According to the data of Dune Analytics, RWA has become the only crypto narrative that has achieved an increase in the past three months, except for meme. This performance has attracted our attention in an environment where the market as a whole is stagnant. In fact, since June last year, the voices about RWA have been one after another, and after BlackRock launched the BUIDL on-chain fund, this narrative was completely ignited.

In the field of encryption, RWA is already a "story that has been told too much". Although RWA is a new concept, connecting and influencing real industries in a decentralized way seems to always be the "intuitive direction" of entrepreneurs in the currency circle: blockchain is like the Internet, and it will definitely completely change traditional business. However, putting everything on the chain is not as simple as everyone imagines. From the on-chain gold of Paxos Gold in the early years to the on-chain energy ledger of Power Ledger during the ICO period, to the on-chain credit Maple Finance and Goldfinch with luxurious backgrounds in the last round of capital, RWA seems to have been failing.

But interestingly, native users in the crypto industry seem to have been underestimating the vitality of this narrative. Through a detailed combing of the time clues, we can clearly see the continuous changes in the fundamentals of the RWA narrative. Behind this narrative revival is the alignment of RWA product positioning and user needs, as well as the huge incremental opportunities driven by traditional financial institutions.

In the face of the wind, everyone has a good sense of smell, but not many people can really "step on the right point". In the past six months, countless teams have transformed into RWA, but there are very few projects that have successfully seized the opportunity and achieved initial results. Whether it is transformation or entry, seeing the opportunity clearly is the key for the team to get a ticket, and among the many competitors, a project called Jiritsu attracted our attention.

RWA always fails

On December 6, 2022, smart contract auditing platform Sherlock updated a blog post on Mirror, informing the community team that it would lose approximately $4 million due to the default of Maple Finance borrowers. Prior to this, Sherlock had about 5 million USDC stored in the Maple lending pool managed by M11 Credit, but now, the overall fund loss of the pool's pledgers will exceed 30%. On the same day, DeFi insurance platform Nexus Mutual also expected to lose about $3 million in the Orthogonal Trading default incident.

The day before, crypto hedge fund and credit investment company Orthogonal Trading defaulted on its $36 million loan on Maple Finance, accounting for about 30% of Maple Finance's active loans. Just half a year ago, Maple had just suffered a loan default of nearly $10 million from Babel Finance, and it was Orthogonal Trading's 10 million USDC position in the lending pool that was hit hard.

In a year, the series of defaults has made the former RWA lending star miserable. After LUNA and 3AC went bankrupt, the chain reaction in the crypto market intensified rapidly. The liquidation of mainstream ecosystems and institutions caused the overall credit scale of the market to shrink rapidly, leading to the continuous occurrence of deleveraging events. After FTX went bankrupt, the total value of active loans in the market plummeted by 80%, from US$1.58 billion to US$270 million at the beginning of 2023. When the market went downhill, Maple did not have an easy time. Even after announcing the tightening of loan standards in October, defaults continued to occur.

Related reading: 《From Celsius to Three Arrows: Dominoes of Crypto Billionaires, Epic Liquidity Exhaustion》

Many people attributed Maple's setbacks to the market, believing that Maple was born at the wrong time. But even with the market recovery, defaults have occurred frequently on many RWA lending agreements. In April this year, Lend East, a startup corporate credit company, said that it would only be able to repay about $4 million of the approximately $10 million loan it had previously obtained through the RWA lending agreement Goldfinch, and the remaining $6 million would all be in default. Since its operation began, Goldfinch has suffered three large defaults. This project, which was born with a golden key, has also failed to bring magic to RWA.

From June 2021 to January 2022, a16z invested nearly $30 million in Goldfinch twice, but in the following month, Goldfinch had $20 million in bad debts because the borrower's "investment did not meet expectations." In October last year, the Goldfinch governance platform released another report stating that a lending pool on the platform had bad debts and $7 million was at risk of loss.

Unlike overcollateralized lending in conventional DeFi, private credit agreements (i.e., RWA lending agreements) are designed to allow real-world businesses to obtain unsecured loans based on their credit records, and on-chain funds obtain off-chain returns through the agreement. These third-party institutions evaluate borrowers and lend them to potential borrowers as liquidity by establishing a pool of funds. Compared with concepts such as "gold on the chain" and "real estate on the chain", on-chain credit is already a relatively mature RWA model in the industrial chain, but even so, these agreements are still difficult to form a flywheel.

