Why Bringing Real-World Assets Onchain Is Important
At Variant, we’re quite optimistic about the future of real-world assets (RWAs) onchain. The Real-World Asset Summit this month illustrated that there are a lot of talented entrepreneurs building in RWAs, and capital allocators of many types are interested in the space.
Interestingly, though, in discussions with some investors and entrepreneurs, I’ve encountered a degree of skepticism about RWAs. The essence of the pushback is that there are limited benefits to bringing real-world assets onchain. To address that skepticism, I thought I’d lay out some of the benefits of tokenizing RWAs.
Broadening access to offchain assets using crypto rails
Tokenization makes it possible for more users to access offchain assets because crypto markets are global and accessible to anyone with an internet connection. Said differently, bringing assets onchain can reduce the barriers to asset ownership.
Bringing offchain yield to cryptonative organizations
Cryptonative organizations are a particularly important example of actors that can benefit from access to offchain assets but may not be able to access them through traditional distribution channels. DAOs without a legal entity, for example, cannot open banking and brokerage accounts. Tokenization of offchain assets enables DAOs to access investments that can enhance the performance of their treasuries; this potential for enhanced performance benefits DAO members and the projects they govern.
Enhancing the utility of offchain financial assets by connecting them with DeFi financial primitives
Tokenization also makes offchain assets composable with DeFi which can make the underlying assets more productive. To illustrate: holders may be able to earn a higher yield on their U.S. Treasuries by tokenizing them, providing them as collateral to a DeFi lending market, borrowing stablecoins, buying more Treasuries, and repeating this loop. This is just one, simple example; bringing offchain assets into DeFi unlocks more than levered carry trades. Combining tokenized offchain assets with cryptonative mechanisms and instruments allows for the creation of useful new products, including products that can only exist in crypto.
Improving the economics of stablecoins for users
Stablecoins have a current market capitalization greater than $100 billion, but little of the underlying yield on this capital ends up in the hands of stablecoin holders. Earning zero on their assets is a poor deal for users who, by committing their capital to stablecoins and using them in transactions, are directly responsible for making those stablecoins valuable. One promising approach to designing better products for users is to incorporate RWAs as a source of yield for stable-value tokens that pay a return to their holders.
Making onchain capital available to offchain borrowers
Offchain borrowers—both businesses and individuals—also benefit from RWAs, because crypto projects can increase borrowers’ access to capital. For example, Goldfinch facilitates debt investments into vehicles that provide capital to small and medium-sized enterprises in emerging markets. As the crypto economy grows and the value of onchain capital increases, protocols that connect “real world” borrowers with crypto capital can become an increasingly important source of financing in the offchain world.
Increasing the transparency and efficiency of offchain capital markets
Tokenization has the potential to improve the functioning of traditional capital markets by making trading, clearing, and settlement faster, cheaper, and less risky. These benefits may not get cryptonatives especially excited, but driving inefficiencies out of the offchain financial system can make financial services cheaper and better for everyday users.
Across a broad spectrum of assets, from tokenized U.S. Treasuries to private credit, it’s exciting to see the progress that startups are making in bringing the benefits of RWAs to users. If you’re building an RWA project or want to explore ideas in the space, I’d love to connect. I’m @gham1lt0n on X and my DMs are open.
This post is for general information purposes only. It does not constitute investment advice or a recommendation or solicitation to buy or sell any investment and should not be used in the evaluation of the merits of making any investment decision. It should not be relied upon for accounting, legal or tax advice or investment recommendations. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by Variant. While taken from sources believed to be reliable, Variant has not independently verified such information. Variant makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This post reflects the current opinions of the authors and is not made on behalf of Variant or its Clients and does not necessarily reflect the opinions of Variant, its General Partners, its affiliates, advisors or individuals associated with Variant. The opinions reflected herein are subject to change without being updated.
Variant is an investor in Goldfinch.