Income RWA Market Report: U.S. Treasuries Drive Growth, Crypto User Demand Surges

There are various types of real-world assets on the blockchain ( RWA ), each with its own characteristics and uses. While some RWAs such as stablecoins and tokenized gold have existed for years, new types of RWAs like U.S. Treasuries have emerged recently against the backdrop of rising interest rates. This article will outline the following types of income-generating RWAs:

• Real Estate
• Private credit
  -national debt

Note: This analysis focuses on RWA tokenized assets and their market capitalization, and does not address the underlying protocol or ancillary services. To avoid overshadowing the growth of other small-cap RWAs, the inclusion of stablecoins ( currently the largest RWA, worth about $125 billion ).

Integration of the physical and digital worlds

RWA is created by the issuer through one or more of the following activities:

• Access to real-world assets
• Tokenize assets on-chain
• Distributing RWA tokens to on-chain users

Without an issuer (, it can be a centralized company, a decentralized protocol, or a combination of both ), RWA will not exist on the chain.

Some major RWA issuers include:

• Centrifuge: The largest on-chain private credit issuer with $238 million worth of active RWA
• Franklin Templeton: A traditional financial institution issuing tokenized government bonds, active RWA value of $310 million
• Wisdom Tree: An institutional capital markets company that issued a Treasury tracking fund with an active RWA valued at $11 million

These issuers demonstrate how off-chain entities can support on-chain RWA. Franklin Templeton and WisdomTree are two veteran traditional finance companies whose core business is agnostic to crypto and blockchain. Founded 76 years ago, Franklin Templeton provides funds to individuals and institutions with $1.5 trillion in assets under management. Founded in 1985, WisdomTree offers a diversified range of exchange-traded products with $95.9 billion in assets under management.

In recent years, these companies have begun to explore RWA, aiming to meet the needs of institutional clients by tokenizing traditional financial instruments. Although still in the early stages, the issuance of RWA by traditional financial companies is expected to attract a large number of new users into the encryption space.

Revenue-based RWA growth

As of Sept. 30, RWA's market capitalization stood at $2.49 billion, down 9.6% from its peak of $2.75 billion on April 19. Despite strong growth in Treasuries-related RWAs, active lending by private credit issuers has declined significantly over the past 18 months, resulting in a market capitalization of RWA below record highs.

From January 31 to September 30, the value of the non-stablecoin RWA increased by $1.05 billion. The $855.7 million added over the past three quarters came from Treasuries and other bonds, real estate and private credit.

! Income RWA Report: U.S. Bonds Drive Earnings Growth, Crypto-Native User Demand Surges

Private Credit

Private credit is a form of lending provided by non-bank institutions. After the 2008 financial crisis, the private credit market grew significantly due to increased banking regulation. The global private credit market is currently valued at $1.5 trillion.

In the first three quarters of this year, the value of on-chain private credit loans increased by $210.5 million (84% ). Most of the (74% growth ) came from Centrifuge, which increased its loan balance by $155.7 million. Clearpool saw the fastest growth, with loan balances up 966% to $23.96 million.

! Income RWA Report: U.S. Treasuries Drive Earnings Growth, Crypto Native User Demand Surges

Despite the rise this year, the total value of on-chain private credit is still 70% lower than the historical high of $15.4 billion on May 15, 2022. After the Federal Reserve raised interest rates, active loans decreased significantly, and yields increased.

On-chain private credit yields are significantly higher than DeFi lending protocols such as Aave and Compound. In the first three quarters of this year, the average daily spread between the two was 7.7%. However, private credit tokens may not be overcollateralized and have different risk profiles.

real estate

Real estate is a type of tangible asset that includes residential, commercial buildings, and land. The global real estate market is valued at $613 trillion in 2023.

On-chain real estate grew the least, with a total value of $178 million in the first three quarters of this year. RealT has a 49% market share. Tangible grew the fastest, from $100,000 to $64 million.

! Income RWA Report: U.S. Treasuries Drive Earnings Growth, Crypto Native User Demand Surges

Treasury and other bonds

U.S. Treasuries are considered the safest yielding assets. The global bond market was valued at $133 trillion in 2022.

In the first three quarters of this year, the value of tokenized Treasuries and other bonds increased by $557.05 million. Ondo Finance, Franklin Templeton, and Matrixdock are the top three issuers, with a combined 85% market share.

! Income RWA Report: U.S. Treasuries Drive Earnings Growth, Crypto-Native User Demand Surges

Frigg.eco issues sustainable infrastructure-related bonds, more similar to corporate bonds.

stUSDT is another tokenized Treasury bond asset with a market cap of about $1.8 billion, but it has been criticized for its lack of transparency.

For nearly 18 months, short-term U.S. Treasury yields have been higher than on-chain stablecoin deposit rates, with an average daily spread of about 3%. The average daily spread between AAA-rated corporate bonds and on-chain interest rates is 2.7%.

! Income RWA Report: U.S. Treasuries Drive Yield Growth, Crypto-Native User Demand Surges

Prospects

The demand for yield from crypto-native users is driving on-chain RWA growth. About 82% of the value added to RWA this year came from income-producing assets such as private credit, real estate and Treasuries. Income RWAs as a percentage of total market capitalization rose to 53% from 31% at the beginning of the year, near an all-time high of 57%.

Between 2021 and 2023, the Federal Reserve's aggressive interest rate hikes raised the benchmark interest rate to its highest level since 2007, creating new demand for DeFi users looking for high yields.

! Income RWA Report: U.S. Treasuries Drive Earnings Growth, Crypto-Native User Demand Surges

User analytics

Most RWA demand comes from a small number of crypto-native users, not new users or traditional investors. The average address age of RWA token holders is 882 days (2.42 years ), which is much earlier than the average RWA age of 375 days.

20% of RWA user addresses start trading before 2023. 34% of short-term users come from assets issued by traditional financial companies such as Franklin Templeton and WisdomTree, showing that these products are attracting new users.

Risks and limitations of RWA

Although it is issued on the public chain, RWA does not provide users with barrier-free financial services. In most cases, users are required to complete KYC/AML verification, credit checks, and there may be a minimum balance requirement. RWAs face similar or more restrictions than traditional finance.

In addition, RWA also presents unique risks. For example, private credit tokens may be unsecured, and defaults by off-chain borrowers could lead to losses for on-chain depositors. Issuers need to manage risks through risk pricing and DAO governance.

! Income RWA Report: U.S. Treasuries Drive Earnings Growth, Crypto-Native User Demand Surges

Fed policy implications

The Fed's policy has given a huge boost to the popularity of RWA this year. Rising interest rates have made off-chain yields more attractive to on-chain users and have also changed the dominant RWA type. In Q2 2022, private credit accounted for 56% of the total RWA, and government bonds accounted for 0%; In Q3 2023, private credit fell to 18%, and government bonds rose to 27%.

! Income RWA Report: U.S. Bonds Drive Earnings Growth, Crypto Native User Demand Surges

Conclusion

RWA growth is primarily driven by demand from native crypto users, rather than new users. But the involvement of traditional financial giants shows the potential to attract new users. RWA is gaining momentum in 2023, with many assets approaching new highs in terms of market capitalization. Changes in the macro environment and user needs will continue to influence the development of this field.

! Income RWA Report: U.S. Treasuries Drive Earnings Growth, Crypto Native User Demand Surges

! Income RWA Report: U.S. Treasuries Drive Earnings Growth, Crypto-Native User Demand Surges

! Income RWA Report: U.S. Treasuries Drive Earnings Growth, Crypto-Native User Demand Surges