Why will Ethereum dominate most of the RWA market?

Why will Ethereum dominate the RWA market?

Written by: Ryan Berckmans

Translated by: TechFlow

Ethereum’s dominant position in the field of tokenized real-world assets (RWA) is growing stronger. Recently, the Avax Foundation of Avalanche announced that they will purchase tokenized physical assets worth $50 million on their chain. This may seem like insignificant news, but I believe it is actually an important sign of future development. Let me try to explain why Ethereum has consolidated its early dominant position in this most important market of tokenized real-world assets.

Firstly, it is important to note that tokenizing real-world assets (RWA) is currently the most important growth area for cryptocurrencies. Every type of asset in the world will eventually be tokenized. This field has already entered the vertical part of its S-curve. When evaluating the success of a specific chain, the market value of tokenized assets may soon be as important, if not more important, as DeFi TVL or stablecoin market value.

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In terms of market structure for tokenization platforms, the construction cost of tokenization platforms/protocols is high. In the process of tokenization design, there are a series of reasonable, asset-related choices involved. This naturally leads to market fragmentation.

The huge potential market and fragmentation will ensure that this fiercely competitive field has many participants.

Avalanche is purchasing $50 million worth of tokenized assets to help drive their tokenization platform. This subsidy may be important for them as, to my knowledge, they are already behind in this fiercely competitive market.

Another reason why Avalanche is investing $50 million is perhaps in the hope of stimulating a successful virtuous cycle by increasing their tokenized asset metrics. I don’t think they will have an easy time competing with Ethereum, of course. However, this industry will be very large, and even as a small part of the market, they may carve out important business.

Several key metrics have emerged in the field of tokenized assets. Let’s explore them and see why Ethereum performs well in this regard.

Firstly, the market value of on-chain tokenized assets will be similar to the market value of stablecoins. The higher the market value, the better.

Currently, Ethereum has approximately $300 million worth of tokenized US Treasury T-Bills, as well as tokenized assets from other asset categories (the exact quantity is uncertain. For example, you can purchase Coinbase COIN stock on Ethereum).

Stellar also has an additional $300 million worth of tokenized US Treasury T-Bills. But don’t get too excited about Stellar: the most important factor in the growth of tokenized assets may be the on-chain market, where Ethereum dominates.

For example, to my knowledge, Stellar’s T-Bills are tokenized through one platform (Franklin Templeton), while Ethereum’s T-Bills are tokenized through eight different competing platforms, including Franklin Templeton.

On-chain markets are crucial for the growth of tokenized assets, as they enable the ability to trade and exchange with other participants.

This summer, traditional finance and governments have been very excited about the inherent benefits of tokenization, including instant settlement, fractional ownership, and global reach. This is a very good sign. But it’s just the first phase.

In the coming quarters or years, traditional finance will also get excited about tokenization, enjoying the benefits of as many participants, mature money blocks, and as much liquidity as possible to minimize risks.

This is where Ethereum’s strongest advantage lies in this critical market:

You can tokenize any asset on any chain, but only on Ethereum do these assets have: 1) the strongest property ownership (from our focus on maximum trust and neutrality); 2) the most users and liquidity for trading. Compared to other L1s, Ethereum’s ecosystem, users, integrations, tokens, chains, etc., are 10 to 1000 times larger in scale; 3) the best currency Lego blocks to use. Compared to other L1s, Ethereum’s applications and DeFi protocols are 10 to 100 times more mature, with more quantity, variety, and better management, etc.

I mentioned a few key metrics that have emerged in this field. The first one is market capitalization.

The second metric is the proportion of market capitalization used for DeFi, that is, the subset of market capitalization used for DeFi. Ethereum has made great success in this aspect and will continue to do so.

The third metric I want to emphasize is the proportion of tokenized asset market capitalization for on-chain financing. There is a huge difference between a company or on-chain foundation investing $50 million for tokenizing their own assets and customers paying $50 million USDC on-chain to represent their assets. One is inventory, the other is business.

Public chains are big markets. Ethereum’s maximum trust and neutrality are like a market security team.

Ethereum’s vast user base, operators, and liquidity network are like a thriving market filled with commodities. And the first-class money Lego and infrastructure are there to minimize friction and make purchases cheap and enjoyable.

As RWAs become globally popular, we can expect Ethereum and our layer 2 extensions to capture the majority of the growth. This is not only because we are the excellent choice for tokenization, but also because ETH is the best market in the world.

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