The next leg of the crypto bull market won’t be triggered by the bitcoin halving or approval of an Ethereum ETF; it will be led by real-world assets.
The underlying thesis for real-world assets (RWA) is that any asset can be tokenized and traded on a blockchain. This includes both relatively straightforward things like stocks, commodities, and national currencies and more complex instruments like real-estate derivatives, government treasuries, and corporate bonds.
Boston Consulting Group estimates that asset tokenization could reach $16 trillion by 2030, brought on by approximately $20 billion worth of annual savings thanks to the efficiencies provided by blockchains. Several firms have already tokenized the U.S. dollar, with brokerage firm Bernstein projecting that the U.S. stablecoin market will reach $3 trillion by 2028.
The reasons for mass tokenization are clear. Blockchains provide a highly transparent and secure way to trade assets 24/7, greatly reducing counterparty risk while improving capital efficiency. This means a drastic reduction in administrative and security costs, all the while improving the productivity of assets. As such, it’s the natural evolution for financial markets as they migrate into the digital-native era.
Smart contracts also introduce the notion of “smart money,” whereby assets can be programmed to do things the same way a computer application can. For instance, enabling the cross-collateralization of multiple debt positions and automatic deleveraging of at-risk positions will help improve capital efficiency and reduce risk.
Central banks worldwide are pursuing research on central bank digital currencies, with claims that all G20 members except Argentina are in the advanced stages of research. Accordingly, firms like BlackRock are looking to get ahead of the market and position themselves as the leaders of this next generation of finance.
BlackRock and RWAs
BlackRock plunged headfirst into the RWA narrative this year with the launch of BUIDL, the BlackRock USD Institutional Digital Liquidity Fund. BUIDL is an ERC20 token hosted on Ethereum that exposes investors to U.S.-dollar yield generated by short-dated U.S. treasuries.
As a tokenized fund, buyers simply purchase the BUIDL token. Dividends are then distributed to holders as additional tokens every month, and investors enjoy round-the-clock settlement and access to liquidity.
There are also plans to let users enter and exit the pool using USDC, the world’s second-largest retail stablecoin. This would effectively allow investors to jump from the walled garden of BUIDL — which is tightly restricted to approved investors and follows SEC rules — into the “Wild West” of decentralized finance (DeFi) tokens and apps.
Ondo Finance ($ONDO) is a DeFi platform with strong ties to Wall Street that is looking to leverage the partnership between BlackRock and Circle (the issuer of USDC). In fact, Ondo was the first to test the new BUIDL-USDC bridge, which it hopes to connect to its suite of on-chain products like OUSG (a fund similar to BUIDL).
According to Ondo CEO Nathan Allman, “We are using it to power instant 24/7/365 redemptions of OUSG into USDC.”
Three Tokens For Investors Bullish on RWAs
Ondo Finance ($ONDO)
In March, Ondo Finance (ONDO) made waves when it deposited $95 million into BlackRock’s BUIDL fund. The investment was made using part of Ondo’s flagship Short-Term U.S. Government Treasuries fund (OUSG). OUSG is a tokenized fund that offers liquid exposure to short-term U.S. Treasuries.
Similar to BUIDL, investors can enjoy the benefit of low-risk yield from U.S. Treasuries but with the convenience of entering and exiting their positions through the OUSG token. Incorporating BUIDL into the fund is a clever move by Ondo, effectively allowing the firm to leverage BlackRock’s extensive institutional infrastructure, security, market reach, and, perhaps above all, its reputation.
Since integrating with BUIDL, Ondo’s token $ONDO has increased from 20 cents on January 21 to 80 cents today. This growth has been aided by the launch of USDY, which is Ondo’s stablecoin for the retail market.
Similar to OUSG, it’s a stablecoin with built-in yield generated by short-term U.S. Treasuries. However, unlike OUSG, which is only available to accredited investors, USDY is available to anyone in the Ethereum, Solana and Cosmos ecosystems.
At 5.2%, it offers a slightly higher yield than OUSG and has twice the total value locked, with $208 million invested as of April 22, 2024.
Given that Ondo’s products closely resemble BlackRock’s own RWA strategies, investors looking to invest in the RWA narrative may want to look further at the $ONDO token as a proxy investment — or simply enjoy the Treasury bill-based yield offered by USDY.
Oracles – Chainlink ($LINK) and Pyth Network ($PYTH)
Real-world assets hosted on a blockchain need a reliable data feed from “the real world.” This includes things like real-time price feeds from stock exchanges, exchange rates of national currencies, commodity prices, etc. This is where oracles come in.
Oracles are essentially data feeds that channel data from external data sources into blockchain apps reliably and securely. This allows DeFi applications like decentralized exchanges, money markets and lending platforms to reliably integrate real-world assets like stablecoins or stock prices into their products.
Reliability is key here. If a price oracle diverges, it can cause chaos for the markets and result in extensive losses. According to Chainalysis, DeFi protocols lost $403 million in 2022 due to oracle attacks.
To help ensure reliability, oracles use incentivized token models which require users to stake (collateralize) assets in return for the ability to provide a data feed. In return, they are rewarded with newly minted tokens. However if their data is unreliable, then they stand to lose a portion of their staked assets.
Chainlink ($LINK) has cemented itself as the industry’s most reliable oracle, securing around $22 billion worth of assets as of April 23, according to data from DeFiLlama.
Chainlink is also looking to expand its product suite by adding cross-chain messaging infrastructure called CCIP, which allows for the improved transfer of assets across different blockchains and ecosystems.
A partnership with Australia’s ANZ bank explored how CCIP could transfer real-world assets between private and public networks. This demonstrates how Chainlink uses CCIP to build underlying infrastructure for real-world-asset tokenization and adoption by major financial institutions.
Chainlink’s native LINK token has been regarded as one of the cryptocurrencies with the most potential for several years now, given the way it is cemented within the DeFi ecosystem. The market cap of Chainlink now hovers a little over $9 billion, making it one of the top 20 cryptocurrencies by market cap, although perhaps a little pricey for investors looking for bigger growth opportunities.
Recently, Pyth Network has emerged as a reliable alternative to Chainlink. Pyth first gained popularity on Solana but has since emerged on other networks like Ethereum and Cosmos.
The Pyth Network currently sits at a market cap of around $1 billion. This makes $PYTH an attractive option for anyone who is looking to get increased exposure to oracles and RWAs but is put off by the high valuation of $LINK.
