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Tokenization of RWA: Bridging the huge gap between the crypto market and traditional finance.

Huobi Research

2023-06-16 15:00

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Original title: "RWA Tokenization: The Next Cryptographic Wealth Code?"

Source: Huobi Research

Introduction

The blockchain brings trust, liquidity, transparency, security, efficiency, and innovation. However, it seems difficult for the cryptocurrency industry to find new growth points in the bear market. The industry urgently needs a new narrative to carry a new track. Tokenization of RWA can bridge the gap between traditional finance and crypto finance, carrying trillions of dollars in asset markets. For the blockchain, RWA tokenization has been tried since its inception, but has been hindered by multiple factors such as technology, regulation, and market. Today, the RWA track is being discussed again, and many institutions are beginning to lay out their plans. The RWA project has shown a variety of characteristics, mainly DeFi, high returns, and high risks, and has gradually entered the public's view. However, the overall project still faces problems such as poor liquidity, early stages, and lack of price discovery. Whether the RWA track can erupt in the next few years also depends on the development of infrastructure and the improvement of regulatory systems. This research report also proposes that token standardization and compliance are the necessary paths for the development of the RWA track. Despite the multiple challenges facing the RWA track, the industry is always moving forward. We have seen many innovative projects, especially those based on US bonds and stocks, financing for small and medium-sized enterprises, and physical assets. These projects are mainly characterized by: 1. Cooperation with traditional financial institutions; 2. Maximizing the project and token returns; 3. Introducing more legal third-party participation. These characteristics can partially solve the problems of RWA tokenization, including regulation, centralization, on-chain and off-chain identities, and asset valuation. We look forward to more projects enriching the RWA track in the future.

Table of Contents

1. Brewing Narrative

2. The Past and Present of RWA

2.1 RWA Track Status

2.2 Asset Tokenization Advantages

3. RWA's prerequisites for track outbreak

3.1 Diversification of Token Standards

3.2 Strict Review System

4. Represents project analysis.

4.1 US Treasury Bond Concept

（1）MakerDAO

（2）Ondo Finance

（3）Maple Finance

4.2 TradFi

（1）Polytrade

（2）Defactor

4.3 Borrowing and Lending

（1）Goldfinch

（2）Centrifuge

（3）Clearpool

4.4 Public Fixed Income

（1）Swarm Markets

（2）Acquire.Fi

4.5 Summary of Financial Products

4.6 Real Estate Concept

（1）RealT

（2）Tangible

（3）LABS Group

4.7 Carbon Credit Concept

（1）Toucan

（2）Flowcarbon

（3）PERL.eco

4.8 Vertical Public Chain

（1）Polymesh

（2）MANTRA Chain

（3）Realio Network

5. Is the end of public chains the consortium chain?

6. Risk and Challenge

正在酝酿的叙事

translates to

Ongoing Narrative in the Making

After more than a year of bear market, the entire cryptocurrency market has suffered a significant decline in market capitalization, with funds continuously flowing out and on-chain activities dwindling. DeFi yields are no longer attractive, and there is severe infighting within the industry. It is difficult to imagine what will trigger the next bull market in the cryptocurrency industry. There is still a significant gap between the cryptocurrency market and traditional financial markets. However, we can also see enormous business opportunities from some of the explosive events that occurred during the bear market.

It can be said that the main reason for the bankruptcy of some large institutions in 2022 is the use of counterfeit currency for financing and lending. When the counterfeit currency experienced a sharp decline in the bear market, it further exacerbated the liquidation of loans, and the death spiral began. We see that it was institutions and credit that drove the bull market in 2021, and it was also they who facilitated the bear market in 2022. In fact, credit has driven the development of businesses worth trillions of dollars and most of the global economy. The potential it brings is enormous. Currently, more and more protocols are entering traditional credit markets such as equity and debt financing in the DeFi market. Although it brings some risks, this is the only way to bring the traditional financial market worth more than 80 trillion US dollars onto the chain. To bridge the huge gap between the crypto market and traditional finance, what we need to do is to tokenize real-world assets.

During the first half of this year, both traditional and crypto industries began to pay attention to the RWA sector.

First, Goldman Sachs announced the official launch of its digital asset platform, GS DAP, which has helped the European Investment Bank (EIB) issue a 100 million euro two-year digital bond. Shortly thereafter, Hamilton Lane, a private equity firm with over $100 billion in assets under management, tokenized a portion of its $2.1 billion flagship equity fund on the Polygon network and sold it to investors. Additionally, Siemens, the electrical engineering giant, issued a 60 million euro digital bond on the blockchain for the first time. Second, some government agencies are also testing RWA, including the Monetary Authority of Singapore (MAS), which is partnering with JPMorgan and DBS Bank.

In April, Binance announced that it would become a node operator for Layer1 blockchain Polymesh. In addition, DeFi protocols such as MakerDAO, Aave, and Maple Finance have been active in the RWA track, and more crypto investment companies are seeking RWA projects. Currently, there are over 50 projects in the RWA sector, mainly focused on financial assets, including fixed income and TradFi, with a small portion in real estate and carbon credit fields. Recently, RWA concept tokens have seen significant increases, with some rising over 10 times. Will the momentum in the first half of 2023 indicate that RWA will lead the crypto narrative in the coming years?

In an ideal scenario, any valuable asset can be tokenized. The advantages of asset tokenization are based on decentralization and blockchain technology, creating some ecological applications to solve the shortcomings of traditional finance. Specifically:

(1) Brings potential huge market, attracting investors and retail investors.

As leading financial institutions seek to benefit from the efficiency and economic potential brought by blockchain, the tokenization of real-world assets is gaining institutional attention and some tokenized products have already been developed. The RWA project will also stimulate investment returns in DeFi.

By tokenizing real-world assets, enterprises can access capital through the DeFi ecosystem at a lower cost and benefit from lower entry barriers and new financing methods, especially for emerging markets. At the same time, the DeFi ecosystem gains new opportunities for investment returns, entry into diversified off-chain markets, and expanding its traditional financial customer base.

Traditional financial trading markets are labor-intensive, while blockchain technology can provide real-time settlement, 24-hour trading, and reduce the operating costs and market access of participants. Moreover, asset tokenization can turn assets with poor liquidity in reality into small share investment portfolios, and investors do not need a lot of paperwork, money, and time consumption. This brings a more fair market and creates new business and social models, such as shared property ownership or shared rights.

In the securities industry, tokenization can be a useful tool for securitization, or for refinancing low-liquidity assets into more liquid and secure instruments.

Bringing real-world assets onto the blockchain and integrating them into the DeFi ecosystem will create unique collateral or investment opportunities, market efficiency, and liquidity that traditional markets cannot achieve. The improvement of capital efficiency will further promote the development of the RWA track, forming a positive feedback loop.

(3) Lower the entry threshold for retail investors and increase the liquidity of physical assets.

Tokenization eliminates the barriers that currently hinder the division of real-world assets, making it possible for most retail investors to access asset categories that are typically limited to high-net-worth individuals or institutional investors, especially in the case of physical assets. Retail investors can invest in cross-regional products or collectively invest in a property or artwork, which traditionally requires a high threshold in the financial sector. These physical assets may have very low liquidity in small markets, but once they are put on the chain, they will be available to investors worldwide. In addition, issuers can reach a wider range of investors and create new asset categories. Retail investors can enter markets that were previously inaccessible and make more informed investment decisions based on transparent data.

(4) Leveraging the advantages of blockchain technology, RWA transactions are more efficient and secure.

