TradFi, DeFi convergence continues through tokenizing real-world assets

Bringing US Treasurys on-chain has been a trend in 2023, while tokenized gold is poised to take “important role in the transition to on-chain finance,” report says

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chaythawin/Shutterstock modified by Blockworks

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Tokenized real-world assets (RWA) are primed to extend “beyond a mere technological trend,” according to a new report focused on the growing segment.

The sector has grown in recent years as projects and companies have sought to bring physical and financial assets — from debt securities to real estate properties — on-chain via blockchains.

“The power of blockchain-driven digitalization is evident in the potential to unlock otherwise illiquid assets, streamline operations, reduce costs and reshape financial intermediation,” states a report published Thursday by oracle RedStone and DeFi risk management company Chaos Labs. 

Read more: Asset tokenization is shaping up to be crypto’s theme of the year 

Total value locked (TVL) for DeFi real-world assets amount to roughly $1.2 billion, according to DefiLlama, led by stUSDT. 

As of mid-August, this sector accounted for roughly 1.2% of the DeFi market, the report notes.

Tokenized Treasurys all the rage

Tokenized bonds have seen increased traction in recent months, as various projects have sought to offer access to US Treasury securities, for example, the largest and most liquid government bond market globally.

Sébastien Derivaux, co-founder of DAO-focused financial advisory Steakhouse Financial, said that tokenized bonds “simplify access but more importantly unlock on-chain crypto asset liability management.

“We are still very early, but the end goal is simple: to migrate finance onto crypto rails,” he noted.

Ondo Finance launched tokenized US Treasury and bond offerings earlier this year, with three share classes initially investing in bond ETFs by BlackRock and Pimco. 

Fund group Adapt3r Digital this month unveiled a tokenized fund on decentralized marketplace Archblock, allowing USDC holders and on-chain investors to access short-term US Treasury bill yields.

Maple Finance launched a cash management pool in April in which deposited funds are used to buy US Treasurys. The capital marketplace’s CEO told Blockworks last week it sought to be a “first mover” on Solana by offering on-chain access to US Treasury yields.

RedStone co-founder Marcin Kaźmierczak said he expects an even “broader and deeper” use of on-chain Treasury securities in the near-term.

“They create a perception of safer yield and can open new products — for example a [decentralized app] that automatically manages funds on yield vaults based on native DeFi and native RWA pools,” he told Blockworks in an email.

Institutional involvement

Larry Fink, CEO of asset management giant BlackRock, said last year that the tokenization of securities is “the next generation for markets.”

Other financial giants have explored tokenization, including JPMorgan and Goldman Sachs. 

JPMorgan’s Onyx Digital Assets network enables the tokenization of traditional assets, such as US Treasurys and money-market products. The company used the Polygon blockchain to trade tokenized cash deposits in November 2022. 

“We’ve long held the view that over time, more and more traditional finance will take place on public blockchains, provided there are solutions for key aspects like scalability and privacy,” Ty Lobban, head of Onyx Digital Assets, told Blockworks at the time.

Goldman Sachs’ Digital Asset Platform, built using a private, permissioned blockchain stack known as Canton, went live in January. The tokenization platform’s first issuance was a  100-million-euro, two-year digital bond.

Franklin Templeton debuted a money market fund that used a public blockchain to record transactions in 2021 and WisdomTree has a range of funds that digitize their fund share ownership records.

Read more: A stablecoin with yield? Tokenized fund perhaps just the start for fund giant 

Hamilton Lane last year partnered with digital asset securities firm Securitize to make three of its funds available via tokenized feeder funds. Securitize recently bought digital asset wealth platform Onramp Investors to offer tokenized alternatives to the registered investment adviser (RIA) market. 

What’s next?

Gold is the second-most tokenized asset in terms of market capitalization, following USD, according to the Thursday report. Two tokens — PAX Gold (PAXG) and Tether Gold (AUT) dominate the category, each with a market cap of about $480 million, CoinGecko data shows. 

Institutions responsible for minting digital gold are supposed to collateralize each token by real commodities. Paxos, for example, says it backs PAXG tokens with gold stored in London Bullion Market Association vaults. 

Tokenized gold is one of the offerings on WisdomTree’s “blockchain-enabled” consumer app launched in July.  

“With growing attention on gold due to inflationary concerns, tokenized gold is in a good position to take an important role in the transition to on-chain finance,” the RedStone and Chaos Labs report states. 

Marketplaces and platforms where real-world assets can be securely and easily traded will be key as the RWA market grows, the report notes. One such platform, Tangible, converts real world assets into NFTs that can be redeemed for the physical product.

Kaźmierczak told Blockworks the market needs real-world assets implemented into blue chip decentralized applications to spur growth. The RedStone co-founder pointed to a proposal earlier this month for a portion of Aave’s treasury to be allocated to real-world assets through Centrifuge Prime as an example. 

“One thing that could stifle the growth is paradoxically a bull market in crypto, as then yields and use cases from RWA will be outweighed by DeFi opportunities,” Kaźmierczak added.


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