Decoding RWA: The Most Valuable Cryptographic Narrative in a Compliance Context

Submitted by: ThePrimediaDAO

Author: Jerry, BeeGee

“Today, I am pleased to announce the establishment of a new company, Superstate, whose mission is to create regulated financial products that connect traditional markets and blockchain ecosystems.” Robert Leshner, founder of Compound, the leading DeFi lending agreement, on June 29 Twitter announced the birth of its new company, Superstate.

He aimed at the current hot narrative, among the tokenization of real world assets (RWA).

This is consistent with our judgment: we believe that when the era of the Web3 native application market is approaching, it is necessary to mobilize more real-world assets/capital (RWA) to integrate into the encryption market to provide capital assistance; especially in the context of compliance, we It is considered that RWA is the most valuable wealth code in this cycle.

However, in terms of specific data, in the second quarter of 2023, the LSD L2 narrative is the winner, led by Pendle and new projects such as Lybra and Tenet; Meme 2.0 has experienced a typical ups and downs; RAW has not yet released its energy. Therefore, our analysis is based on the prediction of encrypted narrative and objective environment.

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Predecessor: Why did synthetic assets not bloom?

Before explaining the prejudgment logic, it is necessary for us to trace the history of RWA and predict the future while exploring its existence conditions and development process.

RWA first existed as a concept of synthetic assets, which is not new to the DeFi world, including USD stablecoins can be regarded as synthetic assets (RWA), it is more of a role in linking the two worlds, and Did not show strong investment value. Until January 28, 2021, Robinhood, the main battlefield for ordinary investors, and a number of domestic brokerages in the United States successively announced restrictions on opening positions in stocks such as GME and AMC. Ordinary investors were only allowed to sell but not buy. Straw has high hopes, so its value is not only in the pure encryption world, but also in the traditional capital market, including US stocks and foreign exchange.

There was a lot of anticipation for Synthetic Assets (RWA) back then. Synthetic assets are tokens that represent financial derivatives in digital form. If derivatives are financial contracts that customize risk exposures for underlying assets or financial positions, then synthetic assets are tokenized representations of similar positions. A more intuitive example of synthetic assets is the simulation of some priced assets. For example, the simulation of Apple stock. You can simulate Apple’s stock to build synthetic assets, you can synthesize all the assets of the entire Nasdaq and New York Stock Exchange, and you can also synthesize legal currency (foreign exchange), gold, BTC and other assets.

In November 2021, the synthetic asset project Synthetix will upgrade the Avior version on Optimism. The new version adds a new WrapperFactory contract, which can deploy a new wrapper contract to support any ERC20 token; lending and synthetic asset agreement dForce and real asset financing The platform EntroFi has reached a cooperation to jointly promote the integration of liquidity between physical asset financing (including real estate, bonds, secured loans, acquisition financing, accounts receivable, etc.) through cross-protocols.

This can be seen in the DeFi iteration 2.0 process, which is the adjustment and optimization made by synthetic asset developers. Because since 2019, we have witnessed a turbulent DeFi, but project developers and industry observers have begun to examine, reflect and try to iterate into a new era. In May 2021, Vitalik Buterin raised doubts about the bubble in the market value of the encryption market, saying that the actual performance of projects such as DeFi cannot support their popularity and valuation. 2021 Synthetic Assets (RWA) projects Synthetix, dForce, EntroFi’s efforts have not been as successful as expected. Then the market entered 2022, when the currency circle collapsed several times. Especially under the sentiment of the U.S. government’s aggressive regulation and the U.S. currency circle’s playing badly on the market, the synthetic asset (RWA) project in the U.S. market was not accepted by the market.

