The previous article discussed the perspectives of Eastern and Western markets from a first-level viewpoint. Today, taking advantage of YZi Labs' official announcement of their investment in the Plume Network RWA platform, I would like to talk about the recent changes I have observed in the RWA sector.
This topic can be divided into four parts:
Does RWA really have application scenarios, or in other words, PMF (Product-Market Fit)?
Which RWA assets are suitable for on-chain, and which are not?
What were the past solutions, and what are the current solutions?
Have you sensed the recent trends in RWA over the past few months?
Let’s start with 1 - Does RWA really have application scenarios, or PMF? (Here, we first exclude the stablecoin sector of US Treasury bonds, as Usual, MKR, etc., have already found PMF.) Taking US stocks on-chain as an example, this is the most hotly debated topic on Twitter. Many people feel that putting US stocks on-chain is redundant; if one really wants to trade US stocks, they have their own channels. Any asset on-chain is likely to be more volatile than US stocks, so there’s no need to trade stocks on-chain.
I have a different opinion. I personally believe that US stocks on-chain do have their significance.
- From the channel perspective - indeed, most big players above A8 and A9 use securities platforms like Futu and FirstTrade for diversified investments in cryptocurrencies, stocks, gold, etc. However, I believe that most retail investors in the crypto space do not have US stock accounts. Trading US stocks on-chain can at least open up their purchasing channels without barriers.
From another angle, the total market capitalization of stablecoins like USDT/USDC is growing larger, which is another way for the dollar's hegemony to spread relative to traditional finance. If crypto, through stablecoins + Payfi + a smart wallet experience similar to Alipay, really moves towards mass adoption one day, do you think Americans would want the whole world to take over their US stocks? Would most people in other countries prefer to open accounts with various banks and brokers to buy their own struggling stocks, or would they rather invest in the world's largest economy's "Seven Sisters" with a simple click like shopping on Taobao?
- From the application scenario perspective, imagine this case: as a P junior, you recently made a profit of 100,000 USDT from Mubarak. You know that Tesla has recently halved, making it a good time to buy the dip, and you want to convert that 100,000 USDT into Tesla stock.
Even if you have a US stock account, you would first need to OTC that 100,000 USDT into fiat currency, send the fiat through a bank to the broker's account, and then start buying from the broker. This entire process typically takes 3-5 business days. (In 2017, before I got into Bitcoin, I bought US stocks in Australia through FirstTrade, and just the SWIFT transfer took 4-5 days, plus a hefty fee of dozens of dollars.) If one day Tesla rises and you want to sell it for BTC or USDT, you would have to go through this entire process again… Imagine if US stocks were on-chain, you could instantly convert your meme profits into Tesla stock. The reduction in friction costs is not just a small improvement; it’s a tenfold or hundredfold enhancement in experience.
Now let’s talk about 2 - Which RWA assets are suitable for on-chain?
Similarly, T-Bills, which have already proven themselves, are not under discussion. Other RWA assets actually depend on the specific target audience.
For the consumer side (To C), stocks are undoubtedly the most suitable. Most retail investors likely have not been exposed to primary private equity; even if you tokenize the equity of a non-listed company, very few people would be able to understand, buy, and hold it. Additionally, private credit collateral on platforms like Centrifuge, such as bridge loans in the real estate market or corporate receivables lending, are also not suitable for To C. The vast majority of C-end users should only be familiar with stocks. More scenarios for To C should involve opening up access to assets that users previously had no channels to purchase, which is a process from 0 to 1.
For the business side (To B), there are many more things that can be tokenized, but compared to the 0 to 1 process for To C, To B should be more about reducing friction from 1 to 100. Just as primary private equity already circulates among some institutions and high-net-worth investors, bridge loan collateral on Centrifuge is likely to be able to secure loans from banks, but the circulation process is relatively cumbersome and fraught with friction. Putting it on-chain can significantly enhance user experience and flow speed, similar to how Payfi enhances SWIFT.
Speaking of this, I recall a RWA project I discussed last year, whose parent company is a relatively top-ranked asset management institution in the US. They planned to issue tokens based on their clients' primary equity, such as Musk's SpaceX, on their own trading platform, allowing the tokens to circulate and change hands easily, ultimately settling in one go when SpaceX goes public. So for To B, aside from the limited target trading users being institutions and enterprises, the issuing entities are also relatively limited. Just like the example above, unless you already manage a large amount of SpaceX equity, if you are merely an STO or RWA platform, attracting SpaceX equity holders to issue tokens representing SpaceX equity involves significant friction in terms of resource cooperation, legal terms, and more.
