing significantly to the overall market growth (4)​​.
  • Propy: The real estate tokenization protocol Propy has seen substantial user growth, highlighting the expanding adoption of RWAs (5)​​.
  • Centrifuge: Centrifuge’s Tinlake protocol has reached a TVL of $230 million, facilitating hundreds of millions in financing across various industries​ (6)​.
  • Securitize: Securitize’s platform has a reported TVL of $1.29 billion in tokenized U.S. treasuries and bonds, driven by its compliance and regulatory adherence​ (7).
  • Goldfinch: Goldfinch’s loan book hit $100 million, focusing on lending in developing economies like Kenya, Nigeria, and Uganda ​(8)​.
  • Maple Finance: Maple’s TVL increased by 123% in the second quarter, hitting an all-time high of $230 million. The protocol’s quarterly revenue also jumped by 39% (9).

Conclusion

Real-World Asset (RWA) protocols are not just a technological advancement but a pivotal development in the evolution of decentralized finance. By enabling the tokenization of tangible assets, they create a bridge to traditional finance that offers broad opportunity. As the financial world continues to embrace blockchain, these RWA protocols stand at the forefront, driving innovation and shaping the future of investment.

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