Blockchain technology ensures transparency of on-chain payments and data flow, immutability of transaction records, traceability, higher efficiency and lower operating costs, more robust risk management, clear ownership, and more composability and fairer market environment. In the future, as blockchain technology continues to evolve, there will be higher-performance public chains or layer2 solutions, stricter smart contract auditing mechanisms, and privacy projects based on zk technology to protect transactions, all of which provide a solid foundation for the development of the RWA track.

RWA Track Explosion Prerequisites

Asset on-chain is the only key point in the RWA track. Solving this key point also requires two foundations, one is the improvement of blockchain infrastructure, and the other is legal supervision. Blockchain involves the interoperability, security, and privacy of various protocols and tokens. Legal supervision is whether there is corresponding legal and regulatory support for off-chain assets, on-chain identities, etc. Many issues are actively being discussed, and here we mainly discuss two: token standards and review system.

3.1 Diversification of Token Standards

According to the on-chain token standards, Ethereum has ERC-721 and ERC-20, which correspond to the indivisible NFT and divisible token standards, respectively. In traditional finance, assets have various attributes, including tangible and intangible assets. For use on the blockchain, we also need to create corresponding token standards for assets based on their attributes to tokenize them. Fungible and non-fungible tokens have the following characteristics:

Alternative tokens: interchangeable, each unit has the same market value and validity, which means token holders can exchange assets with each other and be confident in their equal value; divisible, assets can be divided into as many decimal places as desired at the time of issuance, with each unit having proportional value and validity.

Most assets can also be represented by alternative token standards, but for some assets such as bonds and derivatives, non-fungible tokens may be a better option for tokenization. With the rise of RWA projects, there may be more diverse forms of tokenization that cannot be satisfied by simple ERC-20 and ERC-721 standards. Many vertical public chain projects for RWA have realized this and started creating standards that meet the requirements for RWA tokenization, such as Polymesh. From the current development of RWA projects, most of them are built on Ethereum, so more universal ERC token standards are more applicable. Currently, ERC-3525 is being discussed more frequently, and there may be more token standards in the future, especially after the baptism of BRC-20. We believe that token standards that can serve RWA projects well need to have the following two characteristics:

(1) RWA token issuers have good operability and flexibility, with dual characteristics of ERC-721 and ERC-20;

（2）具有一定的隐私性，能够保护交易信息和用户信息。

(2) Has a certain degree of privacy and can protect transaction information and user information.

3.2 Strict Review System

Security is an important component of tokenizing real-world assets, especially when they are used as collateral sources. For RWA issuers and investors, it is important to conduct due diligence on DeFi protocols and prioritize secured loans, strict regulatory compliance, and the use of high-quality open-source code to build technology or services. For RWA-related project teams, it may be necessary to provide two necessary solutions:

Avoid KYC / AML risks - Conduct KYC (Know Your Customer) or AML (Anti-Money Laundering) checks on users and/or transactions on the platform. Avoid potential interactions or transactions between users and/or political figures listed on OFAC and other sanction lists, either directly or indirectly.

Provide effective monitoring methods - products and services that monitor and detect suspicious activities of DeFi users.

Therefore, the project requires a dedicated compliance team to review and approve or reject user access to the platform based on customer identity, risk assessment, verification, and due diligence. In addition, customer activity is continuously monitored to detect any suspicious activity or behavior that may involve fraud or money laundering.

4. Project Analysis

RWA has multiple subcategories on the track. This research report analyzes 19 representative RWA projects from multiple dimensions, including RWA tokenization mechanism, protocol status, token functions and performance, protocol advantages and risks. Through the analysis and summary of these projects, we can have a glimpse of the overall development and existing problems of RWA projects, as well as their future potential.

4.1 US Treasury Bonds Concept

（1）MakerDAO

In 2020, MakerDAO officially included RWA as a strategic focus and released a guide and plan for introducing RWA. In addition to issuing the stablecoin DAI, Maker also expanded the types of collateral beyond ETH, including tokenized real estate, invoices, and accounts receivable. The main source of revenue for the Maker protocol is the interest on DAI loans and liquidation penalties.

Protocol Status: According to TVL, Maker is one of the top three DeFi protocols, ranked behind Lido and AAVE, and is the number one CDP (Collateralized Debt Position) protocol. Currently, it only operates on Ethereum. As of June 2, 2023, according to defillama, TVL is $6.29 billion, 30-day protocol revenue is $23.53 million, treasury amount is $68.4 million, and governance token $MKR is listed on mainstream exchanges such as Coinbase, Binance, Kucoin, Kraken, OKX, Huobi, Bybit, and Gate, with a 24-hour trading volume of $13.58 million and a 30-day average trading volume of nearly $20 million.

Token Functions: $MKR serves as the governance token for MakerDAO. Its price performance has been poor due to the weak ability to capture protocol value, but it has played an important role in governance. The utility of $MKR token includes the following four aspects:

Governance Rights: MKR token holders have the governance rights of the MakerDAO system. They can participate in voting and make decisions on important matters such as system parameters, risk management measures, and protocol changes. The voting results of token holders have a significant impact on the development and operation of MakerDAO.

Mortgage stabilization: MKR tokens can be used as collateral in the MakerDAO system. When users lock a certain amount of cryptocurrency assets (such as Ethereum) to generate stablecoins (such as DAI), they need to pay a certain amount of MKR as collateral. This mechanism aims to ensure the stability and security of the system.

System Stability Repurchase: MKR tokens used as collateral are also used for the system stability repurchase mechanism. When the value of the stablecoin DAI in the MakerDAO system drops and deviates from its anchored value to the US dollar, the system will automatically initiate the repurchase of MKR tokens and destroy them to stabilize the system.

Risk sharing: MKR token holders bear the risk in the MakerDAO system. If the system's debt cannot be repaid or other issues arise, the value of MKR tokens may be affected. This incentivizes MKR token holders to participate in and oversee the operation of the system, ensuring its safety and stability.

Protocol advantages: 1. Based on the EVM and L2 ecosystem, the RWA protocol has a more loyal user base and stable network support compared to other public chains; 2. Institutional advantages have been tested through bull and bear cycles, including strict admission thresholds for collateral, as well as over-collateralization and a sound auction system, which can ensure a 1:1 peg between DAI and the US dollar in most cases. In extreme cases, the protocol also has emergency measures for shutdown.

Protocol risk: 1. Governance attacks, the short-term large-scale convergence of MKR tokens may lead to the concentration of governance power, resulting in a series of governance attacks such as the addition of new junk collateral, emergency shutdowns, and malicious manipulation of risk parameters. With the increase in the value of MKR and the protocol's own risk control measures, most of these risks can be prevented; 2. Market price risk, in the case of increased volatility of mainstream tokens, a series of protocol auction liquidations will increase the supply of tokens in the market, exacerbating market liquidity problems. This has occurred frequently in the past two years during large-scale declines in mainstream tokens, but the protocol itself has not suffered significant losses.

（2）Ondo Finance

Ondo Finance is one of the most talked-about RWA projects in the first half of this year. In April, it raised a Series A funding of $20 million led by Founders Fund and Pantera Capital. Ondo Finance is a decentralized investment bank that mainly invests in US-listed money market funds off-chain, and conducts on-chain stablecoin lending business in cooperation with Flux Finance, including USDC, FRAX, DAI, and USDT, with an average lending rate of around 5%. The protocol's revenue comes from a 0.15% annual management fee.

Users need to go through the KYC/AML process before they can trade fund tokens and use these fund tokens in authorized DeFi protocols. Ondo Finance has launched four tokenized bond products for investors to choose from:

US Money Market Fund (OMMF): Ondo Money Market Funds, invests in high credit-rated US government bonds, short-term bonds and other debt instruments, with the primary goal of capital preservation. Currently, it has an annualized return of 4.5%.