There are also many intermediate cases that can be both To C and To B, such as IP on-chain like Story Protocol, or royalties from a novel, box office from a movie, or sales from a game being tokenized. These things feel like they are still in the early exploratory stage and need to be tested and falsified one by one. For instance, influence tokenization, FT failed, while Kaito was relatively successful. Celebrity time tokenization, http://Time.Fun was popular for a few days before disappearing… These things need to be approached gradually.
Next is 3 - What were the past solutions, and what are the current solutions?
Taking US stocks as an example - the past solutions were mainly based on synthetic assets, represented by SNX, Terra's Mirror, and GNS.
This path has basically been disproven at this point, and the aforementioned three platforms have long since delisted their synthetic US stock assets for two reasons: first, people are not very interested in "fake assets" synthesized from stablecoins or local currencies (like SNX). You can see the comparison of the volumes of BTC, WBTC, and SNX's SBTC. Synthetic assets, to be honest, are less reassuring than "mapped assets" like WBTC. Second, back when the SEC was frequently checking, even though synthetic assets are fake, the SEC doesn't need a reason to investigate you, so it’s better to avoid trouble, and these platforms have all delisted their synthetic US stocks.
Now with Trump in office and a new SEC chair, the regulation in this area is clearly much better than it was two years ago. Currently, there are two solutions for US stocks on-chain.
One is to follow the traditional compliant Broker-Dealer route, where the moment a user buys tokenized stocks on-chain, it triggers off-chain compliant brokers to perform corresponding operations in the US stock market. Essentially, it’s like placing orders on Robinhood, where Citadel "buys on behalf" in the stock market. The advantage is that the stocks you buy are "real stocks," or at least backed 1:1 by this broker, somewhat similar to WBTC for BTC. The downside is that trading hours are completely tied to the stock market, and you can't trade 24/7 like in crypto; you also need to establish trust in this broker or platform. Additionally, selling will trigger a taxation event, and US citizens may need to submit tax-related forms, while non-US citizens at least have to do KYC, which is quite cumbersome.
The second approach is Ondo Global Market's method. I looked through their documentation, and they initially wanted to follow the Broker-Dealer route but later changed to a stablecoin-like approach, allowing their cooperating or authorized issuers to directly issue tokenized stocks (just like Tether issues USDT and Circle issues USDC). The advantage seems to be more flexibility, potentially freeing them from the trading hours of US stocks, ultimately settling through the issuer at some point. The downside is that it likely can only target non-US users, and there’s a concern about whether different issuers will issue different CAs for the same stock (similar to how different bridges for USDC on new chains are incompatible), but these specific details are not documented, as the product is not set to launch until next year.
Finally, platforms like Plume feel more like a framework, incorporating KYC/AML, data storage/execution, consensus, ZKTLS verification, etc. Theoretically, this allows cooperating institutions to issue various tokenized RWA assets, which brings us back to the previous topic of "which assets are suitable for on-chain," so I won’t elaborate further.
Lastly, let’s discuss 4 - Have you sensed the recent trends in RWA over the past few months?
If you’ve been paying attention, the wind for RWA has been quite strong in the past two months. Here are a few "news" items I’ve observed:
As mentioned, Ondo plans to launch Ondo Global Market, an on-chain stock market, by the end of this year or next year, and they have been closely collaborating with Trump’s WLFI.
Sui has also been cozying up to WLFI recently.
Frax is actively embracing Cedefi and recently launched frxUSD in collaboration with BlackRock + Superstate.
Ethena today released a new product, Converge, focusing on what they believe are two of the most important scenarios in blockchain - storage and settlement for stablecoins and tokenized assets.
AAVE plans to issue a new coin, Horizen, which has caused a stir in the community, prompting Stani to clarify - "The Horizen plan aims to fill the current gap in Aave's RWA business segment, with the expectation of surpassing Aave's current business line revenue in five years."
The South Korean Financial Services Commission plans to release a statement in February 2025, intending to allow corporate entities to conduct virtual asset transactions in phases. I learned from friends in the Korean crypto space that South Korea may restart plans for STO (the previous term for RWA). You can imagine, allowing "corporate entities to trade virtual assets" is definitely not about letting companies speculate on coins; it’s certainly aimed at tokenizing some real financial assets into "virtual assets" for circulation between companies.
YZi Labs today officially announced their investment in the recently popular Plume Network RWA platform.
These pieces of news create a momentum that we cannot ignore. Therefore, my current view on the next main track, akin to Circle, is PayFI + RWA + Web2.5-like consumer apps. As for AI + Crypto, I can only say there is hope, and I am still discussing and observing. After I finish writing the next article "Some Noteworthy Aspects of ETH and Solana," I will write a separate piece on my recent thoughts regarding AI + Crypto, as the fourth part to conclude this comprehensive collection.
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