Unchained

The Chopping Block: Will Tokenizing RWAs Finally Click This Time?

Thu Jul 13 2023

TokenizationReal-World AssetsStablecoinsTokenized TreasuriesPrivate CreditDeFiBlockchainFinancial Marketplace

Description

The episode explores the concept of tokenizing real-world assets and bringing them onto the blockchain. It discusses the challenges and benefits of asset migration, with a focus on stablecoins and tokenized treasuries. The potential of private credit as a real-world asset on-chain is also explored. The episode highlights the importance of increasing diversity in the financial marketplace and addresses concerns about de-anonymization networks. Overall, it provides insights into the current state and future possibilities of tokenization.

Insights

Tokenizing Real World Assets

Tokenizing real-world assets like stablecoins and tokenized treasuries has been slower than expected, but there is excitement around increased liquidity. Categorizing assets as crypto native or traditional can help frame the discussion.

Benefits of Tokenized Treasuries

Tokenized treasuries offer benefits such as composability, automation, transparency, instant settlement, speed, and portability. They can also provide collateral without sacrificing the risk-free rate in DeFi activities.

Private Credit on Chain

Private credit is an attractive real-world asset to bring on chain, offering higher yields compared to traditional investments. It fills the gap left by reduced bank lending and provides unique investment opportunities.

Bringing Real-World Assets On Chain

Bringing real-world assets on chain increases transparency, accuracy in pricing, and operational efficiencies. It enables easier tracking of payments and loan documents, leading to increased liquidity and a more permanent financial marketplace.

Concerns and Alternatives

There are concerns about incentivized de-anonymization networks and doubts about token staking mechanisms. Address registries and attribution systems are seen as potential alternatives to token-based solutions.

Summary

Transcript

Tokenizing Real World Assets

00:00 - 12:27

Real world assets refer to tokenized assets that exist off-chain but are represented on-chain, such as stablecoins and asset tokenization projects like Digix and Tether.
There has been excitement around tokenizing traditional assets like real estate for increased liquidity, but progress has been slower than expected.
Robert dislikes the term 'real world assets' and prefers to categorize assets as either crypto native or traditional.
He believes that crypto native assets live on the blockchain while traditional assets exist in the real world outside of blockchains.
The migration of assets onto the blockchain has been slower than anticipated.
Stablecoins have been the most successful asset to migrate onto the blockchain, with over $150 billion in circulation.
There is a lack of demand for other assets like tokenized real estate on the blockchain.
Regulatory issues and accounting complexities are barriers to asset migration.
Treasuries, T-bills, and low-risk instruments are seen as desirable assets to hold on blockchains.
Superstate focuses on facilitating the regulatory process for bringing these types of assets onto the blockchain.

Tokenized Treasuries and Crypto Funds

12:04 - 24:25

Ideal with the path to bring assets on chain and create crypto funds
Rates are north of 5%
Several companies, including Franklin Templeton and Ando, offer tokenized treasuries
Ando allows users to borrow against tokenized treasuries in flux finance
The interest rate arbitrage increases demand for stablecoins on chain
The outstanding supply of stablecoins is in the tens of billions
There's room for different approaches in managing trillions of dollars like Vanguard and Fidelity
Superstate takes a registered approach with an Ethereum native component
The Super Stake fund can be purchased by US investors or offshore investment with US addresses
Having tokenized treasuries on chain provides benefits such as composability, automation, transparency, instant settlement, speed, and portability
Tokenizing traditional assets and bringing them onto the blockchain can provide benefits such as composability, automation, transparency, instant settlement, speed, and portability.
Franklin Templeton has been working on a treasury product on the blockchain and found that the cost of operating it is substantially lower than administering a traditional fund.
Bringing more tokenized treasuries on chain can raise the on-chain interest rate and slow down investment and innovation in the blockchain ecosystem.
However, tokenized treasuries can also complement other DeFi activities by providing collateral without sacrificing the risk-free rate.
The diffusion of high rates through the existing DeFi system may face friction due to restrictions and borrowing processes for treasury assets.

Private Credit and Real-World Assets

29:54 - 41:29

Private credit is an attractive real-world asset to bring on chain.
Private credit is difficult to access, especially for everyday investors.
Private credit involves lending to businesses, such as smartphone financing companies.
Private credit offers higher yields compared to traditional investments like Treasuries.
Private credit is currently experiencing a golden age with high-quality companies offering attractive rates.
The private credit market has been growing steadily over the past 15 years, filling the gap left by banks' reduced lending.
Offering private credit on-chain can attract mainstream investors and provide unique investment opportunities.
Large institutions are looking at the idea of bringing real-world assets onto the blockchain.
Bringing assets on chain increases transparency and accuracy in pricing.
Having assets on chain allows for easier tracking of payments and loan documents.
Bringing more assets on chain can lead to increased liquidity through ratings agencies and risk categorization.
Blockchain technology enables operational efficiencies, such as simplified payment structures.
The blockchain is a social technology that becomes more powerful with increased adoption.
Getting more real-world users on chain changes the types of products that can be offered.
Efforts are being made to increase user experience and target mainstream audiences.
A diverse range of customers and investors leads to a more permanent financial marketplace.

Benefits and Challenges of Tokenization

24:00 - 47:32

Token emissions may not necessarily have to go up if fees are denominated in the asset and protocols can earn more from utilizing those assets.
LPs earn fees and farming assets, so they may need less compensation in the native token if they're earning fees in other treasury assets.
Farming is typically done in stablecoins for open and permissionless access.
CDP platforms using business collateral instead of ether are becoming dominant forms of collateral.
Bridging markets between different tokens should lead to convergence of rates over time.
Traditional finance people accessing crypto rates had a feedback loop effect, but interest rates on chain are currently lower than off chain.
Capital on chain consists of opportunistic capital seeking yield and captive capital that wants dollars and uses tether as the best way to hold them.
Tokenized treasuries on chain make it possible for actors worldwide to access treasury yields without being limited by location.
During a bull run, rebalancing portfolios with ETH staking rate and stablecoin becomes more attractive, providing yield on both sides.
As portfolios grow larger, private credit could compete with USDC as viable collateral on chain.
Increasing the diversity of end users in the financial marketplace is beneficial as it leads to more connections, product evolution, and asset growth.
Having a variety of use cases and investors decreases the volatility of the crypto space.
The combination of tokenized credit and other financial products can create complementary opportunities for investors.
There is a lack of interest in making sound financial decisions on-chain, resulting in synthetic asset projects fizzling out.
On-chain index funds have not been successful because users are more interested in high-risk investments rather than diversifying their portfolios.

Concerns and Alternatives

47:03 - 53:10

Arkham, a blockchain intelligence company, is launching a token on Binance Launchpad.
The token is for a communal tagging system that aims to link real-world identities to blockchain addresses.
Some people are concerned that this incentivized de-anonymization network goes against the crypto ethos of maintaining anonymity.
There are doubts about the effectiveness and trustworthiness of the token staking mechanism used by Arkham.
Address registries and attribution systems are seen as potential alternatives to token-based solutions.
Trusting large companies with reputations may be preferable to relying on fluctuating tokens.