US Treasury Bonds (OUSG): Ondo Short-Term US Government Bond Fund, invests in US short-term note ETFs, currently with an annualized yield of 4.85% and $100.87M TVL.

Short-term bonds (OSTB): Ondo Short-Term Investment Grade Bond Fund is an actively managed exchange-traded fund (ETF) that aims to maximize current income while ensuring capital preservation and daily liquidity. The ETF primarily invests in short-term investment-grade debt securities, with an average investment portfolio maturity typically not exceeding one year, and currently has an annualized yield of 5.77%.

High-yield bonds (OHYG): Ondo High Yield Corporate Bond Fund, mainly invests in high-yield corporate debt, with a current annualized return of 7.9%.

Token Function: The functions of governance token $ONDO include the following four:

Platform handling fee payment: When users engage in trading, borrowing, or other financial activities on the Ondo Finance platform, they may need to pay certain handling fees, which can be paid using Ondo Finance tokens.

Voting Rights and Governance: Holders of Ondo Finance tokens can participate in the platform's governance and decision-making process. They can vote on matters such as platform upgrades, parameter adjustments, proposal approvals, and provide opinions and suggestions on the platform's development direction.

Rewards and incentives: Ondo Finance platform may attract users to participate in platform activities and ecological construction by issuing token rewards and incentive measures. These rewards can be distributed in the form of Ondo Finance tokens, encouraging users to contribute to and support the development of the platform.

Borrowing and Mortgaging: On the Ondo Finance platform, users can use Ondo Finance tokens as collateral to obtain borrowing services. Users holding Ondo Finance tokens can use them as collateral to obtain higher borrowing limits or lower interest rates.

Protocol Advantages: Compliance, the products are either low-risk US government-related debt instruments or high-risk ETFs, all of which are compliant products with third-party accounting disclosures. At the same time, users also need to go through KYC/AML processes.

Protocol Risk: 1. Off-chain risks, mainly products such as ETFs and US government debt instruments, compliance can be ensured but may also bring market risks and credit risks outside the circle, especially high-risk corporate credit bonds such as OHYG; 2. Exit risks, in my personal opinion, the project is currently stripping away decentralized products and turning to centralized + compliant operations. The use of governance tokens may be stripped and marginalized, and in the future, blockchain technology will only be used for item sharing, accounting, and selling shares, without developing towards the overall decentralization direction of most projects in the cryptocurrency industry.

（3）Maple Finance

Maple Finance protocol has been developed for 3 years, with mainstream business being lending/institutional credit loans. On-chain business provides lending services for USDC and wETH, but the lending business is managed by independent centralized pool managers, including borrowers, limits, interest rates, and strategies. Although Maple Finance does not seem to be a qualified RWA project, in April it announced plans to launch a lending pool for investing in US Treasury bonds, supporting non-US DAOs, offshore companies, etc. to invest in the fund pool set up by Maple Finance despite restrictions.

Protocol revenue: Maple Finance's revenue mainly comes from the following aspects,

Borrowing fees: Maple Finance charges borrowers a certain amount of borrowing fees by providing funds to them. These fees are calculated based on the loan amount and loan term, and are determined by the interest rate set by the lending pool.

Loan processing fee: As a platform provider, Maple Finance may charge fees related to loan transactions. These fees may include loan application fees, loan disbursement fees, and loan settlement fees, among others.

Token mining reward: Maple Finance may distribute rewards to participants through token mining mechanisms. Users holding Maple tokens can earn rewards by providing liquidity or participating in lending pools.

Platform Governance Fee: As the manager of lending and borrowing pools, Maple Finance may charge a certain percentage of platform governance fees. These fees are used to support and maintain the operation of the platform, including developing new features, conducting security audits, and maintaining community governance.

Protocol status: From the perspective of TVL, Maple Finance ranks 145th on defillama, but it is the top-ranked unsecured loan protocol. The total TVL is $48.56m, with a total of $32.22m in outstanding debt and cumulative earnings of $45.6m. There are 18 outstanding debts (due to the centralized credit guarantee debt provided, the borrowers are all large institutions, and the number is small), and 8 cash pools (7 USDC+1 ETH, with an average 30-day yield of 7% annualized). In addition, Maple Finance also has a small portion of TVL on Solana, but with the decline of on-chain activities on Solana, the current TVL is only about $16.4k, and most (99%) of the TVL comes from the ETH mainnet.

Token Function: MPL token is the native token of Maple Finance platform, with the following functions:

Transaction fees can be paid using MPL tokens when conducting lending and borrowing transactions on the Maple Finance platform. Users who hold MPL tokens may be eligible for discounts or other benefits to encourage their use and ownership of the token.

Community Governance: MPL token holders can participate in the governance decision-making of the Maple Finance platform. They can propose proposals, vote, and express their opinions, influencing the direction of platform development and important decisions.

Voting Rights: MPL token holders have certain rights in platform voting, and can participate in voting on important matters related to protocol parameters, protocol upgrades, and other important issues.

Share dividends: Users holding MPL tokens are eligible to share the profits of the lending pool on the Maple Finance platform. These profits may come from interest paid by borrowers or other sources of income, and are distributed proportionally to users holding MPL tokens.

Incentive Mechanism: Maple Finance platform may provide incentives to MPL token holders to promote the development of its ecosystem. These incentives may include airdrops, rewards, or other forms of compensation to encourage user participation and support the platform's growth.

Protocol advantages: There is a certain level of security, and the risk of borrowing and lending is the responsibility of the pool manager, who charges a certain management fee as compensation. Liquidity providers can enjoy lending rates while taking on smaller default risks.

Protocol risk: 1. Credit risk. Both the pool manager and the borrower are audited by centralized institutions, and the debt is mainly based on credit collateral rather than asset collateral (the collateral assets come from the pool manager). Therefore, if there is a large-scale institutional default, there may be a situation where the debt cannot be repaid. 2. High threshold. In order to ensure the safety of debt, the borrowing threshold is high, which is not suitable for most users, so the community is not very active.

4.2 TradFi

（1）Polytrade

Polytrade is a decentralized trade financing platform aimed at providing seamless loans to enterprises in multiple industries. Currently, the project is transitioning from V2 to V3. There have been no debt defaults since January 2022, and LP losses are at 0. The NFT-ization of real assets is expected to be added in V3, and there may be a secondary market for NFTs in the future.

Protocol status: Governance token TRADE has been listed on exchanges such as Kucoin, Gate, MEXC, Bitfinex, with MEXC being the main trading platform. According to defillama, the project's TVL is only $10,984, which is far from the fully unlocked market value of the project token at $17.27m, and there is a risk of overvaluation. On March 30, 2023, the project raised $3.8m in seed funding from companies such as Polygon Studios, Matrix, CoinSwitch, and Alpha Wave Global.

Token Function: TRADE is the governance token of the project, mainly used for voting and decision-making on protocol income and updates. More detailed token function disclosure may be revealed after the release of V3.

Protocol advantages: 1. Lower transaction costs on the Polygon chain, with natural advantages such as gas and transaction speed on the EVM; 2. Track advantages, with official support from Polygon, ensuring a competitive advantage on the Polygon EVM.

Protocol Risks: 1. Credit risk. Although lending transactions are kept on the chain, the lending objects, business, and review processes are all off-chain. The project claims that transactions are protected by institutions such as AIG and Mercury, but offline entity default behavior cannot be avoided. 2. Technical risk. The project is in the process of migrating from V2 to V3, and the protocol code has not yet provided a third-party institution audit report, which may contain unknown code technical bugs.

