The Future of Finance: Real World Assets and DeFi

Allo is at the forefront of transforming the financial landscape by seamlessly integrating Real World Assets (RWAs) into the decentralized finance (DeFi) ecosystem. As a platform designed to empower users, Allo enables the creation of on-chain funds that unlock liquidity and investment opportunities for assets like real estate, private credit, and treasury bills. By bridging the gap between traditional finance (TradFi) and DeFi, Allo is redefining how individuals and institutions interact with and invest in tokenized assets."

As decentralized finance (DeFi) evolves, it is creating building blocks for a new, accessible, and more inclusive financial system. One of the most transformative narratives in DeFi is the integration of Real World Assets (RWAs), which has the potential to reshape the financial landscape. Let’s dive deeper into the current state of DeFi, the potential of RWAs, and how this synergy could redefine global finance.

What Are Real World Assets?

RWAs encompass a broad range of tangible and intangible assets, including {1}:

• Commodities

• Real Estate

• Treasury Bills

• Private Credit

• Artwork

• Equipment

• Intellectual Property

  
  

By bringing these assets on-chain, DeFi platforms enable greater liquidity, transparency, and accessibility.

The Current Landscape of RWAs in TradFi

Understanding the potential of RWAs in DeFi requires assessing their scale and impact in traditional finance (TradFi):

• Private Credit: Valued at $1.4 trillion in 2023, with $350 billion of capital awaiting deployment. This market is expected to grow to $2.3 trillion by 2027. {2)

• Real Estate: The U.S. real estate market alone was projected to reach $113.60 trillion in 2023, with residential real estate comprising $88 trillion..[3] [4]

• Treasury Bills (T-Bills): In December 2020, $1,591 billion in new T-Bills were issued, and the secondary market has maintained an average daily trading volume exceeding $75 billion since 2001.

  
  

In DeFi, the Total Value Locked (TVL) in:

• DEXs: $12.333 billion

• Lending Protocols: $18.43 billion

• RWA Protocols: $5.935 billion

  
  

The value locked in RWA-focused protocols nearly doubled in 2023, highlighting its growing importance. [6]

Why Bring RWAs On-Chain?

Tokenizing RWAs bridges the gap between TradFi and DeFi, offering:

1. Enhanced Liquidity: Fractionalizing high-value assets like real estate and T-Bills allows for easier trading and broader participation.

2. Lower Costs: DeFi eliminates intermediaries, reducing transaction fees and operational overhead.

3. Global Accessibility: Tokenized assets transcend geographical barriers, enabling global investment.

4. Transparency: Blockchain provides clear audit trails, improving trust and risk assessment.

RWAs in Action: Key Use Cases

Treasury Bills (T-Bills)

Treasury bills, traditionally seen as risk-free investments, are integral to liquidity management in financial markets. However, they have historically been plagued by slow settlement times and high entry barriers, limiting access for smaller investors.

By tokenizing T-bills, these issues are mitigated. Tokenization allows fractional ownership, making it possible for individuals with minimal capital to participate. Furthermore, smart contracts automate processes such as yield distribution and collateralization, ensuring seamless and transparent transactions. T-bills can also serve as collateral for stablecoins or be traded on secondary markets, increasing their accessibility and utility within DeFi.

Private Credit

Private credit markets are often inaccessible due to high thresholds and opaque processes. DeFi changes this by enabling wider participation through tokenization. Direct loans can be offered to businesses or individuals, bypassing traditional banks, and fractionalized investments allow smaller players to enter the market.

Additionally, blockchain’s transparency ensures that all transactions are easily auditable. This transparency reduces risks and operational inefficiencies, paving the way for more equitable and efficient credit allocation. Borrowers can also use real-world assets as collateral, creating a more inclusive and versatile lending ecosystem.

Real Estate

Real estate, one of the most illiquid asset classes, undergoes a transformation when brought on-chain. Tokenizing real estate simplifies ownership transfer, allowing fractional ownership and reducing the barriers to entry for global investors. A property can be represented as a single token or fractionalized into multiple tokens, enabling broader participation in the market. Additionally, tokenized real estate cash flows, such as rental income, can be automated using smart contracts. This innovation reduces transaction costs, simplifies investment processes, and makes real estate markets more dynamic and accessible.

The Synergy of RWAs and DeFi

Integrating RWAs into DeFi introduces a transformative era for finance, benefiting:

• TradFi: Enhanced liquidity, operational efficiency, and global reach.

• DeFi Ecosystem: Fresh liquidity, new collateral classes, and novel DeFi products.

• Users and Builders: Innovative investment opportunities, yield strategies, and sustainable liquidity.

A Look Ahead

The market for tokenized assets is projected to reach $3.5 trillion conservatively and up to $10 trillion by 2030. As this space matures, RWAs will play a pivotal role in aligning DeFi with regulatory frameworks, attracting institutional participation, and fostering broader adoption.

At Allo, we believe in the transformative power of RWAs to unlock the next wave of financial innovation. By leveraging our cutting-edge platform, we aim to enable seamless tokenization and trading of real-world assets, empowering a new era of decentralized finance.

Join us on this journey as we reshape the future of finance with Allo.

Disclaimer: The information provided in this document does not, and is not intended to, constitute legal, tax, investment, or accounting advice; instead, all information, content, and materials available are for general informational or educational purposes only and it represents the personal view of the author. Please consult with your own legal, accounting or tax professionals. This post is for informational purposes only and contains statements about the future, including anticipated product features, development, and timelines for the rollout of these features. These statements are only predictions and reflect current beliefs and expectations with respect to future events; they are based on assumptions and are subject to risk, uncertainties, and changes at any time. There can be no assurance that actual results will not differ materially from those expressed in these statements, although we believe them to be based on reasonable assumptions.

SOURCES :

1. https://www.inx.co/learn/beginners/understanding-rwas-an-introduction-to-real-world-assets/?ref=blog.entangle.fi {1}

2. https://www.morganstanley.com/ideas/private-credit-outlook-considerations?ref=blog.entangle.fi#:~:text=The size of the private,private credit%2C the growing {2}

3. https://www.statista.com/outlook/fmo/real-estate/united-states?ref=blog.entangle.fi#:~:text=United States Highlights The value,a projected market volume of {3}

4. https://www.mordorintelligence.com/industry-reports/residential-real-estate-market-in-usa/market-size?ref=blog.entangle.fi#:~:text=The Residential Real Estate Market,estate in the country {4}

5. https://defillama.com/categories?ref=blog.entangle.fi {5}