The future of finance is evolving rapidly and at the forefront of this transformation is the tokenization of real-world assets (RWAs). Real assets such as commodities, real estate, land, equipment, bonds, and stocks possess intrinsic value due to their substance and properties.
Real world assets (RWAs) tokenize tangible real assets by linking physical assets to the blockchain.
With the total value of global property estimated around $378 trillion, at the end of 2022, real estate stands out as the most prominent asset class,
surpassing the combined value of global equity and bond markets as well as quadrupling the size of global GDP.
Tokenizing these tangible assets by linking them to the blockchain revolutionizes how they are accessed, traded, and managed by transforming them into revenue-generating models with added utility through a seamless, global, 24/7 distribution channel. This shift is creating unprecedented opportunities for both blockchain-based financial services and diverse non-financial applications.
Since May 2023, the total value locked (TVL) in non-fiat-backed stablecoins has surged from $2 billion to almost $8 billion, underscoring the explosive growth of tokenization.
At Layer Labs, we are at the cutting edge of this sector, actively engaging in research and collaborations to identify emerging trends and critical insights. In this article, we delve into the tokenization of the dollar, the barriers to traditional finance (TradFi) onboarding onto the blockchain, and how RWAs are pivotal for mainstreaming crypto by unlocking a vast market opportunity through tokenization.
A significant barrier has prevented on-chain finance from achieving global scale: much of DeFi currently operates within a circular economy, disconnected from the broader global economy of traditional businesses and services. The rapid growth of DeFi has been largely driven by mercenary capital and unsustainable yields fueled by inflationary token incentives. However, stablecoins have shown strong product-market fit for permissionless money as remittance.
Stablecoins are designed to maintain a stable value tied to the market value of an external asset, such as a fiat currency or commodity like the US dollar. Various methods are employed to ensure price stability, with the most common approach being the issuance of a token backed by US dollars held in custody by a centralized institution off-chain. This process effectively tokenizes the US dollar on-chain, bridging the gap between traditional finance and the decentralized economy.
In recent years, stablecoins have surged dramatically in supply, with over $165 billion now circulating on public blockchains—a remarkable increase of over 23,000% in just four years. Monthly spot trading volumes have exceeded $1-2 trillion, and approximately $150-200 billion in weekly volume is settled on-chain, dwarfing Bitcoin’s relative measure of $25-50 billion.
Stablecoins on Layer 1 networks recorded a staggering $6.87 trillion in transactions in 2022, surpassing Mastercard’s $6.57 trillion and PayPal’s $1.3 trillion, according to Bloomberg Intelligence crypto market analyst Jamie Coutts. He anticipates that stablecoins adoption growth, which has outpaced Bitcoin and Ethereum in the past two years, will accelerate further due to network effects and substantial improvements in blockchain scaling.
Circle, the issuer of the US Dollar-backed USDC stablecoin, suggests that blockchain infrastructure is poised to handle increased economic activity globally. Latin America, in particular, is expected to see millions of businesses and billions of individuals embrace regulated blockchain solutions for savings, payments, and credit to help with hyperinflation in their countries. With strong regulatory support and a growing fintech sector, Latin America presents an ideal environment for the broader adoption of stablecoins.
Stablecoins have highlighted one of crypto’s most valuable use cases: instant, global payments available 24/7 with no intermediaries, delays, or weekend closures. Their extensive use by individuals and businesses marks them as the pioneering tokenized real-world asset. The potential impact on traditional financial institutions' balance sheets is considerable, as replacing physical currency with stablecoins could open up opportunities for banks to offer improved credit and other financial services.
This rapid adoption of stablecoins within on-chain finance demonstrates a genuine appetite for tokenized RWAs on a global scale. This trend signals the beginning of a broader movement, indicating significant global demand for other liquid capital market products that provide utility and yield around the clock.
Regulatory uncertainty has hindered traditional finance (TradFi) from fully embracing on-chain finance. This was evident when Facebook announced its digital currency, Libra in June 2019, only to abandon the project by 2022 due to regulatory challenges. Many TradFi businesses faced similar obstacles, lacking the clarity to navigate the complex legal frameworks, especially considering the relatively low total value locked (TVL) in DeFi at the time.
However, the regulatory landscape has evolved significantly. The approval of multiple Bitcoin ETFs with substantial volume and ongoing discussions about Ethereum ETFs reflect this change. Financial giants like BlackRock and Franklin Templeton have launched tokenized funds, positioning the real-world asset (RWA) sector for rapid adoption by larger TradFi institutions and funds.
In March 2024, BlackRock, the world’s largest asset manager, launched BUIDL. Within just three months, its value surged from under $100 million to over $460 million, making it the largest tokenized treasury fund, surpassing Franklin Templeton’s $357 million fund launched in 2023. Together, these funds represent over 55% of the total assets under management (AUM) in tokenized government securities.
This move shows BlackRock’s confidence in the rise of RWA tokenization, aiming to tokenize $10 trillion of its assets in partnership with Securitize. Carlos Domingo, Securitize CEO, remarked, “Today’s news demonstrates that traditional financial products are being made more accessible through digitization.”