However, as the time enters 2023, the RWA narrative has been gradually established. Take several on-chain treasury bond projects as examples:

Ondo Finance announced the launch of tokenized funds in January this year, bringing risk-free interest rates to the chain, allowing holders of stable coins to invest in bonds and U.S. Treasury bonds; the chain bond platform launched by the asset management company Matrixport, Matrixdock, this year Launched treasury bond-related business in late January; OpenEden was founded by former Gemini employees and launched tokenized U.S. treasury bonds in April this year. Holders of stablecoins can mint TBILL through the OpenEden TBILL Vault to obtain risk-free U.S. treasury bonds income……

Timing: RWA in the context of application ecology and compliance

In “Talking from the “Three Transformations of Ethereum”: V God’s Attack and Defense”, we analyzed that in some difficult life-and-death moments, V God painted a big cake and said that he would build 1024 shards directly Increase the performance by 1000 times; in some difficult moments about life and death, God V talked about dreams, imagined DeSoc, and searched for the soul of Web3… But now, God V can talk about life and death. This is the most confident moment for God V. V God has the confidence to promote key and specific transformation plans and build his Ethereum decentralized non-monetary application ecology.

This will be the most powerful fundamental support in this cycle, which means that Ethereum has entered the era of application ecology, which will inevitably require the mobilization of more real-world assets/capital (RWA) into the encryption market to provide capital. The entry of Ethereum into the application ecosystem will bring us confidence in encrypted narratives, but we think the biggest support at the market level is RWA.

In early June, MakerDAO voted through a nominal survey to establish a Real World Assets (RWA) Vault called BlockTower Andromeda, which is managed by BlockTower Capital and invests up to $1.28 billion in short-term U.S. Treasury bonds. The yield of U.S. Treasury bonds is usually regarded as a risk-free rate by the capital market. The context at that time was that as short-term interest rates in the U.S. continued to rise, DeFi interest rates fell, and the demand for on-chain stablecoins to obtain income through the off-chain market increased; the latest news is Compound The founders made their way to the RWA circuit. This is consistent with our consistent attitude and judgment:

1. In “Why “Convergence” Becomes the Value Investment Research Theme of the “Next Round of Bull Market””: The theme of “fusion” in the next round of bull market includes three dimensions: the integration of web3 technology and many industries; the integration of encryption economy and sovereign finance ; The integration of DeFi and web3 industry. In this way, with the encrypted economy as the core, the economic system of the entire world will be reshaped, and the world’s financial structure and order will also be rebuilt.

2. In “On the Value Logic of “Bear Market Bottom” from “Civilization Ends””: In the encrypted economic system, when DeFi is integrated with the energy released by the web3 industry, it will deduce the narrative of the encrypted world to a higher level process. If the growth logic of the traditional financial capital market can only come from the main line of economic growth, DeFi can match the excess number of users and user funds in depth and breadth, showing unprecedented economic development at the exponential level.

3. In "Don’t Panic! Look at “Opportunities and Challenges under “U.S. Regulation and Hong Kong New Deal””: Hong Kong needs to integrate the role of “financial center” into the narrative of Web3/encrypted economy, and needs to convert the restless power of speculation in the currency circle into support The capital for the development of the Web3 native market, the key point of which is how the Hong Kong government can make good use of the capital allocation function of native DeFi in the encrypted economic system. Of course, the Hong Kong government’s current choice of entry point for off-chain asset on-chain (RWA) is a smart choice—in the next one or two bull-bear cycles, Hong Kong will promote the virtual assets of the encrypted economy and the real world. The integration of the world’s financial systems is the main battlefield, where advances can be attacked and retreats can be defended.

Therefore, compared with MakerDAO’s BlockTower Andromeda and the founder of Compound’s Superstate, we pay more attention to the 200 million digital notes issued by BOCI for the Hong Kong market via UBS in mid-June, which is RWA. We see this as a success for RWA - UBS says the deal marks the first of its kind in the Asia-Pacific region to comply with Hong Kong and Swiss laws and be tokenized on the Ethereum blockchain. However, some people are putting forward some opinions and suggestions—the adoption of the “main Ethereum blockchain” mentioned in the original article of UBS is actually not the main network of Ethereum, but a centralized alliance chain deployed by Ethereum for open source code. Under the uncontrollable risks such as policy compliance, supervision and transaction efficiency, traditional institutions still have a long way to go to truly deploy their business on the public chain.