（2）Defactor

Defactor aims to provide financing opportunities and liquidity for enterprises by connecting traditional financing with DeFi. The project is currently in its early stages and has not yet been launched. According to its roadmap, it will still be in the stage of investment, recruitment, and development in the second half of 2023. According to the project's official website, $FACTR is the native token of the defactor ecosystem, which aims to lower the barrier to entry for applications and infrastructure. It can coordinate interests and incentivize ecosystem growth.

4.3 Borrowing and Lending

（1）Goldfinch

Goldfinch is a decentralized credit protocol for off-chain entities, debt funds, and fintech companies, similar to Maple Finance. Goldfinch offers zero-collateral USDC credit line loans. Goldfinch's model is similar to traditional banking, but with decentralized auditors, lenders, and credit analyst pools. Borrowers can exchange USDC for fiat currency and deploy it to the ultimate borrowers in the local market. Before applying for a loan, borrowers must obtain approval from the protocol's decentralized auditors. The auditors are independent entities that must pledge governance token GFI to have the opportunity to verify borrowers in exchange for rewards.

Protocol revenue source: Goldfinch reserves 10% of all interest payments in the protocol treasury. At the same time, redeeming from the senior pool will incur a fee of 0.5%, which will also be deposited into the protocol treasury.

Protocol status: Currently, the total outstanding principal of all loans in the Goldfinch protocol is 101.34 million US dollars, with a total loss rate of 0%. The total amount of principal and interest repaid is 25.1 million US dollars. In the past 30 days, the protocol has generated revenue of 100,100 US dollars. No bad debts have occurred.

Token Functionality: Goldfinch currently has two ERC20 native tokens, GFI and FIDU.

GFI is the native token of Goldfinch, which can be used for governance voting, auditor staking, auditor voting rewards, community grants, supporter betting, protocol rewards, and can be deposited into the membership treasury to receive membership rewards, ensuring the development of the protocol.

FIDU represents the deposit of liquidity providers in the senior pool. When liquidity providers provide funds to the senior pool, they will receive an equivalent amount of FIDU. FIDU can be exchanged for USDC at a rate based on the net asset value of the senior pool in the Goldfinch dApp, minus a 0.5% withdrawal fee. Over time, the exchange rate of FIDU will increase as interest payments increase in the senior pool.

Protocol advantages: The mechanism used reduces the borrowing threshold, which can help users with lower credit ratings to obtain loans to some extent. Compared with traditional platforms, Goldfinch has stronger usability, and the process is mainly handled by smart contracts.

Protocol Risk: The adoption of DeFi is global, but different laws in different countries may result in higher costs and issues for Goldfinch's business. Additionally, due to the absence of collateral, Goldfinch's senior pool also carries default risk.

（2）Centrifuge

Centrifuge was launched in 2017 and is one of the earliest DeFi projects involved in RWA. It is also a technology provider behind top protocols such as MakerDAO and Aave. Similar to the aforementioned lending protocols, Centrifuge is also an on-chain credit ecosystem aimed at providing small and medium-sized business owners with a way to collateralize their assets on the blockchain and obtain liquidity.

Centrifuge allows anyone to launch an on-chain credit fund and create a collateralized loan pool. Centrifuge has created an open asset pool, Tinlake, based on smart contracts. Borrowers can tokenize real-world assets through Tinlake. The underlying collateral is divided into two types of tokens, DROP and TIN, representing fixed-rate priority and floating-rate subordination based on risk and return. Investors can choose to invest in DROP or TIN based on their risk tolerance and expected returns. Currently, the Centrifuge protocol does not charge any fees.

Project Status: On May 23rd, Centrifuge announced the launch of a new Centrifuge App to replace Tinlake. The new Centrifuge App improves the speed of KYC and investment participation, adds KYB (Know Your Business) process automation, and lays the foundation for future multi-chain support. The previous Tinlake will be automatically migrated to the new application. According to official data, Centrifuge currently has a TVL of $201 million and a total financing asset of $397 million.

Token Function: The native token CFG of Centrifuge Chain is used as an on-chain governance mechanism, and CFG holders can manage the development of the Centrifuge protocol. Additionally, CFG is also used to pay for Centrifuge Chain transaction fees.

Project advantages: 1. Low financing threshold, while allowing investors to earn income from real assets. Centrifuge basically simulates the process of corporate credit in traditional finance; 2. Committed to compliance, Centrifuge is built on the legal structure of US asset securitization.

Project Risk: Loan default risk. According to rwa.xyz data, Centrifuge has $10,194,481 in loans that are more than 90 days overdue.

（3）Clearpool

Clearpool is a DeFi lending protocol that provides unsecured loans to institutions. Clearpool has two products, Prime and Permissionless. Clearpool Prime is only available to whitelisted institutions, and collateral is not required for borrowing in Prime. Borrowers create a funding pool with specific terms in the core smart contract. Once the pool is created, borrowers can invite any other whitelisted institution to provide funding for the pool. Loan assets are automatically transferred directly to the borrower's wallet address without Clearpool custody. Clearpool Permissionless requires borrowers to be whitelisted institutions, but there are no requirements for lenders.

Protocol revenue: Clearpool charges 5% of all interest payments as protocol fees.

Protocol status: Clearpool has generated a total of 398 million US dollars in loans, with a current loan balance of 16.58 million US dollars and a Permissionless TVL of 20.78 million US dollars.

Token Function: CPOOL is the utility and governance token of Clearpool. CPOOL holders can vote on the whitelist of new borrowers.

Protocol advantages: Clearpool's advantage lies in the complete absence of collateral and the issuance of its loans only requires the protocol itself, greatly improving efficiency.

Protocol risk: Without collateral, once the market environment deteriorates, Clearpool's current whitelist and credit scoring mechanism may not be able to avoid borrower defaults.

4.4 Public Fixed Income

（1）Swarm Markets

Swarm Markets provides compliant DeFi infrastructure for RWA token issuance, liquidity, and trading, and is supervised by German regulatory authorities. Swarm Markets combines on-chain compliance layers with regulatory approval to tokenize US Treasury bills and stocks. By issuing entity SwarmX to acquire publicly traded stock securities as underlying assets for on-chain tokens, these assets are held by institutional custodians.

Protocol revenue: Swarm will receive 25% of the mining pool exchange fees or 0.1% of the exchanged assets (whichever is greater).

Protocol status: Swarm currently offers TSLA (Tesla), AAPL (Apple) stocks and TBONDS01 (iShares Barclays Short Treasury Bond ETF), TBONDS13 (iShares Barclays 1-3 Year Treasury Bond ETF) bond ETFs. On April 25th, Swarm officially announced the launch of BLK (BlackRock), COIN (Coinbase), CPNG (Coupang), INTC (Intel), MSFT (Microsoft), MSTR (MicroStrategy), NVDA (Nvidia) stock tokens.

Token Function: $SMT is the native token of Swarm Markets, which can enjoy trading discounts and rewards. When traders choose to pay with $SMT, they can get a 50% reduction in protocol fees. $SMT holders can enjoy loyalty rewards, and the specific ratio will vary according to different levels. Similar to the concept of platform coins on centralized exchanges.

Advantages and Risks of the Protocol: Swarm's advantage lies in providing more choices for DeFi users, combining blockchain and traditional assets, and mixing TradFi with DeFi. However, Swarm currently offers relatively few stocks and bonds, and its depth cannot be compared to traditional markets.