Since March, following BlackRock’s lead, the total value of tokenized treasuries has more than doubled from $700 million to over $1.5 billion. The next logical step is the tokenization of more US T-bills through multiple RWA chains, funds, and institutions on-chain.
Other notable developments include Deutsche Bank’s collaboration with Singapore’s central bank on asset tokenization and HSBC’s launch of tokenized gold for retail customers in Hong Kong, aligning with the government’s push for accessible digital assets.
Additionally, Tether now holds the 19th position globally in US Treasury holdings, surpassing Germany. According to their latest report, Tether holds $104 billion in direct and indirect US Treasury bill holdings.
TradFi has traditionally overlooked the advantages of utilizing blockchains. A Bank of America report mentions that these systems don't just cut costs; they also optimize supply chains and boost efficiencies significantly. The bank stated that the implementation of blockchain technology will accelerate among financial institutions and corporations as the “opportunity cost of uncaptured efficiencies increases.”
Fidelity International, an investment and retirement savings firm operating in 25 countries and serving over 2.4 million customers, has chosen JPMorgan’s Onyx Digital Assets blockchain to tokenize a money market fund. Stephen Whyman, Fidelity International's head of debt capital markets, stated, “The benefits to our clients and the wider financial system are clear; in particular, the improved efficiency in delivering margin requirements and reduction in transaction costs and operational risk.”
The direct channeling of customer funds into products without intermediaries is a net positive for business. The main reason more funds and institutions were not actively on-chain in the past was regulatory constraints, but as highlighted above, sentiment and mindshare are shifting, paving the way for broader adoption of tokenized RWAs in TradFi.
BlackRock’s BUIDL initiative demonstrates the strong product-market fit for tokenizing liquid assets, such as T-bills, on-chain. The next phase in advancing this sector involves developing infrastructure through interconnected products that enhance the utility of underlying assets with various on-chain financial services. Below, we highlight key examples of how different teams are capturing market share in this burgeoning field.
Launched in 2021 as Liquidity-as-a-Service (Laas) Vaults, they managed over $210M liquidity. In 2023, Ondo V2 introduced pioneering tokenized funds focusing on US Treasuries, including USDY and OUSG products.
USDY
USDY is a US Dollar based yield token secured by short-term US Treasuries and bank demand deposits, plus equity subordination. USDY is permisionless where anyone can utilize this yield and is designed to combine the accessibility of a stablecoin with high-quality, US dollar-denominated yield. USDY is available to Non-US Investors, both retail & institutional. In terms of their legal structure they are utilizing a senior secured loan model.
OUSG is a short term USD Governmant treasury, collaterallized by short-term US Treasuries (SHV). This is a permisionned product which is using a tokenized wrapper of BlackRock's SHV short-term Treasuries ETF, minus fees; slight interest rate risk to earn yield. This product is built for US and non-US but only for institutional investors. In terms of their legal structure they are utilizing a limited partnership interest model.
Both assets appreciate in redemption value with accrued yield, nurturing an institutional-grade ecosystem for liquidity, investor security, and asset functionality. Operating across Ethereum, Polygon, and Solana, they aim to broaden on-chain assets beyond cash-like products, such as money market funds and treasury notes, as detailed in their Ondo Global Markets initiative.
Fork of Compound V2, Flux Finance operates as an autonomous protocol overseen by the Ondo DAO. It facilitates both permissionless liquidity (eg. USDC) and permissioned assets (eg. OUSG) as collateral. Similar to Compound, Flux facilitates overcollateralized lending and borrowing using a peer-to-pool (p2pool) model. This technology is crucial for asset managers issuing products on-chain in the long run.
As one of the first DAOs, Maker has pioneered an Ethereum-based money market since 2020. It is among the most popular ETH-based platforms, enabling users to lend or borrow without credit checks. Notably, more than 2.1M ETH is locked in Maker CDP contracts.
By the end of 2023, Maker achieved record revenue and deposits, driven by RWAs and U.S. Treasury yields. Currently, Maker boasts over $8.5B in TVL, with $2.2B coming from RWAs. Annual profits are estimated at around 100M DAI, approximately 4% of the market cap, with a P/E ratio of 25.
Maker’s "endgame plan" involves transitioning Maker Core to a basic maintenance role, while more complex initiatives move into sub-DAOs. This is facilitated by Maker’s Direct-Deposit Modules (D3Ms), which establish wholesale credit lines denominated in DAI. These modules allow external protocols to access DAI directly from Maker, with two active protocols, Spark and Morpho. These D3Ms generate significant fees for MakerDAO, with Spark earning $70M DAI and Morpho $55M DAI annually. Thanks to this framework, annual expenses have steadily decreased, from 27M DAI in 2022 to 17M in 2023, and so far only 2.5M in 2024.