One direct reason is the extremely high threshold when guiding users. In most cases, users must go through the KYC procedure to participate in the agreement's lending pool, which deviates from the portrait of most DeFi users pursuing "no permission" and "code is law", and to a certain extent turns the agreement into a To B product. In fact, this is also the main problem faced by most RWA projects, that is, the misalignment of product positioning and user portraits. In an industry full of super high ROI, most "Degen" does not seem to be interested in the profit opportunities that these off-chain assets can bring. Whether it is gold, real estate or art, the increase is difficult to match that of popular tokens.

On the other hand, the stability and security of off-chain revenue sources are also the main problems faced by RWA lending protocols. From 2021 to 2022, almost all of Maple Finance's active credit was transferred to native institutions in the crypto industry, and most of them experienced thunderstorms during the bear market. At the end of 2021, Maple provided $25 million to Alameda Research, the trading company behind FTX, on the grounds that Alameda promised to increase the amount of loans to $1 billion within 12 months. In order to prove that the on-chain credit model works, Maple puts the consideration of yield first when choosing the lending object. The final result is: the so-called off-chain income brought by RWA actually comes from crazy leveraged crypto institutions.

The difficulties encountered by Goldfinch reflect a more frustrating fact, that is, enterprises and entities that can obtain financing through conventional channels often do not choose on-chain financing. Goldfinch is indeed seriously looking for lending scenarios outside the crypto industry, mostly focusing on start-up industries and small and micro loans in developing countries and regions. The former are often the "low-grade horses" left over by top VCs, and the latter have their own high failure rate. On the one hand, it is necessary to bear higher risks, and on the other hand, the rate of return is not as good as expected by cryptocurrency speculation. The double debuff of products and users has always made RWA difficult.

This time, the fundamentals have changed

Interestingly, the RWA narrative has risen again since June last year, but this time, its fundamentals have changed significantly.

When the on-chain whales look at 5% annualized

On the eve of the Three Arrows Capital crash, the team found that the assets they managed could hardly find a scenario that could generate expected returns. As the Federal Reserve began the process of raising interest rates, liquidity tightening eroded various markets around the world, especially cryptocurrencies defined as risky assets. Corresponding to the U.S. Treasury bonds, whose yields have been steadily rising since the end of 2021, is the gradually declining yield level of DeFi, with the median yield falling from 6% at the beginning of 2022 to 2% in July 2023, which is almost unprofitable for large investors because the risk-free yield has reached 5%.

When the on-chain yield is low enough, the yield in the real world is much more attractive, which means that the main bottleneck that plagues the RWA protocol has changed, that is, the crypto industry has begun to be interested in off-chain yields. In order to cope with the continuous outflow of industry funds, the industry began to think about how to bring the risk-free yield of US bonds to the chain, so RWA has once again become a savior in people's eyes.

In August 2023, the page of Spark Protocol, a lending protocol under MakerDAO, showed that the DAI deposit rate (DSR) had been raised to 8%, and the long-dormant DeFi was re-ignited. Within a week, the DSR income of the protocol climbed nearly $1 billion, and the circulating supply of DAI surged by $800 million, setting a record high in three months.

RWA is Maker's secret recipe for giving huge returns in a deep bear market. According to statistics from The Defiant, based on total TVL, nearly 80% of MakerDAO's fee income in the past year came from RWA assets. Starting in May 2023, MakerDAO gradually increased its risk exposure to RWA. In addition to deploying funds to Coinbase Prime, it also purchased a large number of U.S. Treasuries in batches through its two entities, Monetalis Clydesdale and BlockTower. In addition, BlockTower Credit has deployed up to $220 million in loan funds on the RWA lending agreement Centrifuge. According to Dune Analytics data, as of July 2023, MakerDAO already has an RWA investment portfolio of nearly $2.5 billion, including more than $1 billion in U.S. Treasuries.

The sudden high returns have made RWA the most controversial topic in the Maker community. After the Tornado Cash case, crypto native users have become more eager to get rid of the shackles of centralized power. The increased reliance of DAI on US debt has reduced DeFi's ability to resist regulation on the one hand, and on the other hand, it also means that once the Fed reverses, the RWA protocol that relies on US debt will fail again.

