From the perspective of VC, let’s talk about the recent changes in the RWA track

In the last article, I talked about the views of the market from the first-level perspectives of the East and the West. Today, I will take advantage of the official announcement of YZi Labs’ investment in the RWA platform Plume Network to talk about the recent changes in the RWA track that I have observed.

This matter has to be broken down into four parts.

1. Does RWA really have an application scenario, or PMF?

2. Which RWA assets are suitable for on-chain and which are not?

3. What were the solutions in the past and what are the solutions now?

4. Do you have any idea of the trend of RWA in the past few months?

Let’s talk about 1 first - whether RWA really has an application scenario, or PMF - (first exclude the stablecoin track of US debt on the chain, Usual, MKR, etc. have already found PMF) Take the US stock chain as an example, this is the most controversial category on Twi. Many people think that putting US stocks on the chain is unnecessary. If you really want to speculate in US stocks, you have your own channels. Any target on the chain is more volatile than US stocks. There is no need to play stocks on the chain.

I have a different opinion on this. I personally think that it makes sense for U.S. stocks to be on the chain.

1. From the perspective of channels - It is true that most big players above A8 and A9 use securities platforms such as Futu and FirstTrade to diversify their investments in coins, stocks, gold, etc. But I believe that most retail investors in the circle do not have US stock accounts. On-chain US stock trading can at least open up their purchase channels without any barriers.

From another perspective, the total market value of stablecoins such as USDT/USDC is growing, which is another way for the hegemony of the US dollar to spread relative to traditional finance. If Crypto really goes to Mass Adoption one day through stablecoins + Payfi + smart wallets with Alipay-like experience, do you think the Americans are willing to let the whole world take over their US stocks? People in most other countries in the world would rather open accounts with various banks and brokerages and spend a few days to buy half-dead stocks in their own countries, or just place an order to invest in the seven sisters of the world's largest economy with one click, just like shopping on Taobao?

2. From the application scenario, imagine such a case. As a young player, you have made 100,000 U by rushing into Mubarak these days. You know that Tesla’s stock price has been cut in half recently, which is a good time to buy at the bottom. Then you want to exchange these 100,000 U for Tesla stocks.

Even if you have a US stock account, you have to first convert the 100,000 U OTC into legal currency, send the legal currency to the broker's account through the bank, and then start buying from the broker. This set of processes basically takes 3-5 working days (in 2017, before I came into contact with Bitcoin, I bought US stocks in Australia through FirstTrade. It took 4 or 5 days to transfer via Swift alone, and a handling fee of several dozen US dollars was charged). If one day your Telsta rises and you want to sell it and exchange it for BTC or U, you have to go through the same process again... Imagine if there were US stocks on the chain, and the U you earned from Meme could be exchanged for Tesla in seconds, the reduction in friction costs would not be a little bit, but a 10-fold or 100-fold improvement in experience.

Then let’s talk about 2 - Which RWA assets are suitable for on-chain

Similarly, T-Bill, which has proven itself, is not included in the discussion. As for other RWA assets, it actually depends on who the specific target group is.

For the To C side, stocks are undoubtedly the most suitable. Most retail investors have probably never been exposed to primary private equity. Even if you tokenize the equity of a non-listed company, it is estimated that few people will be able to understand + buy + hold it for a long time. In addition, private credit collateral on Centrifuge, such as bridge loans in the real estate market, corporate accounts receivable loans, etc., are also not suitable for To C. The only thing that most C-end users are familiar with should be stocks. More scenarios for To C should be to open up an asset through the chain for users who did not have channels to purchase it before. It is a process from 0 to 1.

For the To B side, there are many more things that can be tokenized, but compared to the To C from 0 to 1, the To B side should be more of a 1 to 100 that reduces friction, just as the primary private equity originally circulated between some institutions and high net worth investors, the bridge loan mortgage placed on Centrifuge is likely to be used to borrow money from the bank, but the circulation process is relatively cumbersome and has greater friction. Putting it on the chain, like Payfi and Swift, can greatly enhance the user experience and circulation speed.

Speaking of this, I remembered that we talked about an RWA project last year, whose parent company is a top-ranked asset management institution in the United States. They plan to issue the primary equity of customers on their asset management platform, such as Musk's SpaceX, in the form of tokens on their own trading platform, so that the tokens can be easily circulated and changed hands, and finally settled directly in one go when SpaceX goes public. So for To B, in addition to the targeted trading users being restricted to institutions and enterprises, the issuing entities are actually relatively restricted. Just like the example above, unless you yourself manage a large amount of SpaceX shares, otherwise you are simply an STO or RWA platform. You want to attract SpaceX equity holders to issue tokens representing SpaceX shares, which involves resource cooperation, legal terms and other aspects of the friction, which is much greater.

