Quick thoughts around why I recently changed my mind about RWAs:. Long term:. RWAs will exist on-chain long term.

19 Aug 2023, 18:58

Quick thoughts around why I recently changed my mind about RWAs: Long term: RWAs will exist on-chain long term. I have always believed this. Question is how they get on chain. Why I wasn't bullish RWAs in 2018: In 2018, many projects were putting real estate on chain, price tracking US equities for investors in other countries (e.g. giving the rest of the world access to the S&P 500, Apple stock, etc), or creating debt markets for real-world borrowers. But there were many obstacles: -- Institutions and high-net worth individuals make up the bulk of the demand, but did not want these products on-chain because they did not lack access. Institutional players & HNWI could already access real estate, bonds, and US equities, so they would not change their processes. Putting these assets on-chain was only incrementally beneficial and most of the real benefits (access to defi, composability, etc) couldn’t be realized because there wasn’t infra for it yet. --Supply was sporadic & had negative self selection. Supply of real estate for example was usually a single building or small cluster of buildings. Few people with real supply were putting it on chain. Usually, the type of assets that came on-chain were those that could not get demand in the real world, and so there was a negative self selection of assets that were available on-chain. This further made it harder to generate demand. -- Legal issues / enforcement issues. -- UX & custody issues. Most of demand was coming from non-crypto natives. Crypto UX and custody were a big blockers. Few had the capability to safely self-custody millions in assets. Why now: -- The US interest rate environment changed from 0% to 5%. This means (1) dollars on chain want access to real-world yield and (2) there is now demand off-chain for low APR loans. -- Defi matured. We now have stablecoins, lending markets, exchanges on-chain. The “theoretical” benefits of putting real world assets from 2018 can now be realized. -- Not all RWAs will “make it” this cycle. Simple, fungible assets like t-bills will make it first. Bonds are in the middle. Real estate will still lag and may not happen in the next few years. -- UX and custody are no longer huge issues. Crypto-natives want real world yield. Orgs who are already familiar with operating on-chain want access to cheaper dollars. Both parties have familiarity with crypto and also custody and UX have improved a lot since 2018. Crypto will be the backbone to our global financial system. It taking its first steps toward real world assets today.