But concerns at the vision level cannot hinder the motivation of the crypto industry to make money, and RWA has rekindled people's interest in DeFi. The ultra-high returns of blue-chip stablecoins have produced a chain reaction in the DeFi ecosystem, and the Aave community soon proposed to list sDAI as collateral in order to indirectly obtain leveraged exposure to US debt. DAI has transformed from a liquidity product to the "yield Lego" of the DeFi world. Any protocol that wants to gain exposure to RWA can build its own sustainable income based on DAI. MakerDAO governance token holders have also begun to see a large influx of funds. MKR has risen by more than 35% in a single month, becoming one of the best performing tokens on the market.

MakerDAO's successful exploration in the field of RWA has set off another RWA boom in the industry. Also in June, the founder of Compound announced his new company Superstate, which is responsible for bringing assets such as bonds to the chain and providing potential customers with returns comparable to the real world. After the announcement, the price of COMP tokens rose by more than 23% in 24 hours. Since then, protocols such as Ondo Finance and Matrixdoc have also begun their exploration in the field of U.S. debt tokenization.

The gears of the "regular army" are turning

Last June, BlackRock, the world's largest asset management group, submitted a document application for a spot Bitcoin ETF to the US SEC through its subsidiary iShares, and a new round of crypto bull market began. Since its launch in January this year, IBIT has continuously set new records for BlackRock funds. BlackRock's first quarter financial report in April this year showed that IBIT has attracted about US$13.9 billion in net inflows, accounting for 21% of the total net inflows of its ETF products. This figure reached 26% in June. BlackRock CEO Larry Fink even called IBIT "the fastest growing ETF in history."

After the Hong Kong Web3.0 Summit in April 2023, the gears of institutional on-chain exploration have begun to turn. In July of the same year, Huang Lexin, head of the Financial Technology Group of the Hong Kong Securities and Futures Commission (SFC), said in an interview that the SFC will change its previous views on STOs. Securities Tokens or RWAs will not be defined as complex products. RWAs will be regulated according to the type of underlying endorsed assets and have the opportunity to be open to retail investors.

Institutions have ambitions to deploy the crypto industry far beyond ETFs. Larry Fink, CEO of Blackrock, said at the end of 2022 that "the next generation of markets, the next generation of securities, will be the tokenization of securities", and Tyrone Loban, head of JPMorgan Chase's Onyx blockchain, has the idea of "bringing trillions of dollars of assets into DeFi, making them as large as institutional assets, so that these new mechanisms can be used for trading, borrowing and lending".

In addition to the internal impetus from the industry, a key reason for the revival of the RWA narrative this time is the exploratory interest from external forces such as governments and large financial institutions. The active participation of traditional institutions means that the situation of the RWA protocol chasing the attention of the real world has changed, and "putting their own financial products on the chain" has become the demand of external institutions for the crypto industry.

In March of this year, BlackRock launched BUIDL, its first tokenized fund issued on a public blockchain, providing qualified investors with the opportunity to earn US dollar returns. BlackRock stated in the announcement that tokenization remains the focus of its digital asset strategy. Through the tokenization of funds, the issuance and trading of ownership rights are realized on the blockchain, in order to expand investors' access to on-chain products and provide instant and transparent settlement and cross-platform transfers.

Like the application for Bitcoin spot ETF, the emergence of BUIDL has once again ignited the concept of RWA. Traditional financial giants have begun to test the waters on the chain, and many analysts even call it "bringing legitimacy" to public smart contract chains such as Ethereum. In less than 10 days after its launch, the size of the BUIDL fund has grown to US$274 million, accompanied by a substantial increase in the market value of tokenized RWA (including treasuries, bonds and cash equivalents), which has increased by nearly 35% since the beginning of April and has now exceeded US$1.5 billion.

The driving effect of BUIDL is obvious. The entire on-chain US debt market has shown a clear upward trend after BUIDL went online. The previously relatively quiet Franklin Templeton on-chain US government money fund FOBXX has rapidly grown by nearly 27%. In the crypto industry, Ondo Finance, which has also transformed into a US debt RWA protocol, has also doubled its TVL to US$500 million under the impetus of the "BlackRock concept".

