The up – and-coming real-world assets
Real-world assets have become the talk of the town in the crypto world, particularly as they bridge the highly attractive US Treasuries with the blockchain technology. The sub-category has seen spectacular growth since the beginning of the year, outsized to that of the asset class, with a handful of the world’s largest asset managers vouching for it. Innovation continues to grow within the asset class. Overall, for digital assets, we believe that headwinds from monetary tightening should start fading, as we do not expect further interest rate increases from the US Federal Reserve.
The increasing prospects of a spot Bitcoin exchange-traded fund (ETF) approval in the United States, the noise around the Binance case, and the regulators’ positioning, are not everything to crypto. Fundamentals have been picking up as well, volumes have increased and so has network activity. Interestingly, network activity has been converging towards niche sub-categories at the intersections of decentralised finance and tokenisation. Tokenisation, in simple terms, enables not only the digitisation of several kinds of assets, but also brings these ‘on-chain’, taking advantage of the composability that blockchains enable. With that, one of the fastest-growing applications within the smart contracts space has been on real-world assets (RWAs). Even though the name might sound misleading, RWAs are an attempt to bring the functionality, optionality, and security of traditional financial assets to blockchain users.
By the way, this is nothing new, as stablecoins have been intending to do so for a while. The well-known and weathered stablecoins, independent of being asset-backed or algorithmic, attempt to track the prices of some of the world’s reserve currencies, primarily the US dollar. As of today, stablecoins represent around USD130bn in market capitalisation, but they are not what is drawing the most attention lately in terms of RWAs, as the areas of tokenised treasuries and private credit have been some of the fastest growing. The rationale behind tokenised treasuries is clear, the high-yield US short-term Treasuries at the lower bounds of risk were clearly more attractive to some on-chain financiers than risky positions in a 2023 full of macroeconomic headwinds.
The asset category grew almost eight-fold on a year-to-date basis, reaching close to USD800m, with the issuers behind these assets being none other than some of the largest asset managers, which are very present in the spot Bitcoin ETF filings. Overall, for digital assets, we believe that headwinds from monetary tightening should start fading, as we do not expect further interest rate increases from the US Federal Reserve. At the same time, we believe that innovation has not left the space, and the rapid adaptation the space has had signals its potential.
Note: Investments in digital assets are exposed to elevated risk of fraud and loss and to price fluctuations.
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