（2）Acquire.Fi

Acquire.Fi is a cryptocurrency M&A market that provides real-world returns on fractional ownership of cryptocurrency companies, traditional enterprises, and real-world assets to everyone. At Acquire.Fi, equity will be tokenized as NFTs and can be traded on secondary markets. Sellers, buyers, and buyers in the investment pool on the market will all need to go through KYC (subsequently, investments below $250 may not require KYC).

Protocol Revenue: Acquire.Fi uses a multi-structure commission. For business values below $700,000, the commission will be fixed at 15% of the sale price. For values between $700,000 and $5,000,000, the commission will decrease to 8%. Commissions exceeding $5,000,000 will be further reduced to 2.5%.

Current Status of the Protocol: Currently, the Acquire.Fi market offers equity sales for many companies in various fields such as NFT market, metaverse, media, DAO, etc. According to official statistics, over 2k online business sales have been completed.

Token Function: $ACQ is a utility token of Acquire.Fi. Staking $ACQ can enjoy exclusive investment pools, encrypted M&A transaction flows, LP mining rewards, and other exclusive advantages.

Protocol advantages: Using Acquire.Fi for online business sales does not require the purchase of additional services or contact with website hosting service providers, while also gaining higher visibility. Compared to other platforms, it has more convenient and efficient advantages.

Protocol Risk: There are still legal risks in mergers and acquisitions or equity purchases through Acquire.Fi, especially when the buyer and seller are not within the same legal entity scope.

4.5 Summary of Financial Products

The loan agreement is the most successful example of the RWA project. The unsecured loan model has been welcomed by institutions in the bull market, but it is also a catalyst for the bear market, so the most difficult part of the credit agreement is the default risk. Based on the development of US bonds and US stocks, users can also obtain higher returns in the bear market. There are fewer TradFi projects, and the current business is still focused on financing for small and medium-sized enterprises.

The development space of institutional credit business is very limited. User benefits mainly come from stablecoins and protocol tokens. Due to the insufficient collateral, borrowers need to bear a certain amount of bad debt risk. During the bull market phase, the risk-free return of DeFi is also very high, so institutional credit business may not be sustainable.

We believe that products similar to Ondo's launch of national debt or currency funds are a promising direction for the future. Firstly, these funds are already popular choices for investors in traditional finance and have relatively low risks. Secondly, they provide different options for on-chain users while also lowering the entry barrier.

The RWA project in the financial industry, although in its early stages, has many interesting use cases. With the enhanced composability of various protocols, there may be many opportunities for high-yield projects, making it a promising niche to look forward to.

4.6 Real Estate Concept

（1）RealT

RealT is a real estate tokenization platform founded in 2019, mainly serving real estate projects in states such as Detroit, Cleveland, Chicago, Toledo, and Florida in the United States. Investors can purchase RWA tokens to invest in real estate. So far, the platform has processed over $52 million and tokenized 970 homes.

The protocol does not have a native ecosystem token. The value exchange within the ecosystem uses $DAI (XDAI/WXDAI). RealToken is issued for each real estate asset as collateral to obtain rental income sharing.

Tokenization Packaging Process:

Off-chain: A third-party real estate management agency confirms property ownership based on the property contract and divides member rights and interests into equal units. Tenant rent is exchanged for US dollars through real estate management services. Legal support: RealToken submits documents for securities exemptions under Regulation D and Regulation S of the US Securities Act and cannot provide or sell RealToken within the United States or for the benefit of US citizens.

On-chain: realtoken investors need to exchange stablecoin DAI deposits and loan services through the RMM application (RealT market maker) for realtokens as collateral based on the oracle price. On-chain, the digital wallet address of the relevant RealToken for the lease contract is sent in the form of DAI for daily payment, with a total amount of 1/30 DAI per day.

Protocol revenue: No specific revenue model has been found. Possible sources of revenue come from the interest rate differential of the DAI fund pool and off-chain/on-chain rental commissions.

Protocol status: The current market size of the protocol is $10.51m, with a total supply of XDAI of $3.224m and a supply APY of 6.94%. The total borrowing is $2.54m, with a borrowing APY of 9.93%. Currently, there are 40+ properties available for investment in the protocol market.

User income status: There are 17 people with weekly rental income>1k DAI, and the highest income is 6187.83 DAI/week.

Protocol advantages: Since its issuance in 2019, the protocol has maintained a market size of tens of millions of dollars and has sustained real cash flow income.

Protocol risk: affected by the price and supply-demand relationship of the real estate leasing market, there may be differences between expected rental income and actual rental income.

（2）Tangible

Tangible is an RWA tokenization project that provides users with a way to access RWA tokenization by launching a native revenue stablecoin, Real USD. RWA physical assets include but are not limited to art, fine wines, antiques, watches, and luxury goods.

Tokenization Packaging Process:

Off-chain: There are four tokenized product categories on the platform, including gold, wine, watches, and real estate.

For the trading and storage of gold bars, Tangible uses the services of PX Precinox in Switzerland.

For watches, they collaborate with BQ Watches based in the UK.

For real estate, Tangible has created native special purpose entities (SPVs). These are legal entities established for each property. SPVs manage properties by finding tenants, collecting rent, or managing maintenance. All properties are leased and rental income is paid to TNFT holders in the form of USDC.

Legal support: Each property located in the UK has its own UK SPV. This is because real estate cannot be directly tokenized. However, legal entities can be. TNFT holders of real estate have beneficial ownership of the property through the SPV. However, the legal ownership of both still belongs to the tangible legal entity (i.e. BTS TNFT Limited registered in the UK. Tangible has also registered a similarly named entity in the British Virgin Islands).

On-chain: Tangible has launched a real estate-backed native stablecoin called Real USD (USDR), which users can mint at a 1:1 ratio using TNGBL or DAI. On Tangible, users can use USDR to purchase valuable physical goods, including but not limited to art, fine wines, antiques, watches, and luxury goods. When users purchase RWAs listed on Tangible, TNFT ("Tangible non-fungible token") will be minted to represent the physical item. Tangible will store the physical item in a physical vault and send the TNFT to the buyer's wallet. TNFT can be freely transferred and traded.

保证超额抵押率的方式&清算机制：

The method of ensuring excess collateralization ratio and the liquidation mechanism:

If the CR of USDR falls below 100%, half of the rental income will be reserved in the USDR collateral pool. Therefore, daily rebalancing will reduce by 50%. In other words, USDR holders will earn less interest until the CR returns to 100%.

The USDR-supported vault always holds a diversified portfolio of liquid assets for quick settlement (such as DAI, all protocol liquidity, and TNGBL).

If all DAI and other reserve funds are depleted, the real estate TNFT will be liquidated. In this case, users will receive pDAI instead of real DAI. pDAI is an IOU Token that represents a claim to real DAI and can be redeemed once the liquidation is executed.

Protocol revenue: TNFT owners are required to pay storage fees. For example, the storage fee for gold bars is 1% per year. When redeemed, the transportation fee must be paid by the person redeeming TNFT.

Protocol status: Protocol TVL $33,665,846, total collateral price $35,367,224. According to the USDR white paper, the theoretical collateral structure should be as follows: 50-80% tangible real estate; 20-30% tokens; 20-30% liquidity owned by the protocol; 5-10% insurance fund; 0-10% TNGBL. However, the actual USDR collateral structure is quite different from the proposed collateral structure:

Token Function: $TNGBL can be locked and minted into NFTs for passive income in USDC; serves as a reward token to incentivize the use of the market and subsidize USDR earnings; can be used to mint USDR.

