The market for tokenized real-world assets (RWAs), excluding stablecoins, has surged past $12 billion, according to Binance. This growth is largely driven by tokenized U.S. Treasuries, with significant participation from financial institutions such as BlackRock and Franklin Templeton, based on a Binance Research report released on Sept. 13. This total excludes the $175 billion stablecoin market, which remains separate from RWAs.

Understanding Tokenization

Tokenization involves dividing traditionally illiquid assets, such as real estate, government bonds, and commodities, into fractions. This process makes these assets more accessible to a wider range of investors and streamlines processes like record-keeping and settlement, potentially transforming the trade and management of assets in traditional finance.

Tokenized U.S. Treasuries

The market value of tokenized U.S. Treasury funds alone has exceeded $2.2 billion, according to the report. BlackRock’s BUILD Treasury product leads the category with nearly $520 million in assets, followed closely by Franklin Templeton’s FBOXX with $434 million. This milestone was achieved in less than five months after the market reached $1 billion in late March.

Elevated U.S. interest rates have been a key factor in the expansion of tokenized Treasuries, offering yields that attract investors seeking stable returns. However, impending rate cuts from the Federal Reserve could reduce the appeal of yield-bearing instruments like tokenized Treasuries. Significant reductions in rates would be necessary to materially impact demand.

Other Forms of RWAs

In addition to Treasuries, the Binance Research report explored other segments of the on-chain RWA market, including private credit, tokenized commodities, and real estate. The tokenized private credit market is valued at approximately $9 billion, but it still represents only 0.4% of the $2.1 trillion global private credit market in 2023.

“Although the on-chain private credit market is only worth around 0.4% of this, at ~US$9B, it has been growing and active loans are up by ~56% over the past year.”

Risks of RWAs

Despite this growth, Binance Research highlighted several risks associated with RWAs. First, RWA protocols often lean toward centralization due to regulatory requirements, raising concerns about control and transparency. They also rely heavily on off-chain intermediaries for asset custody, which adds layers of third-party dependence.

The complexity of these systems can sometimes outweigh the yields they generate, leading to questions about whether the returns justify the operational challenges. Additionally, privacy and compliance remain key issues, with zero-knowledge technology emerging as a promising tool for balancing regulatory demands and user autonomy.

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