Spark, a fork of Aave V3, serves as a DeFi infrastructure for the DAI ecosystem within the MakerDAO community (Maker Allocator SubDAO). It comprises three modules:
1. SparkLend: DAI-centric money market protocol
2. sDAI: Yield-bearing stablecoin in the Dai Savings Rate (DSR) module, distributing Maker protocol revenue to DAI holders.
3. SparkConduits: Provides direct liquidity from Maker to protocols within the Maker Allocation System.
Unlike Aave, Spark uses a fixed interest rate set by governance, unaffected by supply and demand, up to a governance-set debt ceiling. Currently, they offer 8% yields to attract more users, with plans to lower the rate as usage increases. Spark connects with several DeFi protocols, including AAVE, zkSync, Sei v2, Gnosis, Karak etc.
Spark, Morpho, and Flux operate with similar use cases: building on top of the main protocols issuing RWAs, such as Maker and Ondo.
Kinto was recently launched on 23rd May as an L2 rollup utilizing Arbitrum Nitro technology. It settled on Ethereum Mainnet and is dedicated to providing secure access to financial services.
Kinto’s L2 incorporates encrypted KYC, insurance, and AML & fraud monitoring directly at the blockchain level. Only verified participants can conduct transactions, significantly reducing the risk of smart contract hacks, rugs, or scams. Key features include native account abstraction, built-in insurance, revenue streams, on-chain governance, and comprehensive financial services.
Kinto aims to bridge the gap between general-purpose networks like Ethereum or other L2s, which face security risks, scams, and hacks, and private networks like Provenance, which are often isolated and lack connectivity to broader ecosystems. Kinto offers a safer intermediary option.
Plume is a modular L2 integrated with Arbitrum Orbit and Celestia, dedicated for RWAs that integrates asset tokenization and compliance providers directly into the chain. Testnet is up and running as an L2 rollup on the Ethereum Sepolia testnet with Mainnet date unknown. Plume boasts a robust ecosystem with over 50 RWA projects, spanning popular sectors like collectibles, DeFi, marketplaces, private credit, ReFi, and yield-bearing assets.
Recent projects have shown that builders are innovating and optimizing in the RWA field in diverse ways, shifting from traditional fractionalization to on-chain tokenization. This shift expands the range of asset classes, stakeholders, and regulatory frameworks.
Almost any valuable asset can be tokenized and put on the blockchain, unlocking a market potentially worth trillions of dollars. According to a 2022 report by the Boston Consulting Group and ADDX, a market operator in Singapore, the projection for tokenized assets could hit $16T by 2030, with a best-case scenario of $68T. Similarly, another report from digital asset manager 21.co suggests that the market for tokenized assets could vary from $10T in a bullish case to $3.5T in a bearish scenario.
The hype around real-world assets (RWAs) is heating up nearly 20 years after Bitcoin was first introduced. Examining the ‘Cycle of Technological Innovation,’ it appears that now is the perfect time for attention on RWAs and institutional adoption. Consider the development of the internet and mobile phones as examples: the internet was developed in the 1960s but became widely adopted in the 1990s, and smartphones followed a similar pattern, with the first released in the early 2000s.
Crypto is poised to integrate with existing financial software increasingly, bringing RWAs on-chain via tokenization and offering improved liquidity and market access. Modern global asset ledgers that operate 24/7 and are permissionless will become the preferred settlement layer for an expanding range of assets. Stablecoins, tokenized treasuries, and ETFs are just the beginning of this transformation.
Tokenization translates ownership into blockchain code, enhancing automation and exposing a broader pool of investors to previously hard-to-reach asset classes.
While use cases like stablecoins illustrate the product-market fit of tokenization, growth has been hindered in recent years by regulatory uncertainty. However, with the adoption of tokenization by reputable TradFi giants such as BlackRock and Franklin Templeton, who have already tokenized T-bills, it's safe to assume more assets like stocks and real estate will come on-chain.
As the digital asset space matures, traditional finance will increasingly integrate with tokenized assets and on-chain infrastructure, gradually transitioning to a fully digitalized future over the next decade, much like the Internet's adoption path over the past 30 years. This transformation will not only change the nature of assets but also require asset managers, issuers, data providers, and other intermediaries to rethink their business models to stay relevant.
We expect crypto to integrate seamlessly with existing financial software and build bridges into the physical world, enabling tokenization to grow into a multi-trillion-dollar industry that impacts billions of people worldwide. This evolution will revolutionize access, trading, and management of assets, creating new opportunities and efficiencies in the global financial landscape.
What Is a Stablecoin? (But Actually)
Stablecoins Eclipse Mastercard
Global Stablecoin Settlements Already At 50% to That of VISA and Mastercard
Federal Reserve: Stablecoins Growth Potential and Impact on Banking
BlackRock Launches Its First Tokenized Fund
Tokenization Is Likely to Transform Infrastructure and Financial Markets: Bank of America
Fidelity International Tokenizes Money Market Fund on JPMorgan’s Blockchain
Introducing Ondo Global Markets
Relevance of on-chain asset tokenization in ‘crypto winter’
The State of Tokenization - 21.co
Maker Annualized Revenue Soars Past $200M to New-ATH
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