Real-World Assets (RWAs) tokenized on cryptocurrency networks are gaining attention as the fastest-growing asset class in the exciting world of Decentralized Finance (DeFi), according to a recent report by investment firm Galaxy Digital. The Total Value Locked (TVL) in RWAs nearly doubled in 2023, reaching $2.5 billion by the end of September, compared to $1.44 billion at the beginning of the year.
RWAs are the result of the tokenization process of rights to tangible or intangible assets on a cryptocurrency network. This includes company stocks, bonds, precious metals, oil, national currencies, and even real estate, among other assets.
The explosive growth of RWAs is directly linked to significant changes in the macroeconomic landscape. With rising interest rates and a bearish cryptocurrency market, investors are turning to traditional instruments such as US Treasury bonds and private credit for yield opportunities.
This has resulted in a decrease in demand for cryptocurrency-based DeFi products, which historically offered attractive yields. The market share of RWAs that can generate returns has significantly grown, jumping from 31% to 53% between January and September.
In 2023, RWAs saw a value increase of $1.06 billion, with the majority, approximately 82%, coming from assets such as Treasury bonds, real estate, and private credit. Among these categories, Treasury bonds and other bonds stood out, adding $557 million in value during the same period.
Although RWAs have shown strong growth, the market capitalization of tokenized versions of these assets is still 9.6% below its historical peak reached in 2022.
Not all RWAs are the same, with each having its own distinct qualities and use cases. While some variants like stablecoins and tokenized gold have been in circulation for some time, others like Treasury bonds have emerged recently in response to interest rate changes.
Notable RWA issuers include Centrifuge, focused on lending, with an active issuance of $238 million; Franklin Templeton, which issues tokenized Treasury bonds and has an active issuance of $310 million; and Wisdom Tree, which issues Treasury tracking funds and has $11 million in active RWAs.
The rapid growth of tokenized RWAs and the entry of traditional financial institutions into this space indicate that this trend may lead the industry during the next bull market, opening doors for new users who have never had contact with cryptocurrencies before.