Variant Partner What are the benefits of bringing RWA onto the chain?

Benefits of bringing RWA onto the chain?

Author: Geoff Hamilton, Variant Partner; Translation: LianGuai0xjs

At Variant, we are very optimistic about the future of Real-World Assets (RWAs) on the blockchain. The Real-World Asset Summit this month demonstrated that there are many talented entrepreneurs building RWAs, and various types of capital investors are interested in this field.

However, interestingly, in discussions with some investors and entrepreneurs, I have encountered a certain degree of skepticism towards RWAs. The essence of this opposition is that there are limited benefits to bringing real-world assets onto the blockchain. To address this skepticism, I would like to list some benefits of tokenizing RWAs.

Expand access to off-chain assets through encrypted channels

Tokenization allows more users to access off-chain assets because the crypto market is global and accessible to anyone with an internet connection. In other words, bringing assets onto the blockchain can lower the barriers to asset ownership.

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Bring off-chain returns to native crypto organizations

Crypto-native organizations are a particularly important example as they can benefit from access to off-chain assets but may not have access to these assets through traditional distribution channels. For example, DAOs without legal entities cannot open bank and brokerage accounts. Tokenizing off-chain assets enables DAOs to access investments that can enhance their financial situation; this potential enhanced performance benefits DAO members and the projects they manage.

Enhance the utility of off-chain financial assets by connecting with DeFi primitives

Tokenization also enables off-chain assets to be combined with DeFi, making the underlying assets more productive. For example, holders may tokenize US Treasury bonds and offer them as collateral in the DeFi lending market, borrow stablecoins, buy more Treasury bonds, and repeat this cycle to earn higher returns. This is just a simple example; bringing off-chain assets into DeFi can unlock more potential than leveraged trading. Combining tokenized off-chain assets with crypto-native mechanisms and tools can create useful new products, including those that can only exist in the crypto world.

Improve the economic situation of stablecoin users

The current market value of stablecoins exceeds $100 billion, but the underlying returns on these capital rarely flow to stablecoin holders. It is a bad deal for users who make these stablecoins valuable by committing their capital to them and using them in transactions to receive zero returns on their assets. One hopeful way to design better products for users is to use RWAs as a source of income for stable value tokens and pay returns to their holders.

Make on-chain capital available to off-chain borrowers

Off-chain borrowers, whether they are companies or individuals, also benefit from RWAs as crypto projects can increase borrowers’ access to capital. For example, Goldfinch facilitates debt investments in vehicles that provide funding to small and medium-sized enterprises in emerging markets. As the crypto economy grows and the value of on-chain capital increases, protocols that connect “real-world” borrowers with crypto capital can become increasingly important sources of financing in the off-chain world.

Improving Transparency and Efficiency in Off-Chain Capital Markets

Tokenization is expected to improve the operation of traditional capital markets by making transactions, settlements, and clearings faster, cheaper, and more secure. These benefits may not excite crypto natives in particular, but eliminating the inefficiencies of off-chain financial systems can make financial services cheaper and better for ordinary users.

Exciting progress has been made by startups in offering RWAs to users across a wide range of assets, from US Treasury bonds to private loans.

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