Decentralized Finance (DeFi) generates yield through on-chain activities and investors can earn yield by providing liquidity. Yields many times came in the form of inflationary tokens and were highly profitable during a bull run, but resulted in losses when prices declined and on-chain activity decreased.
The search for sustainable returns has created the emergence of protocols that generate a yield from Real World Assets (RWAs). RWAs can be cash, metals like gold and silver, real estate, corporate debt, insurance policies, salaries and invoices, consumer goods, credit notes, or royalties. According to a report by BCG and Addx Markets, the RWA sector will reach $16 trillion by 2030.
Blockchains rely on bridges for RWAs to be represented by tokens. Developers use smart contracts to establish the rules and conditions for the use of tokens, including the rights and obligations of token holders. An off-chain guarantor assures RWA tokens are always redeemable for the underlying assets.
RWAs have long been a part of yield generation in TradFi. By connecting the on-chain liquidity providers and off-chain borrowers, investors can now get sustainable yield without the high volatility associated with the DeFi sector. Additionally, investors can add non-correlated on-chain assets to their portfolios.
RWA save money by cutting out intermediaries, provide access to smaller investments by fractionalizing an asset through a token, and improve access for emerging-market businesses. RWAs also enhance liquidity in traditionally illiquid assets, and provide transparency by allowing investors to see ownership, economic value, and track-record.
These are the top DeFi protocols leading the way in RWAs:
➡️ MakerDAO: $680M+ in RWAs collateralize their DAI stablecoin. MakerDAO partnered with Monetalis, Huntingdon Valley Bank, and Société Générale.
➡️ Ondo Finance: Tokenizing short-term US treasuries, investment grade bonds, and high-yield corporate bonds.
➡️ Maple Finance: With nearly $2B in total loans issued, Maple Finance is expanding to receivables financing, US treasuries, and insurance refinancing.
➡️ Obligate: On-chain investments on Polygon, via a fully regulated Swiss ledger-based debt security. Backed by Circle, EarlyBird, and SIX Ventures.
➡️ Centrifuge: This on-chain ecosystem for structured credit has already financed $298M in total assets, integrating $220M of RWAs on MakerDAO.
➡️ Goldfinch: Over $100M in active loan value, with junior and senior tranches for assets focused on emerging markets.
➡️ Clearpool: Decentralized credit marketplace to vetted institutions, with a staking oracle to determine interest rates.
With RWA tokenization gaining traction in institutional circles, these players will play a significant role moving forward.