Earnings-type Physical Assets on the Blockchain: US Bonds Drive Rise, Native User Demand Rises

There are various physical assets on the Blockchain ( RWA ), including real estate, private credit, and government bonds. Although certain RWAs, such as stablecoins, have existed for many years, other types of RWAs, such as U.S. Treasury bonds, have emerged recently with rising interest rates.

This article will briefly introduce the following types of income-generating RWA:

• Real Estate
• Private Credit
• National debt

RWA is created by the issuer through acquiring real-world assets, tokenizing them on-chain, and distributing tokens to users. Without the issuer, RWA cannot exist on-chain.

Some major RWA issuers include:

• Centrifuge: the largest on-chain private credit issuer, with active issued RWA valued at $238 million.
• Franklin Templeton: A traditional financial institution issuing tokenized government bonds, actively issuing RWA worth $310 million.
• Wisdom Tree: The institutional capital market company that issues government bond tracking funds has actively issued RWA worth 11 million USD.

These issuers highlight how off-chain entities endorse on-chain RWA. Franklin Templeton and WisdomTree are both seasoned traditional financial companies, with core businesses unrelated to cryptocurrency. They have begun to experiment with RWA, aiming to meet institutional client needs by tokenizing traditional financial instruments. This attempt is expected to attract a large number of new users into the cryptocurrency space.

Yield-bearing RWA rise

As of September 30, the market value of RWA reached $2.49 billion, a decrease of 9.6% from the peak of $2.75 billion on April 19. Although RWA related to government bonds experienced strong growth, the issuance of private credit has significantly decreased active loans over the past 18 months, resulting in the RWA market value being below its historical high.

In the first three quarters of this year, the value of non-stablecoin RWAs rose by $1.05 billion, of which $855.7 million came from government bonds and other bonds, real estate, and private credit.

Private Credit

Private credit is a form of financing provided by non-bank institutions. After the 2008 financial crisis, the private credit market grew significantly due to increased bank regulation. As of August 2023, the global private credit loan market is valued at $1.5 trillion.

In the first three quarters of this year, the active value of on-chain private credit loans rose by $210.5 million (84%). Most of the growth (74%) came from Centrifuge, which saw its outstanding loan balance increase by $155.7 million. Clearpool grew the fastest, with a loan balance increase of 966%, reaching $23.96 million.

Although there was a rise in 2023, the total value of on-chain private credit loans is still 70% lower than the historical high of $1.54 billion on May 15, 2022. After the Federal Reserve's significant interest rate hikes, active loans have decreased sharply.

The on-chain private loan yield is significantly higher than that of DeFi lending protocols such as Aave and Compound. In the first three quarters of this year, the average daily interest rate spread for both was 7.7%. However, private loans may not have the same level of over-collateralization as DeFi lending protocols.

Real Estate

Real estate is a tangible asset class, including residential, commercial buildings, and land. In 2023, real estate is the largest asset class in the world, valued at approximately 613 trillion dollars.

In the first three quarters of this year, the total on-chain value of real estate was $178 million. RealT tokens are the largest issuer, accounting for 49% market share. Tangible has seen the strongest rise, increasing from $100,000 to $64 million.

government bonds and other bonds

U.S. Treasury bonds are considered the safest and most reliable income assets. In 2022, the global bond market was valued at $133 trillion.

In the first three quarters of this year, the value of tokenized government bonds and other bonds rose by $557.05 million. Ondo Finance, Franklin Templeton, and Matrixdock are the top three issuers, totaling $572.05 million in assets, accounting for 85%, with $468.5 million issued this year.

Frigg.eco issues bonds related to sustainable infrastructure developers, more like corporate bonds. stUSDT is another tokenized treasury asset with a market value of about $1.8 billion, but it has recently faced criticism for a lack of transparency.

For nearly 18 months, short-term U.S. Treasury yields have been higher than stablecoin deposit yields. This year, the average daily interest rate spread between the two is about 3%. The average interest rate spread between AAA-rated corporate bonds and on-chain stablecoin yields is 2.7%.

Prospect

The demand for returns from native crypto users has driven the rise of on-chain RWA. This year, approximately 82% of the newly added value of RWA comes from income-generating RWA. The share of income-generating RWA in the total RWA market value has increased from 31% at the beginning of the year to 53%.

From 2021 to 2023, the shift in the Federal Reserve's monetary policy created new demand for RWA. Most RWA users are crypto-native users rather than new users or traditional investors. The average user address interacting with RWA tokens was created before these assets.

As of the end of August, 3,232 unique addresses hold major RWA assets. The average address age is 882 days, while the average age of RWA assets is 375 days. 20% of addresses began on-chain trading in 2023 and more than three years ago with the rise of RWA.

Although many RWAs are issued on-chain, users still need to complete verifications such as KYC/AML to interact. RWAs have unique risks, such as the default of private credit borrowers potentially leading to losses for on-chain depositors.

The Federal Reserve's policy is a key factor influencing the development of RWA. The increase in interest rates makes off-chain returns more attractive and also changes the most valuable types of RWA.

Overall, the rise of RWA is primarily driven by the demand from native crypto users, but the participation of traditional financial companies shows the potential to attract new users. In 2023, RWA momentum is strong, with many asset valuations approaching new highs. Changes in the macro environment and user demand will continue to influence the development of this field.