Being a long term Crypto user, it's interesting to see how the hypes have succeeded one after the other in the crypto world. Just to mention some of them and not necessarily in chronological order there were the ICO's, the NFT's, the games, DeFi, Meme coins, perpetuals and the last in this series seems to be RWA's.
What are RWA's
RWA stands for real world assets and to simplify, it's a tokenized real world 'thing'. This thing could be a stock of gold, real estates, treasury bonds, shares, art, insurance collateral. Most of the time these RWA's are emitted of companies. This company for example owns 100'000 Tesla shares and then emits 1'000'000 xTesla tokens. So each token is bascially backed by 0.1 real Tesla shares. When Tesla goes up in value so does the xTesla token. This token is tradable on the blockchain in a decentralised form.
For the company that emits the token, it's a great way to generate capital and to grow their position and also their income by for example hedging the underlying asset or by taking some fees on the way in or out. It's also important to notice that when we buy a xTesla token, it doesn't necessarily mean that we have the same rights than the shareholder. The shareholder has a right to touch dividends and also a right to vote at the general assembly. These rights are not always transferred to the token holders. So it's important to pay attention to that.
Why can it make sens to invest in RWA's?
As a crypto holder it can sometimes make sens to invest into a RWA because some of these RWA are yield generating. Let's taket the example here of a token called SyrupUSDC by Maple finance. This is a stable coin that is backed not only by a dollar collateral but by over collaterized lending of assets. This means that every syrup usdc is backed by yield providing lendings that generate a return. The return flows into the token value and since it's a stable coin, the price of the token can only go up.
It can therefore make sens to, instead of simply holding any stable coin, to hold SyrupUSDC because the token will generate a direct return that lies around 6% APY at the moment.
Price evolution of SyrupUSDC, source Coingecko
Using RWA's as collateral
Now if you have such a stable coin that increases in value, it could be a great asset to offer as collateral for a loan. On lending platforms like kamino you can use SyrupUSDC as collateral and borrow other stable coins against it. This can be an interesting but also risky strategy to increase the yield of your money.
Make sure you research before investing
Not all tokens that are RWA's are effectly real world assets and many of them have real drawbacks. There are some tokens for example like ALP on Solana that participate in the fees from the Adrena. It seems to provide 50% APR but the token is backed by a basket of tokens that fluctuate in value and therefore such an APR doesn't mean that you will effectively earn 50% with this token.
Then there are other such assets that are pretty illiquid and you might not be able to sell it once you hold it. Also not all these assets can be totally trusted and it's really important to gather as much information as possible before investing.
Future for RWA's ?
In the blockchain world in general, there is a lot of energy spent by chains to make the implementation of RWA's possible, especially for institutional investors. It will be interesting to see how this evolves in the future and in my opinion it's a great use case for blockchains to circumvent the banking sector.
With @ph1102, I'm running the @liotes project.
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