RWA Market Analysis: Current Situation, Opportunities, and Challenges

In today's fintech field, RWA (Real World Assets) has become a highly anticipated focus, especially in the integration and development with DeFi (Decentralized Finance). This article will conduct an in-depth analysis of the RWA market, exploring its development history, impact on DeFi, timing of large-scale blockchain adoption, and the many challenges it faces, in order to present readers with a comprehensive and clear picture of the RWA market.

1、 Background of the Rise of RWA Market

（1） The Development History of DeFi

In the past few years, DeFi has developed rapidly. During the DeFi Summer of 2020-2021, DeFi TVL surged from hundreds of millions of dollars to hundreds of billions of dollars, with a large influx of funds and the emergence of innovative applications. During bear markets, DeFi TVL remained stable at around $50 billion.

（2） The Rise of RWA Track

In this context, the RWA track has attracted attention, bringing opportunities for expanding the DeFi territory. Many cryptocurrency friendly jurisdictions are pushing for its implementation, and many well-known traditional institutions are testing the waters. In the past three months, most related tokens have risen. Citibank predicts that RWA will bring $5 trillion in assets to the chain by 2030.

（3） Traditional finance and blockchain integration event

In the first half of 2022-2023, many related events occurred, such as the Monetary Authority of Singapore launching a project to explore asset tokenization, KKR tokenized funds, and UBS issuing tokenized notes, demonstrating the trend of traditional finance and blockchain integration.

2、 The significance and value of RWA in the DeFi market

（1） Asset expansion

RWA brings a huge asset scale and diverse asset types to DeFi, covering various assets such as stocks and bonds. Many projects are exploring related businesses, involving both established and emerging DeFi protocols.

（2） The advantages of blockchain empowerment

Reduce business friction: Traditional financial transactions are cumbersome, while blockchain, as a shared ledger, can achieve transaction settlement and purchase confirmation, reduce costs, improve efficiency, and eliminate counterparty risks.

Flexibility and composability: Blockchain is programmable, assets on the chain can be split and combined, smart contracts are automatically executed, there is no default risk and low cost, and it can also achieve free development, which is superior to the flexibility achieved through legal contracts off chain.

Transparency and Traceability: Asset tokenization is similar to securitization, but after tokenization, asset trading is transparent, investors can trace underlying assets, and better prevent risks. DeFi is more transparent than TradFi.

In short, blockchain has significantly empowered DeFi, and traditional financial institutions embracing DeFi are profitable. In the future, asset holders may be more inclined to trade assets in the form of RWAs.

3、 Analysis of the timing for large-scale RWA on chain

（1） Previously hindering factors

Previously, real assets were restricted from being put on the blockchain mainly due to unclear regulatory policies and immature blockchain infrastructure.

（2） Current driving factors

Optimization of regulatory environment: Some regions actively embrace Web3 technology and implement central bank digital currencies. Various countries have also introduced encryption related regulations, which are mostly aimed at preventing crime and risks, but provide favorable conditions for the development of RWA.

Improved infrastructure: The improvement of public chain performance, the development of cross chain technology, the evolution of token standards, and the advancement of DID and ZK technologies can all support the development of RWA, making it ripe for large-scale on chain deployment.

4、 Challenges Faced by RWA Market

（1） Regulatory policies

Although the regulation of the global cryptocurrency industry is becoming stricter, it is not unified, which will hinder RWA service providers from expanding into the global market and limit the ability of blockchain to leverage global liquidity advantages.

（2） Traditional financial system

The traditional financial system is complex, and major countries have low enthusiasm for embracing DeFi. Except for some crypto friendly regions, areas with weak traditional financial systems may have development opportunities.

（3） DeFi's own issues

DeFi has security issues such as code vulnerabilities and price manipulation, and decentralized governance mechanisms may result in no one to cover losses.

（4） Web3 Account System

If a large number of RWAs are put on the chain but there are not enough players on the chain, the development is limited, and the user experience of the existing blockchain account system is poor, although new account technologies are developing, the experience needs to be improved.

5、 Summary and Prospect

Overall, we are optimistic about the long-term development of RWA and believe that blockchain is a better financial carrier, but we should also recognize its short-term challenges. In the short term, traditional financial institutions may use blockchain as an incremental business channel, and the RWA field may be mixed with good and bad. RWA may first appear on a large scale in licensed chains, and its development is expected to go through a process similar to Gartner Hype Cycle.