The ascent of Real World Assets (RWA) in the blockchain domain has been nothing short of meteoric. Capturing a colossal growth of over 700% in 2023, RWAs have seen their Total Value Locked (TVL) surge to an impressive $5.8 billion. This expansion signals a new era where the bridging of traditional finance (TradFi) with decentralized finance (DeFi) is not just a vision but a tangible reality.
The RWA Potential
RWAs represent an evolution of dynamic from traditional finance (TradFi) to decentralized finance (DeFi). TradFi has been bogged down by layers of intermediaries, leading to inefficiencies and restricted access for asset holders. DeFi, powered by blockchain technology, promises to dismantle these barriers, with RWAs at the forefront of this transformation. The IMF's 2022 report underscores the cost savings of DeFi over TradFi, largely due to the elimination of intermediary costs - a key advantage that RWAs capitalise on.
The Path to DeFi for RWAs
The journey of RWAs from the physical to the blockchain is underpinned by tokenization - a process that encapsulates the value and ownership details of assets into digital tokens. For assets that fall under regulatory scrutiny, regulatory technologies ensure that tokenization adheres to legal frameworks, making RWAs compliant for integration into DeFi protocols.
Ensuring Accurate Valuation of RWAs
Accurate valuation is critical for RWAs within DeFi. This is where Entangle’s Oracle infrastructure comes into play, addressing the Oracle Problem via customisable data and authenticated aggregation from multiple sources. This decentralized approach to data ensures that RWAs are priced accurately and transparently, reflecting their real-world value. By embedding the data aggregation and calculation on-chain, Entangle's Oracle provides a verifiable and tamper-proof mechanism, which is essential for maintaining the credibility of RWAs in DeFi.
Unleashing Liquidity and New Opportunities
Entangle’s Liquid Vaults stand out by providing liquidity and transferability for RWAs. This product enables protocols to tap into liquidity beyond the confines of DEXs and bridges, thereby driving innovation in the use of RWAs. For instance, Liquid Vaults can allow the creation of composable, transferable Liquid Staked Derivatives of real world assets. By providing expanded dominion, authenticated data and added layers of security for issuers, Entangle sets a true base to facilitate RWAs to Web3.
Direct Impact and Real-World Applications
The direct impact of Entangle’s products on RWAs can be illustrated through various real-world applications:
- Treasury Bills: Entangle's Liquid Vaults enhance the utility of assets within the DeFi ecosystem by enabling collateralisation and utility of liquidity provider (LP) positions. This combined with our authenticated data and cross-chain messaging solution, enables seamless and secure introduction of Treasury Bills, into the decentralized finance world. Through these Vaults, investors can engage with low-risk government debt instruments, leveraging the transparency, security, and accessibility of blockchain technology. Entangle’s Oracle complements this by ensuring that the real-time valuation of T-Bills remains precise and immune to manipulation, mirroring their true market worth and yielding rates. Consequently, government debt instruments emerge as an appealing asset class for a varied investor base in the DeFi sector, leading to enhanced market efficiency.
- Real Estate: By utilizing Entangle's Oracle for real-time data, real estate assets tokenized on the blockchain can be priced dynamically, allowing for innovative investment strategies like fractional ownership or global investment pools. This could dramatically increase liquidity and investment opportunities in the real estate market, breaking down geographical and economic barriers to entry. Issuers can also add their own security layer with customised local keepers (messengers) to ensure there are added layers of control to the process.
- Private Credit Investments: Liquid Vaults bring new life to the private credit space by offering greater utility of tokenized assets, allowing for the creation of more dynamic lending opportunities. By leveraging Entangle’s Oracle, these assets benefit from real-time, trustworthy valuation, which helps to maintain market integrity and confidence. This integration allows for a broader pool of investors to engage in private credit markets, which were traditionally dominated by large-scale institutions, thus widening access and participation in this sector.
- Commodities Trading: Entangle’s infrastructure can change the commodities market. By tokenizing commodities like gold, oil, or agricultural products, they can be traded on DeFi platforms with real-time pricing provided by Entangle’s Oracle. This could also open up the market to smaller investors through fractional ownership and provide hedging opportunities against market volatility, potentially stabilizing prices in larger markets.
- Supply Chain Finance: Entangle’s Oracle can provide a transparent, real-time valuation of goods and invoices in the supply chain finance ecosystem. Enterprises can utilise the Entangle Modular Blockchain to authenticate messages, data and deploy smart contracts that speak with Dapps on any chain of choice or multiple ecosystems.
- Art and Collectibles: By tokenizing assets like artworks or rare collectibles, they become accessible to a global pool of investors. Entangle’s Oracle ensures that these tokenized assets are valued accurately and up-to-date, facilitating a more dynamic market where assets can be traded or used as collateral for loans.
- Insurance Products: Entangle’s infrastructure could enable the creation of decentralised insurance pools that allow users to invest in and get coverage from a wide range of insurance products. The Oracle and customisable smart contracts can play a vital role in pricing premiums and payouts in real-time based on the latest market data and risk assessments, bringing transparency and efficiency to the insurance industry.