The gears of the huge machine have begun to turn. There is almost no doubt that after the Hong Kong Web3 New Deal and BlackRock took the lead in tokenization exploration, the progress of institutions "on-chain tasting" will become more and more obvious, and their technical needs for blockchain infrastructure will also grow and become more abundant. For crypto-native projects that are struggling to find a better business model, this is a rare and huge To B opportunity.

Who is on the cusp of the huge To B business?

After the trend emerged, the number of financing in the RWA field surged this year. Many teams want to seize this opportunity, but most people are still motivated by "riding the heat". Even the former meme coin project TokenFi has stated that it will enter the RWA field. However, at the cusp of the trend, not everyone can accurately grasp the opportunities in the market.

RWA public chain

In addition to Polygon, which has the second highest TVL of tokenized US debt, Avalanche can be regarded as the first L1 public chain to fully embrace RWA. As one of the three giants of the new public chain in the last cycle, Avalanche chose a development path opposite to Solana after entering the bear market. Since the end of 2022, Avalanche has begun high-frequency exploration in the direction of enterprise-level applications, and its special subnet structure has also enabled the team to make rapid progress in this field. The Avalanche subnet architecture can empower institutions to deploy custom blockchains optimized for their specific use cases and interoperate seamlessly with various Avalanche networks, thereby achieving unlimited scalability. From the end of 2022 to the beginning of 2023, entertainment giants from South Korea, Japan, and India have established their own subnets on Avalanche.

The sensitivity of institutions also allowed Avalanche to observe the asset tokenization trend in Hong Kong at the earliest. During the Hong Kong Web3.0 Summit in April 2023, Avalanche launched the Evergreen subnet, which is designed to meet the requirements of specific companies and the entire industry for financial services. Evergreen is a set of institutional blockchain deployment services and tools designed specifically for financial services. Institutions deploy blockchain settlement strategies on private chains with licensed counterparties based on the Evergreen subnet, and maintain interoperability with other subnets through the Avalanche Native Communication Protocol (AWM).

Evergreen's solution directly meets the needs of institutions combining public and private blockchains. After it went online, it immediately attracted the attention of institutions such as WisdomTree and Cumberland, and participated in the development and testing of the network after the launch of Evergreen test network Spruce. In November of the same year, Avalanche reached a cooperation with JPMorgan Chase's digital asset platform Onyx, using the full-chain interoperability protocol LayerZero to connect Onyx and Evergreen, and promote the tokenized asset subscription and redemption functions provided by WisdomTree Prime. The cooperation was also included in the "Guardian Program" launched by the Monetary Authority of Singapore (MAS) in cooperation with the financial industry.

Since then, Avalanche has successively announced various RWA cooperations with institutions. In November, it helped the financial services company Republic launch its tokenized investment fund Republic Note. In February 2024, it helped Citibank and WisdomTree and other institutions to conduct tokenized concept trials of private equity funds on the Spruce test network. In March, it cooperated with ANZ Bank and Chainlink to use CCIP to connect Avalanche and Ethereum blockchain for tokenized asset settlement. In April, it helped integrate payment giant Stripe.

The foundation within the ecosystem is also working hard in the direction of RWA, launching the Avalanche Vista plan and investing $50 million to purchase tokenized assets issued within the ecosystem, including bonds and real estate. In addition, the ecological fund Blizzard Fund is also actively investing in and attracting RWA projects such as Balcony and Re to enter the ecosystem. In the view of John Wu, CEO of Ava Labs, Avalanche's mission is to "present the world's assets on the chain." Unlike traditional financial tracks, blockchain can complete settlement immediately. Now that institutions have seen this instant settlement solution that cannot exist in the real world, the rise of RWA can bring highly regulated entities into the on-chain space and realize more possibilities, and Avalanche will strive to be their best choice for on-chain.

"BlackRock Concept"

Although RWA covers a wide range of assets, after MakerDAO and BlackRock entered the market, tokenized US bonds have undoubtedly become the most popular RWA product, with a market value that has increased nearly 10 times in about a year, from about $100 million at the beginning of 2023 to nearly $1 billion at the beginning of 2024.