Token Secondary Market Performance:

$TNGBL is only circulating on Uniswap and has not received support from centralized exchanges. Its liquidity is poor, with daily trading volumes ranging from a few hundred to thousands of US dollars. The highest daily trading volume in history was $32,000, and the project's market value is $110 million US dollars. There are 1,021 on-chain holding addresses.

The stablecoin USDR has been issued since the end of March, and its trading activity has been relatively high. It has been listed on multiple DEXs and supports ETH, BSC, Polygon, Optimism, and Arbitrum. The average daily trading volume over the past 30 days is $0.7m, with a price above $1 and a current price of $1.053.

Protocol advantages: Creating the TNFT market, and obtaining a large amount of locked circulating tokens, as well as introducing other physical goods for purchase, including art, fine wines, antiques, watches, luxury goods, etc.

Protocol risk: SDR detachment risk. Centralization risk, the team is both the issuer of TNFT and the custodian of the underlying assets.

（3）LABS Group

LABS Group was originally positioned as a real estate tokenization platform, allowing homeowners to tokenize their properties to raise funds without intermediaries, and investors can also access other higher liquidity real estate tokens through the secondary market. Currently, LABS Group has launched a Web3 vacation platform called Staynex, which provides members with the right to use global resorts every year and earn rewards by holding membership. By tokenizing the "check-in" through blockchain technology and embedding it into NFTs, hotels and resorts can create, design, and mint their own timeshare plans on NFTs, and NFTs represent membership identity and accommodation days.

Due to cross-border investment considerations, LABS Group's exchange was approved by the government after submitting a complete set of business plans. LABS Group has obtained a compliance license for retail investment.

Protocol revenue: LABS Group's primary platform, secondary exchange, and decentralized lending platform can receive various business income such as consulting fees, transaction fees, listing fees, and handling fees.

Protocol status: The vacation industry has abundant resources and owns 60 hotels. It cooperates with Arsenal Football Club as its official hotel member platform. Currently, LABS Group is the best-performing project in the real estate RWA token track. $LABS has received support from centralized exchanges such as KuCoin, Gate, and BitMart. In March 2021, it received high attention after being listed, with a single-day trading volume exceeding $35 million during the initial listing period. However, the trading volume has declined in the past year, with a single-day trading volume of less than $100,000. Its market value is $1.47 million, FDV is $6.66 million, and there are 11,911 on-chain holding addresses.

The community has a high level of activity, with 58,000 followers on Twitter and 19k followers in the Telegram group, as well as 511 online users.

Token Function: Mainly used as a reward token, other functions include governance (voting), buyback and burn mechanism, with a plan to burn 80%, of which 50% is in the first phase. In addition, 10% of each transaction on the platform will be sent to the liquidity pool for permanent locking. There have also been phased staking activities before, such as staking $LABS for football match predictions (https://www.support2win.io/), which has ended.

Protocol advantages: The use of a time-sharing vacation model, which means that a person has the right to use a certain vacation asset during a specific period of time each year, is very popular in today's digital nomad culture. In addition, the team has its own vacation industry resources, with 60 hotels and a partnership with Arsenal Football Club as its official hotel member platform.

Protocol risk: Poor capture of token value, mainly used as rewards, with main empowerment on NFTs. In addition, fractional ownership of vacation homes has its own drawbacks: high annual management fees, difficult sales, unethical players, and scams.

Summary

Currently, the overall market size of real estate projects in RWA is very small, and there are issues with illiquidity and poor transparency. It requires the intervention of large centralized entities for endorsement and regulation. The practical tokens issued by related agreements have a low acceptance rate in the crypto market. This is mainly due to the strict regulation of physical assets and the need for complex operations by project parties to establish ownership of the assets.

The tokenization of real estate can solve the following problems: 1. The cross-border and real-time transactions of blockchain can solve the problem of low liquidity of existing real estate; 2. The low threshold allows retail investors to invest in real estate globally and obtain returns. However, the most difficult problem in real estate tokenization is property proof and valuation. Proof determines the authenticity of property information, and valuation determines the price of loans and settlements. Tangible has made bold attempts in these areas: using Chainlink oracles to price RWA tokens, with information mainly provided by hometrack.com; in terms of property authenticity, Tangible adopts a model of independent verification of property ownership through cooperation with third-party auditors. In these projects, we can see that third-party participation is still needed before real estate is put on the chain, including evaluation, finance, legal and other related institutions. All of these require process compliance and legal perfection.

4.7 Carbon Credit Concept

Carbon credit refers to the amount of carbon dioxide that a company has verified through the Verified Carbon Standard (VCS) and has been certified to reduce or offset, similar to the "voluntary emission reduction (CCER)" in China's carbon trading system.

（1）Toucan

Toucan Protocol is a protocol deployed on Polygon that aims to convert carbon credits into tokens, using decentralized financial means to promote carbon credit transactions and ultimately achieve carbon neutrality. The carbon credits traded by Toucan Protocol come from carbon offset credits registered on Verra, a non-profit organization that registers carbon credits.

Tokenization Packaging Process:

Toucan's carbon stack consists of three modules: Carbon Bridge, Carbon Pools, and Toucan Registry.

Carbon Bridge

Anyone can bring their carbon credits onto the chain through Carbon Bridge. Toucan only supports carbon credits that have been retired from the Verra registry, and Carbon Bridge is an irreversible one-way bridge.

(1) During the bridging phase, an ERC721 NFT called BatchNFT will be minted to represent a batch of carbon credits.

(2) The carbon credits to be tokenized will permanently exit the Verra registry and receive a unique serial number.

(3) Write the serial number received from Verra, and BatchNFT links to the exit entry in the original registry.

(4) BatchNFT automatically submits for review after updating the serial number.

(5) After being approved by Toucan Verifier, a batch of carbon credits will become fully tokenized, and users can fragmentize them into ERC20 token TCO2 at any time.

BatchNFT can be used to mint an equivalent amount of fully interchangeable ERC20 token TCO2, where 1 TCO2 token represents 1 carbon credit with a value of 1 tCO2e.

The TCO2 token contract still retains all the attributes and metadata of NFT, making it specific to a particular project and year, as the voluntary market for carbon credit trading prices varies greatly. TCO2 is a collective term for substitutable tokenized carbon credits. When you differentiate BatchNFT, ERC20 tokens will be prefixed with TCO2, followed by an informative name including place of origin registration, project, year, etc. For example: TCO2-GS-0001-2019.

Carbon Pools

Tokenizing multiple specific projects into TCO2 tokens and bundling them into more liquid carbon index tokens has achieved price discovery for different types of carbon assets. Each pool has a unique configuration and specific logic that indicates which tokens TCO2 can deposit into it.

The Toucan team has collaborated with KlimaDAO to deploy the first Carbon Pool, namely the Base Carbon Tonne (BCT). The threshold requirement for the Base Carbon Tonne pool is that TCO2 tokens must be Verra VCU (Verified Carbon Units) and their vintage must be 2008 or later.

TCO2 tokens that have been filtered through logic can be staked in Carbon Pool, and depositors receive Carbon Pool tokens (such as BCT). Users can redeem at any time, and redemption will burn Carbon Pool tokens and send the underlying tokens to the user. When redeeming, users can choose between automatic redemption (exchanging the lowest ranked TCO2) and selective redemption (redeeming specified TCO2 by paying a fee).

Currently, there are 2 Toucan Carbon Pools, BCT (Base Carbon Tonne) and NCT (Nature Carbon Tonne).

Revenue Source of Protocol:

The cost of exchanging Carbon Pool tokens.

