Author: Lao Bai

In the previous article, I discussed the perspectives of Eastern and Western markets from a first-level viewpoint. Today, coinciding with YZi Labs' official announcement of investment in the Plume Network RWA platform, I would like to talk about the recent changes I have observed in the RWA sector.

This topic can be divided into four parts:

1. Whether RWA truly has application scenarios, or PMF
2. Which RWA assets are suitable for on-chain, and which are not
3. What were the past solutions, and what are the current solutions
4. The recent trends in RWA over the past few months, and whether you have sensed them

First, let's discuss 1 - Does RWA really have application scenarios? Or PMF - (Here, we first exclude the stablecoin sector of US Treasury bonds, as Usual, MKR, etc., have already found PMF.) Taking US stocks on-chain as an example, this is the most contentious topic on Twitter. Many people feel that putting US stocks on-chain is redundant; if one really wants to trade US stocks, they have their own channels. Any asset on-chain is more volatile than US stocks, so there’s no need to play with stocks on-chain.

I have a different opinion. Personally, I believe that US stocks on-chain do have their significance.

1. From the channel perspective - indeed, most big players above A8 and A9 use securities platforms like Futu and FirstTrade for diversified investments in cryptocurrencies, stocks, gold, etc. However, I believe that most retail investors in the crypto space do not have US stock accounts. Trading US stocks on-chain can at least open up their purchasing channels without barriers.

From another angle, the total market capitalization of stablecoins like USDT/USDC is growing larger, which is another avenue for the diffusion of US dollar hegemony relative to traditional finance. If crypto, through stablecoins + Payfi + a smart wallet experience similar to Alipay, really moves towards mass adoption one day, do you think Americans would want the whole world to take over their US stocks? Would most people in other countries prefer to open accounts with various banks and brokers to buy their own struggling stocks, or would they rather have a simple one-click investment in the world's largest economy's "Seven Sisters" like shopping on Taobao?

2. From the application scenario perspective, imagine this case: as a small player, you recently made a profit of 100,000 USDT from Mubarak. You know that Tesla has recently halved, making it a good time to buy the dip, and you want to convert this 100,000 USDT into Tesla stocks.

Even if you have a US stock account, you would first need to OTC this 100,000 USDT into fiat currency, send the fiat through a bank to the broker's account, and then start buying from the broker. This entire process typically takes 3-5 business days (I bought US stocks through FirstTrade in Australia before I got into Bitcoin in 2017, and just the SWIFT transfer took 4-5 days, plus a hefty fee of dozens of dollars). If one day Tesla rises and you want to sell it for BTC or USDT, you would have to go through this process again… Imagine if US stocks were on-chain, you could instantly convert your meme profits into Tesla stocks. The reduction in friction costs is not just a small improvement; it’s a tenfold or hundredfold enhancement in experience.

Next, let's talk about 2 - Which RWA assets are suitable for on-chain?

Similarly, T-Bills, which have already proven themselves, are not under discussion. Other RWA assets actually depend on the specific target audience.

For the consumer side, stocks are undoubtedly the most suitable. Most retail investors likely have not been exposed to primary private equity; even if you tokenize the equity of a non-listed company, very few people would be able to understand, buy, and hold it. Additionally, private credit collateral on platforms like Centrifuge, such as bridge loans in the real estate market or corporate receivables lending, are also not suitable for consumers. The vast majority of consumer users are likely only familiar with stocks. More consumer scenarios should involve connecting an asset to users who previously had no channels to purchase it, which is a process from 0 to 1.

For the business side, there are many more things that can be tokenized, but compared to the consumer side's 0 to 1, the business side should be more about reducing friction from 1 to 100. Just as primary private equity already circulates among some institutions and high-net-worth investors, bridge loan collateral placed on Centrifuge is likely to be able to secure loans from banks; it’s just that this circulation process is relatively cumbersome and frictional. Putting it on-chain can significantly enhance user experience and flow speed, similar to how Payfi enhances SWIFT.

Speaking of this, I remember discussing an RWA project last year, whose parent company is a relatively top-ranked asset management institution in the US. They planned to issue tokenized shares of their clients' primary equity, such as Musk's SpaceX, on their own trading platform, allowing the tokens to circulate and be traded easily, ultimately settling in one go when SpaceX goes public. So for the business side, aside from the targeted trading users being limited to institutions and enterprises, the issuing entities are also relatively restricted. Just like the example above, unless you already manage a large amount of SpaceX equity, if you are merely an STO or RWA platform, attracting SpaceX equity holders to issue tokens representing SpaceX equity involves significant friction in terms of resource cooperation, legal terms, and more.