Unlike tokenized assets such as gold and real estate, tokenized US bonds are not directly backed by the US Treasury, but are often brought to the market in the form of money market funds. Therefore, the issuer of the U.S. Treasury RWA is also a licensed fund manager, responsible for creating and managing money market funds and issuing fund units to holders as tokenized treasuries.

However, money market funds are regulated capital market products, and investors' investments are also subject to relevant rules and regulations, which means that investors need to go through a KYC certification procedure before purchasing. In addition, since the assets of the fund must be kept by the custodian, in addition to buying and selling assets, the fund manager must also work directly with the custodian to carry out new user guidance, net settlement, reconciliation and other operational work, and the custodian will have a complete and updated list of holders and their balance books.

The BUIDL fund issued by BlackRock in March this year is just such a tokenized money market fund. It invests all its total assets in cash, U.S. bonds, and U.S. dollar cash equivalents such as repurchase agreements. BlackRock pays daily accrued dividends directly to investors' wallets as new tokens, allowing investors to earn income while holding tokens on the blockchain. Under the light of BlackRock, Securitize, the issuer and manager of the BUIDL fund, quickly came into people's attention and became a "hot commodity" in the RWA field.

Securitize, which cooperated with BlackRock this time, has long focused on the RWA field and has provided services to many large-scale asset securities companies. After obtaining SEC transfer agent registration qualifications in 2019, Securitize received $48 million in financing led by Blockchain Capital and Morgan Stanley in 2021. In September 2022, the team helped KKR, one of the largest investment management companies in the United States, tokenize some of its private equity funds on Avalanche. The following year, still on Avalanche, Securitize issued equity tokens for Spanish real estate investment trust Mancipi Partners, becoming the first company to issue and trade tokenized securities under the EU's new digital asset pilot system.

After embracing BlackRock's thigh this year, Securitize once again received $47 million in strategic financing led by BlackRock in May. The financing funds will be used to further accelerate its partnerships in the financial services ecosystem. As part of the investment, Joseph Chalom, BlackRock's global head of strategic ecosystem cooperation, was appointed to the Securitize board of directors. In the new wave of RWA set off by BlackRock, Securitize is undoubtedly the biggest winner.

There is also a type of crypto-native RWA protocol that, after smelling the wind, also accurately grasped the opportunity to take off. Among them, Ondo Finance is a typical representative.

In August 2021, Ondo Finance announced the completion of a $4 million financing with participation from Pantera Capital, DCG and others, and is ready to provide sustainable returns for on-chain investors. In January 2023, Ondo officially launched three tokenized funds, including OUSG (U.S. Government Bond Fund), OSTB (Short-term Investment-grade Bond Fund) and OHYG (High-yield Corporate Bond Fund), for which Ondo charges an annual management fee of 0.15%. Of course, similar to the situation mentioned above, Ondo's tokenized fund has always struggled with PMF.

But when the industry once again started to take off with the RWA wind, Ondo responded immediately. In January of this year, Ondo Finance published its own "ecosystem directory" on social platforms, including RWA business liquidity, custody and asset management companies, including financial giants such as BlackRock and Morgan Stanley. Officials said that this directory is intended to help the agreement "focus its work on these partners", and the unexpected meaning is: we will "work closely" with BlackRock.

Then in the month when the BUIDL fund was launched, Ondo immediately announced major adjustments to its U.S. debt product OUSG. In addition to improvements in the purchase and redemption mechanisms, the most eye-catching adjustment was its decision to reallocate most of OUSG's assets (about US$95 million) to the BUIDL fund. The team said that this action can help them transfer token-backed assets from "less ideal trading funds" to blockchain-based tokenized funds. Ondo immediately became the leading hype target of RWA and "BlackRock concept", and the token price rose by more than 110% in a week.

Scale effect is the ultimate winner

Whether it is the public chain of "To RWA" or the issuers and managers of on-chain assets such as Securitize, their development and launch are mostly determined by the interests of financial institutions such as BlackRock. In other words, the current opportunities for the RWA narrative come entirely from the customized needs of traditional financial institutions. For the industry, relying on the action of financial giants is not the optimal solution to achieve growth. Solving the fragmentation of internal infrastructure and liquidity and achieving scale effects are the key to self-reliance.

