Superstate is moving real-world assets to the digital space
“We can actually design new financial products that would be too expensive to do off-chain”
robuart/Shutterstock modified by Blockworks
More real-world assets are coming to a blockchain near you, with the latest offering focusing on regulated financial products.
Superstate, a company created by Compound Labs’ founder Robert Leshner, is delivering products like government bond funds, for example, to the Ethereum blockchain.
Leshner, who left Compound Labs in February, previously explained to Blockworks, “a firm can hold a record of your ownership of this mutual fund alongside stablecoins or other crypto assets” in the same platform.
“We’ve talked about people in crypto, seeking yields that are offered in TradFi,” the host of the Bell Curve podcast (Spotify/Apple), Mike Ippolito, says. “It was only a matter of time before crypto tried to harvest some of those yields.”
“One of the key things to understand here,” Ippolito explains, “is that the fund is going to rely on a traditional Wall Street transfer agent to keep ownership records and Ethereum will act as an alternative or a secondary record-keeping service.”
Still figuring things out
The real world asset “push,” co-founder of Framework Ventures Vance Spencer says, “is two-fold.”
“Number one is bringing all the collateral on-chain,” he explains, “but we need to get the collateral moving around, being used on-chain.”
“The on-chain can’t just be the receipt of what’s going on off-chain,” he says.
“We still have to figure out how to do that,” says Framework co-founder Michael Anderson.
Anderson looks forward to the future possibility of an asset living “natively on-chain” with the same status as a regulated asset, adjudicated by a transfer agent. “We’re not there yet.”
“Rules will have to change for that to be the case.”
In the same way that digital signatures via applications like DocuSign now enjoy the same legal status as a physical signature, Anderson says legal designation will be necessary for blockchain transactions to represent financial transactions.
Spencer compares the process of transitioning from real world assets to blockchains with a retail purchase of USDC on Coinbase. “You’re taking USD,” he says, and “converting it to USDC and then you’re putting it on-chain.”
“You have distribution from Coinbase. That’s what allowed USDC and USDT to go to 120 billion plus stablecoin market cap.”
But the “sales process” is entirely different with Superstate, Spencer says.
“You need Robert Leshner in a suit going to these Wall Street institutions saying, ‘Hey, put some of your cash management on-chain and we’ll give you additional yields.’”
“You’re still going to be able to run an asset manager at a far lower cost than the traditional asset managers in the space,” Spencer says. “All of your clearing, your settlement, your compliance, your tracking, that’s going to be on-chain.”
With fees incurred at each step, real world asset management is expensive, Spencer explains. Blockchain technology enables a broader range of products by streamlining the process. “We can actually design new financial products that would be too expensive to do off-chain.”
Spencer says over the next couple years, he expects at least $10 billion in real-world assets to be “in the pipeline.”
“If you look at all the real-world assets on-chain today, it’s only a quarter billion.”
“There’s a lot of growth that you can get.”
Podcast co-host Jason Yanowitz suggests the technology could have “an interesting second order impact,” driving institutions to not just offer crypto products like spot bitcoin ETFs, but to “push them to start thinking about on-chain products.”
When markets recover and people see DeFi “as a real thing again,” he says, “you could start seeing some of these huge asset managers and investment management firms starting to toe the line between on-chain and off-chain products.”
Correction July 4, 2023 at 1:40 pm ET: Robert Leshner founded Superstate after leaving his role at Compound Labs, which is not affiliated with the new venture.
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