Real assets (RWA) have become a bright topic in the crypto asset (virtual currency) market in 2022 and 2023. As crypto prices slump and interest rates rise globally, investor focus shifts toward traditional off-chain yields (such as U.S. Treasuries) and away from crypto-native opportunities (such as yield farming). .
At the same time, the tokenization story has attracted interest from both crypto industry incumbents and external market participants (institutional asset managers, regulators, etc.).
Although there is momentum in this space, it is important to recognize that tokenized assets are still in their infancy. Fundamental questions remain unanswered.
For example, how can legal connections be ensured between tokens and corresponding off-chain assets? Does the RWA price sufficiently take into account the new risks brought about by blockchain technology (e.g. smart contracts)? Does buy-side demand justify current offerings in the tokenization market? What are the biggest opportunities and obstacles that RWA developers should be aware of in 2024?
Let us introduce five predictions made by the tokenized real asset platform “RWA.xyz”.
1. New stablecoin
Circle, which handles USD Coin (USDC), and Tether, which handles USDT, are major issuers of US dollar-linked stablecoins, and as of December 14, 2023, they have a total of $115 billion (approx. yen, equivalent to 144 yen to the dollar) is in circulation. This is arguably the best product-market fit among token issuers, and we expect to see a number of teams emerge in 2024 looking to emulate this success.
To challenge the market dominance of USDC and USDT, these teams will
- Using alternative forms of collateral (currencies, commodities, government bonds, etc.) to back stablecoins
- Provide additional incentives to users (such as yield generated by collateral)
- Introducing a novel compliance framework (such as a “blacklist” that prevents wallets with certain user characteristics from holding certain crypto assets)
By doing so, they will differentiate their products.
Even if stablecoins are launched one after another, the shares of USDC and USDT will not decline significantly through 2024. Emerging stablecoins will have to compete with USDC and USDT’s broad interoperability, network effects, and “blue-chip” status.
2. Tokenization of new assets
Tokenization of assets enables new investment opportunities by allowing ownership to be divided, providing programmable functionality, and enhancing traceability.
In 2024, we expect to see more issuers bringing tokenized alternative assets to market. Assets made investable through blockchain technology will be attractive to investors seeking uncorrelated and differentiated investments.
Markets that will attract increasing attention in 2024 are expected to include intellectual property rights (royalties, licenses, etc.), carbon credits, and trade receivables.
3. Shift to the buy side
Once upon a time, the concept of connecting asset originators (such as companies with assets to be tokenized) and capital providers using blockchain was novel. However, with RWA.xyz confirming at least 40 tokenization protocols capable of on-chain private credit transactions, this concept is no longer a differentiating factor.
Historically, many of these protocols have focused on developing originators without explicitly matching demand from the buy side.
Kevin Miao of BlockTower Credit said that BlockTower is an asset management company that has built an RWA strategy that is premised on the needs of capital providers (i.e. MakerDAO) rather than asset supply. It has said.
Blocktower has been successful with this strategy, with MakerDAO committing a total of $1.35 billion to Blocktower across multiple investment products.
Given this success, we expect the platform to prioritize the needs of capital providers over asset originators. The challenge is finding enough capital providers.
4. Regulatory attention and guidance
Early crypto asset regulations arose in response to the ICO boom of 2017-2018. Regulators around the world have launched novel, customized frameworks aimed at managing the peculiarities of crypto assets.
Tokenized assets generally were not subject to these regulations and existed in a regulatory gray area.
It was unclear for regulators how to simultaneously handle elements of tokens, which require their own regulations, and elements of off-chain assets, which are generally subject to existing financial laws.
As the tokenized asset market continues to develop, regulators have been asked to clarify how tokenized assets are governed. In 2023 alone, regulators in Singapore, the UK, Japan, Abu Dhabi, Hong Kong, and Luxembourg have provided guidance on tokenized assets.
This trend is expected to continue in 2024. Regulation will likely follow as tokenized asset markets become even more popular and tokens represent rights to more diverse assets.
5. Tokenization for institutional investors is heating up
The spate of news about multinational financial institutions launching tokenized products in 2023 shows that institutional investors’ interest in blockchain technology is increasing. This trend is expected to continue in 2024.
Institutional money managers will likely feel a sense of urgency to push forward with tokenization, perhaps driven by a desire to keep pace with early movers. 2024 could be the year in which digital bond issuance increases significantly in number as well as volume.
｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Original text: 5 Predictions for Real World Assets in 2024