Liquidity fragmentation

The biggest benefit of tokenizing real-world assets is that it can provide faster and more efficient trading and settlement processes for these assets, which is undoubtedly the main reason why all institutions are interested in RWA. Although this idea is logically sound, it will encounter many difficulties at the technical level when it is actually promoted. The problem of liquidity fragmentation after assets are put on the chain is one of them.

When the chain and transaction of RWA are full of complexity, the fragmented market makes this problem worse. Digital Asset Research emphasized in its report in July last year that among the current RWA institutions, more than 60% are trading through their own tokenized asset markets, which means that after the assets are "after going through hardships" to complete the chain, they can only attract a small number of fixed customers.

According to statistics from The Block, the total financing scale of the RWA track has also reversed the downward trend this year and rebounded to US$300 million. The current trend of RWA recovery has allowed many entrepreneurs to see new "narrative opportunities", and the RWA concept projects on the market are also increasing at a visible rate. However, most of the projects that have received financing tend to focus on very small vertical fields, such as natural resources, specific commodities, and artworks, and RWA projects in the real estate field are particularly obvious in this regard.

To what extent can this vertical category be subdivided? For example, platforms such as Balcony and Mnzl provide tokenization processes for regional real estate resources. Often, the on-chain assets and the buyers and sellers who trade through on-chain tools are local institutions or government departments, which can basically be regarded as a semi-closed asset market.

The verticalization and regionalization of RWA projects are understandable. After all, many real-world assets are highly regionalized, and often require dedicated personnel and specific positions. However, due to different regulatory restrictions in different places, each RWA project is almost building its own on-chain process and trading platform from scratch. At the same time, there are different choices when choosing the underlying public chain and smart contract development tools and other technology stacks, which brings huge challenges to the interoperability between different RWAs.

Many entrepreneurs have seen this liquidity split, so in the same period, RWA asset aggregation platforms such as Midas and Plume began to appear in the market or RWA launch platforms, but when you think about it further, you will find that they are still facing a dilemma: if you want to establish a unified market, you must first have a certain compatibility in tokens and contract standards, which hinders the platform from aggregating RWA assets on a large scale and in multiple categories. If different RWA protocols are aggregated first, they will be limited to the role of "launch platform" due to the differences in the technical stacks between the protocols. Although some liquidity is brought to small projects, the assets on the chain still have to face the problem of market fragmentation.

Even the tokenized US bond market with the best liquidity is the same. Although the scale problem of a single category has been solved under the push of institutions such as BlackRock and Franklin Templeton, you will still find that in order to give future potential investors and cooperative projects more choices, these assets have also been scattered on different public chains such as Ethereum, Stellar, and Avalanche.

This also brings a narrative window to cross-chain interoperability protocols that have been slow to improve in terms of volume, such as Axelar, which started to lay out RWA very early. Last year, Centrifuge Everywhere and Ondo Bridge were launched in cooperation with Centrifuge and Ondo respectively to optimize the protocol and inter-chain interoperability and liquidity for RWA tokenized products. In the current market environment where fragmentation is a prominent problem, cross-chain interoperability may be a compensatory solution.

Self-reliance at the weakest link

In fact, it is not difficult to see that the bottleneck of RWA breaking through the scale limit is the lack of automated processes or technologies such as AMM in the DeFi field. For RWA products, tokenization is often just a beginning. After the product is on the chain, ensuring continuous asset updates and transparency is the key to testing efficiency and cost, which generally includes the following aspects:

1. Financial reports: Asset managers need to regularly publish financial and performance reports of assets. For example, real estate managers need to regularly provide payment dates and amounts of rental income, or details of arrears and vacancies, so that investors can have a clearer understanding of the cash flow dynamics of the property.

2. Debt management: Products such as RWA credit need to regularly update details such as loan collateral, repayments, interest rate adjustments, and refinancing activities to let investors understand their health, which is the basis for such products to maintain investor trust.

3. Change of ownership: If the basic ownership of the underlying asset or the legal entity that owns the asset changes, it is also necessary to make an announcement in a timely manner.

4. Market supervision: When the market regulatory environment where the underlying asset is located changes, the manager also needs to report and make corresponding adjustments to ensure product compliance.

