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How Tokenized Real World Assets Are Outperforming Crypto

Jul 9, 2024

As a researcher with extensive experience in the blockchain and digital asset space, I’m excited about the growing trend of real-world asset (RWA) tokenization among institutions. The recent entry of financial giants like BlackRock into this space is a testament to its potential. Leveraging blockchain technology, RWAs can be issued, managed, and distributed more efficiently compared to their off-chain counterparts, especially for private and alternative assets.

The process of converting real-world assets into digital tokens, known as Real World Asset (RWA) tokenization, has gained significant traction amongst financial institutions. Notable industry leaders like BlackRock have joined this trend by introducing their own digitally represented assets.

Utilizing blockchain technology, we can facilitate the issuance, management, and distribution of traditional assets in a more efficient manner than their non-blockchain equivalents, particularly private and alternative assets.

Since 2018, the Security Token Market has been an active player in this sector, monitoring over 600 tokenized assets. Based on our observation, here are some emerging trends and their respective performances:

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Based on recent conversations, the BlackRock USD Institutional Digital Liquidity Fund ($BUIDL) represents a growing trend among institutions: investing in tokenized money market funds. In June 2024 alone, this fund experienced a noteworthy increase of 5.93%, adding $483,311,326.32 to its assets under management (AUM).

How Tokenized Real World Assets Are Outperforming Crypto

How is putting a fund like this on-chain worth the effort?

This token, which was issued on the Ethereum blockchain through Securitize, has proven useful in various ways. For instance, it recently served as collateral on FalconX, a prime brokerage firm, to obtain loans and establish derivative positions.

As a researcher studying the venture capital industry, I came across an intriguing story shared by Mike Reed at the TokenizeThis 2024 conference. He recounted an instance where a venture capitalist expressed his intention to employ their tokenized money market fund ($BENJI) to finance portfolio companies. The rationale behind this is that instead of sending traditional funds, he can directly transfer a yield-generating asset to the company’s treasury using blockchain technology. In theory, this would allow him to monitor how the funds are being utilized by the company, providing greater transparency and control in the investment process.

As a dedicated researcher, I’ve come across numerous instances where cost savings and enhanced utility have been discovered through practical experimentation and real-world application. Let me share some illustrative examples with you:

  • Broadridge reports $1M savings for every 100K repo transactions
  • Through a Project Guardian proof of concept, Onyx by JPMorgan reports cutting rebalancing portfolios from 3,000 steps to a few clicks of a button (assuming 100,000 discretionary portfolios)
  • The proof-of-concept above also resulted in eliminating cash drag from discretionary portfolios by around 18% annually through the use of smart contracts.
  • Figure has tokenized $7B+ worth of HELOCs. By issuing, warehousing and securitizing them, they’ve saved 150 bps out of the process. These savings go to the issuer and the end investor.
  • Hashnote’s USYC product is looking to work with Broadridge to access the intraday market (primarily for banks), boost their yield, and then pass on to their customers.

Based on the given use-cases, which assets does the Security Token Market focus on tokenizing? The market encompasses equities represented on the blockchain as security tokens, units of limited partnership funds, real estate, and debt instruments.

How Tokenized Real World Assets Are Outperforming Crypto
According to STM’s RWA Securities Market Update – June 2024 report, a hypothetical collection of security tokens based on all STM-monitored RWAs yielded a return of +13.73% in June 2024, outpacing the CoinDesk 20 Index’s decline of -11.74%. The downturn in the crypto market might be linked to macroeconomic factors, with speculations pointing towards fewer interest rate reductions.

As an analyst, I’ve noticed that the concurrent decrease in inflows to bitcoin ETFs and the resulting negative sentiment have adversely affected the price of bitcoin and other cryptocurrencies within the CoinDesk 20 index. To gain a more comprehensive understanding of the market dynamics during this period, our team at STM will conduct an in-depth analysis comparing the performance of various asset classes throughout June 2024. You can access our latest research report for further details.

As a researcher, I’d like to emphasize that the perspectives conveyed in this article are my own personal take and may not align with those held by CoinDesk, Inc., or any of its proprietors and partners.

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2024-07-10 19:06