There are many intermediate forms, which can be either To C or To B, such as Story Protocol's IP on-chain, or the royalties of a novel, the box office of a movie, and the sales of a game. These things are still in the early stages of exploration and need to be tried and falsified one by one. For example, the influence tokenization, FT failed, while Kaito was relatively successful. The celebrity time tokenization, http://Time.Fun became popular for a few days and then disappeared... These things need to be done slowly.

Next is 3 - What were the solutions in the past and what are the solutions now?

Let’s take the US stock market as an example - the solutions in the past were mainly based on synthetic assets, represented by SNX, Terra’s Mirror, and GNS

This path has been basically disproven at present. The above three platforms have also long since removed the synthetic U.S. stock assets that were previously listed. There are two reasons for this. First, people are not very interested in "fake assets" synthesized from stablecoins or native currencies (such as SNX). You can see this from the comparison of the volumes of BTC, WBTC, and SNX's SBTC. To be honest, synthetic assets are not as safe as "mapped assets" such as WBTC. Second, the Sec checked the water meter at every turn. Although the synthetic assets were fake, the Sec did not need a reason to check you, so it is better to do less trouble than more. These platforms have also removed these synthetic U.S. stocks one after another.

Now that Trump has taken office and the SEC chairman has been replaced, the current supervision in this area is obviously much better than in the past two years. There are currently two plans for the new US stock chain

One is to take the traditional compliant Broker Dealer route. The moment a user buys tokenized stocks on the chain, it triggers the corresponding operation of the off-chain compliant Broker in the U.S. stock market. In essence, it is the same as the order placed by Robinhood, which is "bought on behalf of" by Citadel in the stock market. The advantage is that the stocks you buy are "real stocks", or at least they are truly backed by this Broker at a 1:1 ratio, which is a bit similar to WBTC to BTC. The disadvantage is that the trading time completely follows the stock market, and it cannot be 24x7 like Crypto. You also have to build trust in this Broker or platform. In addition, a Taxation Event will be triggered when selling. U.S. citizens may need to submit tax-related forms, and non-U.S. citizens must at least do KYC, which is more troublesome.

The second is the practice of Ondo Global Market. After looking through their documents, I found that they originally wanted to follow the Broker Dealer route mentioned above, but later changed to a similar approach to stablecoins, that is, allowing their cooperative or Authorized Issuers to directly issue tokenized stocks (just like Tether issued USDT and Circle issued USDC). I feel that the advantage is that it is more flexible and may be able to get rid of the restrictions on US stock trading hours, and ultimately settle through the Issuer at a certain time. The disadvantage is that it is likely to only be available to Non-US users, and US users cannot use it. Another question is whether there will be different CAs for the same stock issued by different Issuers (just like different bridges on a new chain are incompatible with each other). These specific details are not written in the document, after all, the product will not be launched until next year.

Finally, RWA platforms like Plume feel more like a Framework, which includes KYC/AML, data storage/execution, consensus, ZKTLS verification, etc. In theory, it allows partner institutions to issue various tokenized RWA assets here. This brings us back to the previous topic of "Which assets are suitable for chaining?" I will not elaborate on it.

Finally, let's talk about 4 - RWA's trend in the past few months. Have you sensed it?

If you pay close attention, you will find that the RWA trend has been quite strong in the past two months. Here are some of the "news" 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. In addition, Ondo has recently been very close to Trump’s WLFI and will have cooperation

2. Sui has also been clinging to WLFI recently

3. Frax actively embraces Cedefi and recently launched frxUSD, a collaboration with BlackRock+Superstate

4. Ethena’s new product Converge released today focuses on one of the two most important scenarios for blockchain: Storage and settlement for stablecoins and tokenized assets

5. AAVE plans to launch a new coin, Horizen, which caused an uproar in the community. Stani personally came out to clarify - "The Horizen plan aims to fill the RWA business segment currently missing in Aave. The plan is expected to surpass the revenue of Aave's current business line in 5 years."

6. The Financial Services Commission of South Korea will issue a release in February 2025, intending to allow corporate entities to trade virtual assets in stages. I learned from my friends in the Korean circle that South Korea may restart the STO (the name of the previous cycle of RWA) plan. You think, allowing "corporate entities to trade virtual assets" is definitely not for your company to speculate in cryptocurrencies, but it is definitely designed to tokenize some real financial assets into "virtual assets" so that they can circulate between companies.

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

We can’t just ignore the momentum created by these news, so my personal view on the next Circle’s main track is PayFI+RWA+Web2.5-like Consumer APP. As for AI+Crypto, I can only say that there is hope, and I am still discussing and observing. After I finish writing the next article “Some things worth mentioning about ETH and Solana”, I will write another recent thinking about AI+Crypto as the fourth part of this collection.