Of course, in addition to this, there are also complicated details such as asset insurance and risk management strategies, asset valuation and inspection, and legal entities of issuance. A real-world asset, from tokenization to information update and maintenance, requires asset managers to devote a lot of energy and attention to various details throughout the investment life cycle. In short, in the current market environment of "infrastructure redundancy", asset chaining is no longer the most difficult part of RWA development. Off-chain continuous verification and legal supervision are the main reasons for slowing down the growth of asset categories and scale and eroding the value of asset chaining. All of this can only be discussed under the premise of putting aside the centralized audit risks of off-chain entities.

The scale and growth rate of RWA assets depend entirely on the strength of the off-chain issuing and management institutions, which is also an important reason why the U.S. Treasury RWA products have grown rapidly after BlackRock entered the market. In contrast, other assets such as real estate and commodities have difficulty achieving economies of scale due to the lack of enhanced automation in the process. Of course, the value of on-chain assets also means huge business opportunities, and for now, this part of the potential income has basically flowed into the hands of asset issuers and managers such as Securitize.

Is it possible to build its own automated "asset oracle" system in the RWA field, just like ChainLink is for DeFi? We found some answers in the Jiritsu project.

Jiritsu is an Avalanche L1 specifically for off-chain asset verification, designed to automate and de-trust off-chain asset registration and verification, while improving the economic efficiency and transparency of RWA tokenization and reducing on-chain wear and cost. By integrating ZK proofs and MPC multi-party computations, Jiritsu is able to ensure secure and private automated verification of asset details while embedding regulatory compliance and asset integrity into tokenized products. Interestingly, the name "Jiritsu" comes from the Japanese word "じりつ", which means self-reliance. In the current RWA field, where the core links are heavily dependent on centralized manpower, this is exactly what it needs most to enhance its crypto-native properties and achieve scale effects.

The Jiritsu ZK-MPC oracle aggregates data from multiple sources and verifies related calculations, and adopts a multi-functional data retrieval mechanism to enhance the integration depth of different types of assets. The oracle includes two main mechanisms: "Push" and "Pull". The former is that data providers (such as asset managers) send information directly to the oracle, and the latter allows the oracle to directly obtain data from systems such as supply chain software and bank information of integrated information providers through APIs.

In terms of consensus mechanism, Jiritsu introduces the concept of Proof of Workflow (PoWF). The nodes in the network run an operating system driven by a computing engine and a workflow manager, and use the generated ZK proof to ensure the consensus mechanism of verifiable computing and smart contract execution to integrate the consensus mechanism directly into its MPC framework. Compared with existing oracles such as ChainLink or Pyth, Jiritsu does not need to use a cross-chain bridge for information transmission when aggregating information, and also adds information analysis and verification functions in addition to simple data feedback.

After the user or asset manager registers the assets they wish to tokenize and their details on Jiritsu, the ZK-MPC validator will analyze the information and confirm the value and compliance status of the assets. The analysis process involves two types of validators, one for reviewing business policies and regulatory compliance, and the other for processing financial data, performing tasks such as spot price retrieval and market price assessment. After the information is analyzed and verified, ZK-MPC will generate ZK proofs and store them on the chain. Users can then claim these proofs and embed them into their own smart contracts, and the entire asset tokenization process is complete.

Jiritsu officials used Paxos’ tokenized gold product PAXG as an example to demonstrate the complete process of using its products:

First, Paxos purchases gold through a reliable gold exchange and deposits it in a custodian service. Subsequently, Jiritsu users can use the Jiritsu dApp on a supported public chain to create a validator on the ZK-MPC node of the Jiritsu network. After the ZK-MPC node retrieves the gold custody information about Paxos, the validator generates the relevant ZK proof.

During the verification process, the ZK-MPC node is responsible for off-chain verification calculations, and the generated ZK proofs also have different levels of access and confidentiality permissions, such as auditors can have full access to all information, while asset managers can only see specific information related to their roles. This verification process can update information at preset times or on demand, which is far more efficient and reliable than Paxos’ current method of manually verifying inventory every quarter.

After the ZK proof is uploaded to the Jiritsu network, Paxos can advance the tokenization of its custodial gold. In this link, Jiritsu also implements the concept of "chain abstraction", allowing asset issuers like Paxos to mint corresponding tokens on ideal target chains such as Solana, Avalanche or BNB Chain.