There are also many intermediate cases that can be both consumer and business, such as IP on-chain like Story Protocol, or tokenizing royalties from a novel, box office from a movie, or sales from a game. These things feel like they are still in the early exploratory stage and need to be tested and falsified one by one. For instance, tokenizing influence, FT failed, while Kaito was relatively successful. Tokenizing celebrity time, http://Time.Fun became popular for a few days before disappearing… These things need to be approached gradually.

Next is 3 - What were the past solutions, and what are the current solutions?

Taking US stocks as an example - the past solutions were primarily based on synthetic assets, represented by SNX, Terra's Mirror, and GNS.

This path has essentially been disproven, and the aforementioned three platforms have long since delisted their synthetic US stock assets for two reasons: first, people are not very interested in "fake assets" synthesized from stablecoins or local currencies (like SNX). You can see the comparison in scale between BTC, WBTC, and SNX's SBTC. Synthetic assets, to be honest, are less reassuring than "mapped assets" like WBTC. Second, back in the day, the SEC would often investigate without reason; although synthetic assets are fake, the SEC doesn't need a reason to investigate you, so it’s better to avoid trouble, leading these platforms to delist synthetic US stocks.

Now that Trump is in office and the SEC chair has changed, the regulation in this area is clearly much better than it was two years ago. Currently, there are two solutions for US stocks on-chain.

One is to follow the traditional compliant Broker-Dealer route, where the moment a user buys tokenized stocks on-chain, it triggers off-chain compliant brokers to perform corresponding operations in the US stock market. Essentially, it’s like placing an order on Robinhood, where Citadel "buys" on the stock market on your behalf. The advantage is that the stocks you buy are "real stocks," or at least backed 1:1 by this broker, somewhat similar to WBTC for BTC. The downside is that trading hours are completely tied to the stock market, and you can't trade 24/7 like in crypto; you also need to establish trust in this broker or platform. Additionally, selling will trigger a taxation event, and US citizens may need to submit tax-related forms, while non-US citizens at least have to do KYC, which is quite cumbersome.

The second approach is that of Ondo Global Market. I looked through their documentation, and they initially intended to follow the Broker-Dealer route but later changed to a stablecoin-like approach, allowing their partnered or authorized issuers to directly issue tokenized stocks (similar to how Tether issues USDT and Circle issues USDC). The advantage seems to be more flexibility, potentially freeing them from the trading hours of US stocks, ultimately settling through the issuer at a certain time. The downside is that it likely can only target non-US users, and there’s a concern about whether different issuers will issue different CAs for the same stock (similar to how different bridges on a new chain may not be compatible with USDC). These specific details are not documented, as the product is set to launch next year.

Finally, platforms like Plume feel more like a framework, incorporating KYC/AML, data storage/execution, consensus, ZKTLS verification, etc. Theoretically, this allows partner institutions to issue various tokenized RWA assets, which brings us back to the previous topic of "which assets are suitable for on-chain," so I won’t elaborate further.

Lastly, let’s discuss 4 - Have you sensed the recent trends in RWA over the past few months?

If you have been paying attention, the wind for RWA has been quite strong in the past two months. Here are a few "news" items I have observed:

1. As mentioned above, Ondo plans to launch Ondo Global Market, an on-chain stock market, by the end of this year or next year, and Ondo has recently been closely collaborating with Trump's WLFI.

2. Sui has also been cozying up to WLFI recently.

3. Frax is actively embracing Cedefi and recently launched frxUSD, in collaboration with BlackRock + Superstate.

4. Ethena today released a new product, Converge, focusing on what they believe are two of the most important scenarios in blockchain - storage and settlement for stablecoins and tokenized assets.

5. AAVE plans to issue a new token, Horizen, which has caused a stir in the community, prompting Stani to clarify - "The Horizen plan aims to fill the current gap in Aave's RWA business segment, with the expectation of surpassing Aave's current business line revenue in five years."

6. The South Korean Financial Services Commission plans to release a statement in February 2025, intending to allow corporate entities to conduct virtual asset transactions in phases. I learned from friends in the Korean crypto space that South Korea may restart its STO (the previous term for RWA) plans. You can imagine, allowing "corporate entities to trade virtual assets" is certainly not about letting companies speculate on cryptocurrencies; it’s definitely aimed at tokenizing some real financial assets into "virtual assets" for circulation between companies.

7. YZi Labs today officially announced its investment in the recently popular Plume Network RWA platform.

These pieces of news create a momentum that we cannot ignore. Therefore, my current view on the main track of the next Circle is PayFI + RWA + Web2.5-like consumer apps. As for AI + Crypto, I can only say there is hope, and I am still discussing and observing. After I finish writing the next article "Things Worth Mentioning on ETH and Solana," I will write a separate piece on my recent thoughts regarding AI + Crypto, as the fourth part to conclude this collection.

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