When exchanging Carbon Pool tokens, if you choose selective exchange, Toucan Protocol will charge a fee, part of which will be used to burn low-value carbon credits, and the other part will be given to Toucan to establish the protocol. The exchange fee for the BCT pool is 25%, and the exchange fee for the NCT pool is 10%.

Bridge carbon pool costs

The current fee is set to 0.

Protocol status: Toucan was launched in October 2021 and currently supports Polygon and Celo. The carbon credit amount on-chain through Carbon Bridge is 21,889,951 tons, with 298,173tCO2e carbon credits offset. The carbon supply is 19,908,799 (pledged in BCT and NCT pools), with a total liquidity of $2,946,585 (total liquidity of BCT and NCT on various exchanges).

Token Function:

(1) NCT is short for Nature Carbon Tonne, a standardized reference token linked to all carbon credits deposited into Nature Carbon Tonne.

Protocol advantages: To a certain extent, it realizes the tokenization of carbon credits and improves the liquidity of carbon credits.

（2）Flowcarbon

Tokenization Packaging Process:

退出（Retirement）

Token holders initiate token exits with Flowcarbon and specify the quantity they wish to exit. This reduces the token holder's balance and increases their exit amount. The exited tokens accumulate transparently in the contract until they exceed a pending batch size. Once the threshold is reached, the bankruptcy remote SPV will exit carbon credits in the underlying registry.

Redemption

Protocol advantages: Flowcarbon provides a "bidirectional bridge" that allows GCO2 tokens to be exchanged for underlying carbon credits off-chain.

Protocol risk: The transfer of carbon credits to SPV and the creation of tokens for on-chain transactions may not truly achieve the tokenization of carbon credits.

（3）PERL.eco

Tokenization Packaging Process:

Token Function:

$PERL is the governance token of PERL.eco. PERL plays a critical role in determining the incentive system, establishing a broad base of stakeholders, and promoting economic value flow in the network. PERL holders can vote on the fee model and distribution, as well as other important decisions. By participating in governance, users can receive rewards in the form of carbon credits to offset their emissions.

Protocol advantages: Collaborating with regulated carbon exchanges to reduce risks.

Protocol risk: PERL.eco only serves as a role similar to a dealer, increasing the exposure of the underlying asset but not truly improving its liquidity.

Summary

4.8 Vertical Public Chain

It is precisely because of the diversity of asset attributes in the real world that the realization of asset tokenization requires a dedicated public chain to meet the needs of institutional users. These needs include: 1. Stronger security and privacy; 2. More convenient operations, such as providing SDK and other tools; 3. Diversity and operability of token standards; 4. Possible need for permissioned chains to build regulated and compliant process systems.

Regarding token standards, from the perspective of Ethereum's ERC-20 standard, issuers are unable to implement behaviors such as token recovery, share management, identity management, batch processing, off-chain authorization, and more. This presents greater difficulties for asset management. Therefore, existing public chains are unable to achieve the complex asset management operations of the current financial market. A new token standard needs to be constructed on a new public chain.

（1）Polymesh

Polymesh is an institutional-grade Layer1 blockchain designed specifically for regulated assets such as security tokens, with a circulating market value of $90 million. Binance has recently announced that it has become one of its nodes. Polymesh is a public permissioned blockchain that uses the Nomination Proof of Stake (NPoS) consensus model developed by Polkadot to clarify the roles, rules, and incentives of the network. The on-chain token standard is inspired by ERC-1400, providing more functionality and security to facilitate the issuance and management of on-chain assets.

The Polymesh core team has backgrounds in finance, technology, and law. Most of them have experience building the first security token platform on Polymath and leading ERC-1400. The team members are public and their information can be found at: https://polymesh.network/team#.

Project Advantages/Features

Established for regulation: Due to regulatory restrictions, permissionless public chains such as Ethereum may find it difficult to facilitate the trading of RWA assets. Therefore, vertical application chains specifically designed for RWA have emerged.

Transparency guaranteed: All issuers, investors, pledgers, and node operators are required to complete the identity verification process, and all clients need to undergo due diligence. Especially for node operators, they must be licensed financial entities. This improves network security. On-chain interactions can be traced back to known real-world entities. All transactions are authorized by licensed entities.

Preventing hard forks: Forked chains can create significant legal and tax issues for physical asset tokens. POLYX's industry-leading governance model eliminates the possibility of hard forks.

Confidentiality: Polymesh has designed a secure asset management protocol that enables the issuance and transfer of confidential assets. It meets the encryption requirements of real-world market participants for positions and transactions.

Instant Settlement: Inheriting Polkadot's GRANDPA finality gadget, combined with the above identity verification requirements, compliance verification, and no hard fork, allows Polymesh transactions to settle instantly.

Token Function:

$POLYX, the native token. According to the guidance of the Swiss Financial Market Supervisory Authority (FINMA), and in accordance with the laws of Switzerland, this currency is classified as a utility token. POLYX is used for governance, securing the chain through staking, and creating and managing security tokens.

The inflation rate of the token is 10.12%, which is relatively normal.

POLYX Token Circulation Chart

Ecosystem:

The existing participants in the Polymesh ecosystem include cryptocurrency trading platforms, seasoned participants in the tokenization field (Polymath), and companies with sizable portfolios of security tokens (RedSwan). The Polymesh Association aims to promote further development through two initiatives:

资助计划 is applicable to individuals and enterprises building open-source features in Polymesh.

Ecological Development Fund is applicable to enterprises that have integrated Polymesh proprietary technology.

The current main ecosystem includes:

Tokenise - The first CSD, broker and exchange for digital assets - has chosen to build its infrastructure on Polymesh and has already begun creating digital assets.

DigiShares - a white label tokenization platform - has become the first recipient of the Polymesh ecosystem development fund that integrates Polymesh.

Stably - a regulatory-compliant stablecoin infrastructure provider and creator of the USDS token - is working hard to launch the first stablecoin on Polymesh.

ABC Tokens - a tokenized real estate provider - offers decentralized commercial real estate to investors using Polymesh.

2022 October Polymesh Ecosystem Overview

Configuring security tokens.

Configure security tokens on the blockchain to represent physical or digital assets. On Polymesh, tokens are created at the protocol layer, eliminating the need to add smart contracts for each security token at the top of the chain. Basic programming languages and the Polymesh SDK can be used, or tokenization platforms can be used for issuers who want a completely code-free method of configuring tokens.

Set compliance rules.

Token distribution

One-click mint your tokens and send them to existing shareholders, subsidiaries, or reserve accounts, while fulfilling broader compliance requirements. Set pricing in a way that makes sense for your token and designate qualified custodians to manage the collection in a secure and reliable manner, if necessary.

The behavior of management companies

Execute company actions on the chain to address issues related to interests, restructuring, capital allocation, and voting. The issuer only needs to input some details. From there, the engine can determine rights, arrange record dates, allocate capital (if necessary), and update records.

Project Status:

Currently, there are 3.8K accounts and 357M $POLYX tokens staked, accounting for 47.7% of the total issuance. There are 43 node operators. The daily on-chain transaction volume ranges from 2K to 11M $POLYX. On April 20th, the on-chain transfer volume reached 138M due to Binance announcing its node operator status.

Polymesh on-chain transaction volume

In the future, Polymesh will introduce smart contract functionality and bring about DeFi applications, NFT support, and more.

Technically speaking, Polymesh utilizes the development framework of Polkadot, but it does not belong to a parallel chain. It inherits the security and technical superiority of Substrate. In terms of ecological development, Polymesh provides on-chain issuance and management tools for RWA tokenization that can be independently set, meeting the needs of various asset tokenization. It provides an institutional-level solution for RWA tokenization, but there are two risk points: (1) identity verification ensures a certain level of transparency and security, but there needs to be a corresponding insurance plan in case of problems; (2) attracting institutional developers is key, and more cooperation is needed.