After the token is generated, Paxos pays fees to nodes and validators through the Jiritsu dApp, a portion of which will be allocated to the Jiritsu network. The PAXG tokens purchased by investors will contain an underlying gold certificate and can use the certificate to access the gold custody status information on the Jiritsu network, while Paxos can pass the cost of fees on to investors at this stage.

The dApps on the Jiritsu network are designed to facilitate the writing of specific data, allowing users to create validators for any business logic, data readers, and smart contract integrations. This adaptability ensures Jiritsu's ability to provide customized solutions for a wide range of business needs. In addition, Jiritsu Proof under its ZK-MPC cloud service has significantly expanded the asset categories for information verification. In addition to traditional financial verification such as bank information and corporate credit, it can also verify the status information of a series of real-world assets, such as equipment, inventory, and transaction and income information in company plants. Jiritsu recently provided inventory proof for an Amazon supply chain company with more than 100,000 SKUs and a total value of approximately US$20 million.

On this basis, Jiritsu also uses two data indicators, "Total Asset Verified" and "Totl Asset Secured", to measure its influence on the on-chain of real-world assets, and uses these data indicators to provide DeFi protocols with more compatible and interoperable underlying asset LEGOs. According to the official Dune dashboard data, Jiritsu has verified more than $18 billion in assets so far, and has more than $60 million in assets waiting to be used by various protocols at any time.

Not long ago, Jiritsu integrated BlackRock's RWA ecosystem to provide automated on-chain proofs for the reserve asset valuation and verification, compliance and KYC platform information of its Bitcoin spot ETF and BUIDL fund, so that other protocols can use these assets on the chain more conveniently and quickly. On the other hand, although iBIT and BUIDL bring huge incremental funds to the crypto market and RWA, their asset verification still relies on self-reporting and only provides annual audits, while Jiritsu brings more transparent and cost-effective solutions to these products.

Jiritsu has also integrated with the Republic platform, which is deeply involved in the RWA field, so that any asset manager can directly implement and use similar solutions, improve compliance and operational efficiency while providing a variety of tokenized products, and asset managers can use the mature infrastructure provided by Republic in tokenization, compliance, marketing and customer service. Through automated and trustless verification and auditing, Jiritsu has moved the work that was previously done by institutions such as Moody's and KPMG to the chain, and the fee income of this part of the traditional market exceeds 150 billion US dollars. Even if calculated at 10%, this is an imaginative business ceiling.

Good money drives out bad money

From DeFi, GameFi to NFT, the past successful cases in the crypto industry have all relied on innovations in native chain assets and interactive forms to attract new users and funds, but the concept of RWA is to bring the value of the outside world to the chain. Therefore, many native crypto users have always resisted the RWA narrative, believing that bringing real-world assets to the chain is first of all a "targeted harvest" of crypto users, and secondly, it also squeezes the value growth space of crypto native assets. In addition, crypto users who are accustomed to ultra-high volatility are not interested in the "low returns" of real-world assets. RWA has been tepid in the past, largely because of the mismatch between this product positioning and user needs.

However, since the second half of last year, the fundamentals of the RWA field have undergone important changes. On the one hand, crypto-native protocols have begun to demand sustained and stable profitability, and on the other hand, traditional financial institutions have begun to actively explore on-chain financial products under the influence of BlackRock. For traditional institutions, the instant settlement of blockchain can not only reduce wear and tear, but also bring a wider investor base to high-threshold financial products, raising the trading volume and fee income of financial products. Product positioning and user needs are no longer mismatched, and narrative recovery has become inevitable.

For the crypto industry, although RWA cannot bring ultra-high gains to retail investors like native on-chain assets, it has begun to bring blockchain into the "use case era". For traditional financial institutions, RWA assets have the characteristics of openness and transparency in addition to low cost and high trading volume. In the short term, this does not seem to have much impact on the financial industry, but we might as well imagine that when the scale effect is achieved, this feature of RWA assets will become an extremely important reference indicator for investors when making decisions: on one side is the "black box product" of traditional institutions, and on the other side is a real-time settlement and transparent on-chain product. When the asset targets are the same, how will you choose? There is no doubt that RWA is a game of good money driving out bad money for traditional financial institutions.

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