In "Decoding RWA: Can “Dubai WEB3 New Trends” be used as a reference for “Hong Kong Encryption Narrative”? In ", we introduced BG Trade’s more native encryption genes and the real meaning of deploying business on the public chain as a case, but how it works, how its mechanism is set up, and the functions and services covered by the BG Trade ecosystem Whether it can be used as a reference for Hong Kong’s encryption narrative at the practical level: BG Trade aims to integrate multi-dimensional asset investment on the same platform, provide efficient connection opportunities for the traditional stock market and the cryptocurrency world, and plans to build a platform that integrates tokens and traditional stocks. The 1:1 backed ecosystem breaks through the barriers between the currency circle and the stock market.

1. Issuing platform: BG Trade’s issuing platform provides a convenient way for the RWA project to issue tokens and initial decentralized transactions (IDO). By providing this platform, BG Trade facilitates the fundraising of RWA projects and brings them to the attention of potential investors.

2. Over-the-counter transactions: BG Trade realizes the function of over-the-counter transactions, provides privacy protection for over-the-counter transactions, and minimizes market impact, providing solutions for participants with large transaction volumes.

3. Asset swap: The BG Trade platform realizes the integration of assets from Web2 to Web3, ensuring that users can switch between different asset classes and providing users with a trading experience across different asset classes.

4. ve-Governance: BG Trade empowers users to participate in decentralized governance and decision-making processes. By including the community in important decisions, BG Trade strives to ensure a fair and transparent ecosystem that gives the community a voice.

5. Pledge mining: Participants can pledge their BGT tokens on the BG Trade platform, as a liquidity provider, contribute to the stability and growth of the platform and obtain benefits.

6. zkDID: BG Trade uses zkDID technology to allow users to manage their own identities without disclosing personal information to third parties. This feature ensures privacy and data security while enabling real data mining.

In the process of writing this article, we hesitated, because the RWA (synthetic assets) track existed but did not bloom in the last cycle, why we judged that it could become the most valuable wealth code in this round. Therefore, we always pay attention to industry trends. We came into contact with BG Trade because of the theme forum of “Exploring and Unleashing: Web3 and RWAs” and used it as a case analysis; we have increased our confidence in this topic judgment because the founder of Compound entered the RWA track.

As mentioned earlier, we judge that the application ecology of Ethereum and other public chains will be the most powerful fundamental support in this cycle, but it is more about giving us confidence and the biggest support at the market level We think of it as RWA — RWA includes “any real-world asset with a defined monetary value,” including tangible assets, such as gold and real estate; or intangible assets, such as government bonds or carbon credits. However, the confirmation of hundreds of trillions of dollars of off-chain assets has uncertainty and cost pressures, and it is impossible to fully realize it in the short term; The basis of Hong Kong’s encrypted narrative; while traditional institutions such as Citibank, BCG (Boston Consulting Group) and other traditional institutions estimate that the trillion-dollar or sixteen-trillion-dollar RWA market in 2030 has already started, which is mainly in the digitized and structured world. Assets, including BlockTower Andromeda, Superstate’s main business chain treasury bond market and BG Trade’s currency stock market.

At the dawn of the era of application ecology in the encrypted world, RWA is becoming a bridge between traditional finance (TradFi) and decentralized finance (DeFi). We look forward to gaining something in the new cycle, whether it is ecological construction or market investment.

Remarks: This article was co-developed and co-created by TheprimediaDAO. The main collaborators are TheprimediaDAO initiator Jerry (@ThePrimedia) and TheprimediaDAO Builder, TigerVCDAO Investment Head BeeGee (@BeeGeeETH).