（2）MANTRA Chain

MANTRA (formerly MANTRA DAO) was founded in 2020 and is part of the MANTRA Omniverse ecosystem, which includes MANTRA Nodes and MANTRA Finance. The project has a circulating market value of approximately $19 million. MANTRA Chain is an L1 blockchain built on the Cosmos SDK, aimed at becoming a network for inter-enterprise collaboration, attracting enterprises and developers to build any application from NFTs, games, metaverse to compliant DEX. MANTRA Chain can achieve interoperability with other ecosystems in Cosmos through IBC cross-chain and is also compatible with EVM chains.

MANTRA project spans across RWA and Hong Kong concepts, with a total financing of 1 time. The main investors include LD Capital, Waterdrop Capital, GenBlock Capital, etc.

Project advantages/features:

Powerful Identity System: MANTRA Chain has a powerful decentralized identity (DID) module to meet all KYC and AML requirements. This module helps develop products that can leverage enhanced functionality and ecosystem.

Complete ecological system chain: MANTRA Finance as the main line, developed nodes, DAO organizations, and public chain infrastructure.

Token Function:

$OM is the native token of OMniverse, which functions include governance, network staking, DAO token access/airdrop rewards. The native token $AUM of MANTRA Chain will be launched soon.

Ecosystem and Current Situation:

The first dApp on MANTRA Chain is MANTRA Finance, which aims to become a globally regulated DeFi platform, bringing the speed and transparency of DeFi to the opaque TradFi world, allowing users to issue and trade RWA tokens.

Currently, some profit-oriented DeFi products based on cryptocurrency have been launched, followed by the upcoming Central Limit Order Book (CLOB) DEX, which will provide swap functions and traditional financial products such as debt, stocks, and other real-world assets (RWA). After the successful launch of these products, MANTRA Finance plans to expand its decentralized exchange (DEX) products by offering derivative products.

Project evaluation:

The MANTRA project started in 2020, based on Polkadot development, but did not have a good development. The project roadmap has also undergone major changes several times, and product progress has been slow. Currently, no related RWA products have been launched or corresponding solutions for enterprise and institutional levels have been seen.

（3）Realio Network

Realio Platform Wallet

Realio.fund

The RWA market is expected to reach $500 million by 2025. Citibank's latest research report has high hopes for the RWA track and believes it is a killer move to drive the blockchain industry into a market worth trillions of dollars. According to statistics from BCG (Boston Consulting Group), the overall size of the RWA track is expected to reach $16 trillion by 2030. The huge potential brought by the RWA track cannot be ignored. However, the cryptocurrency industry is currently in a downturn, with a market value that has not exceeded that of Apple. The industry has been frequently hit by regulatory crackdowns in various countries over the past year. The cryptocurrency industry is still in its early stages, and it will take a long time for the industry to achieve a market size worth trillions of dollars.

Looking at the development of the RWA track, there are more problems than advantages.

From the current situation, RWA projects generally face problems such as poor liquidity, high management costs, and complex settlement processes. The project still has unresolved mechanism issues and is not as efficient as traditional finance. Some protocols have very few users, but the native token has a high valuation.

From the perspective of project types, there are many types, but the scope of the top protocol business is too limited, mainly based on credit lending projects based on stablecoins. These projects have higher risks than other lending protocols and have not truly brought off-chain assets onto the chain, which has limited the development of the RWA track. Lending protocols based on securities, bonds, and physical assets have not seen significant development.

From the perspective of user behavior, the RWA project may not be able to accumulate strength in a bull market. The real investment demand of users is the high returns brought by on-chain RWA projects. Due to the low returns of DeFi in the bear market, investors' needs cannot be met. The yield of US Treasury bonds can reach 5%, and many centralized financial products invest in US Treasury bonds and stocks, which makes RWA projects related to US Treasury bonds popular. However, once the cryptocurrency industry enters a bull market, can the yield of these RWA projects still be generally higher than other DeFi protocols?

The fundamental reason for restricting the expansion of the RWA track is that the following problems have not been solved either technically or procedurally:

Regulatory Uncertainty

Regulation is the biggest challenge facing the RWA track in the encryption industry, and its uncertainty is reflected in two aspects:

The imperfection of legal regulations in the encryption industry, especially whether tokens are commodities or securities, is still undecided. From the current perspective, all cryptocurrencies except Bitcoin will be classified as securities. This requires regulation of assets, issuers, trading markets, and even on-chain contracts and public chain nodes. In order to comply with the existing regulatory system, most RWA projects will conduct KYC/AML processes for users.

Real-world assets are subject to geographical restrictions. The core of RWA lies in the credit mechanism, and the key to promoting global circulation is to establish internationally recognized bills, which should also have the ability to be enforced. However, at present, there are still significant compliance obstacles for RWA. Perhaps a small number of crypto-friendly regions will become pilot areas, such as Hong Kong and Singapore.

Identity Solution

Based on KYC/AML processes, the RWA project needs to conduct strict scrutiny and verification of off-chain centralized entities and individuals. Among them, the real estate project Tangible has an SPV legal entity as a feasible implementation path. However, most of the verification tasks are still undertaken by the project party, and the level of trustworthiness is unknown. Currently, many private loans such as MAPLE and TrueFi have experienced bad debt situations. To solve these problems, it is urgent to have third-party off-chain compliance institutions to handle the correlation between on-chain identities and off-chain entities. Related to this, there is also a need for supporting legal and technical solutions such as the improvement of laws and regulations, possible privacy solutions for identities and data, and solutions for connecting on-chain and off-chain data.

Decentralization and Centralization Balance

The core feature of blockchain technology is decentralization, while the RWA project, if it needs to cooperate with audits, inevitably needs to use centralized means in various links, including asset audit processes, vertical public chain nodes, user qualification reviews, and so on. Even many processes are executed by the project party itself, and the smart contracts of blockchain have become a castle in the air. The prosperity of the RWA track requires the support of decentralization. In this regard, introducing more trusted third parties can solve the problem of excessive centralization, which can refer to the practice of ABS.

Valuation, liquidation, and protection mechanisms for off-chain assets

The price of off-chain assets, especially the market value of physical assets, is difficult to estimate. Although some websites provide estimated market price services, the real price can only be reflected in market transactions. The valuation of assets also has a great impact on the liquidation mechanism. In addition, because the collateral is not a liquid ERC-20 token, liquidating these assets to recover the capital of the borrower is much more troublesome than using encrypted collateral loans. Many private loans have already experienced bad debt situations. Some asset protection mechanisms also face challenges, such as who is responsible for safeguarding these cross-border physical assets, such as art and real estate. It is difficult to gain the trust of users before these mechanisms are clarified.

The above issues all require the improvement of RWA track infrastructure, including infrastructure for tokenization processes, digital collateral, custody platforms, and more. Although there are significant obstacles to bridging traditional finance and crypto finance, as the crypto industry continues to develop and more RWA projects emerge to explore introducing more valuable assets to web3, we will see more and better solutions. There is still hope for the RWA track to become the narrative of the next bull market.

Reference:

Bitwu looks at RWA: DeFi's future water, infinite liquidity

https://mp.weixin.qq.com/s/hJguFEU9r1cL1O49600dDQ

Will RWA, which is being aggressively pursued by major institutions such as Binance and Goldman Sachs, be the next growth engine for DeFi or just a flash in the pan?