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Real World Assets (RWAs) represent an exciting frontier in blockchain technology, where off-chain financial assets such as real estate, credit, and even commodities are brought onchain through tokenization. This movement not only bridges traditional finance with decentralized finance (DeFi) but also paves the way for creating a truly global and programmable financial infrastructure. Perhaps surprising to some, Solana, known for its high throughput and memecoin trading ecosystem, has emerged as a leading platform for deploying RWAs. With its robust DeFi ecosystem, strong developer community, and maturing infrastructure, Solana is making its case, behind market leader Ethereum, to be the next home for institutional and retail-focused RWAs alike.

Current Landscape of Tokenized Assets

Despite the undeniable success of centralized stablecoins (>90% of onchain tokenized assets), the tokenization and adoption of other RWAs had been much slower going into 2023. Recently, however, there has been a significant shift, partly due to the growing acceptance of RWAs and the infrastructure and partly due to rising interest rates in the TradFi world. This evolution is evident from the increase in RWA projects launched, specifically, the hundreds that aim to tokenize assets other than U.S. dollars/treasury bills.

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Beyond the sheer number of projects launched, the total value locked in RWA protocols, excluding fiat-backed stablecoins, has increased from approximately ~$2 billion at the start of 2023 to nearly $8 billion today.

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Within the non-stablecoin RWA sector, there is a clear market preference for yield-bearing RWAs (vs. non-yield-bearing), which capture over 90% of the total value locked (TVL). While tokenization of assets like real estate or art aims to enhance liquidity for traditionally illiquid assets, it hasn’t materially boosted their demand vs. yield-bearing financial assets. The true “unlock” for RWAs will become apparent as these previously illiquid/low-velocity assets become increasingly interconnected with the rest of DeFi that trades frictionlessly, 24/7, on a transparent, low-cost chain like Solana.  

Given the clear preference for yield-bearing assets, the debate extends to whether the market favors debt instruments over equity-based options, such as equity in tokenized treasury funds. Current trends suggest a stronger preference for debt instruments, which comprise about 70% of the yield-bearing RWA market. This preference can be attributed to several reasons:

1. Know-Your-Customer (KYC) Flexibility: Debt-based protocols often allow for secondary market trading without stringent KYC requirements, enabling a broader adoption compared to equity-based instruments where such flexibility is less common.
2. Direct Yield Exposure: Investors tend to prefer direct access to yields rather than engaging with the underlying assets that produce these yields. This approach shields them from short-term market volatility and offers a simpler, more straightforward investment experience.

Moreover, as most Yield Bearing Debt Assets are denominated in USD, they effectively compete with traditional stablecoins like USDC, which, while not inherently yield-generating, can still offer returns through other mechanisms like interest-bearing accounts. This dynamic necessitates yield-bearing debt not only to provide attractive returns to offset associated risks but also to compete with the liquidity and established network effects of conventional stablecoins.

Why Tokenize RWAs?

RWAs have long intrigued investors due to their sheer total addressable market (TAM). What better way for your blockchain and ecosystem to grow than to tap into the trillion-dollar industries of treasuries, bonds, private debt, real estate, and more? Therefore, the rationale for tokenizing these assets arises from the inherent limitations associated with traditional asset management systems. One primary issue is the limited use cases and value-creation potential of original assets. These assets are often confined by existing frameworks and systems, restricting their applications and avenues for generating value. Tokenization on a blockchain, such as Solana, ensures global accessibility, allowing assets to be accessed and traded by anyone worldwide, effectively breaking down geographical and institutional barriers. Additionally, the blockchain operates 24/7, unlike traditional markets, facilitating continuous trading and liquidity. Moreover, tokenized assets can interact with multiple decentralized finance (DeFi) protocols simultaneously, enhancing the flexibility and efficiency of financial strategies.

Tokenizing an otherwise low-velocity item like a house or art increases its liquidity due to the interoperability benefits introduced by blockchain technology.  The inherent programmability of crypto tokens, coupled with smart contracts, offers unique features that can enhance the market dynamics of the underlying assets.  Particularly in the current high-yield environment, the capital efficiency offered by tokenization becomes significantly more compelling. Institutions find that tying up capital in a higher interest rate environment, even for short periods, is more costly than in lower rate settings, underscoring the immediate relevance of tokenization. Throughout 2023, the landscape saw a proliferation of new entrants offering direct onchain access to tokenized US Treasury exposure. This trend is indicative of a broader movement toward adopting real-world asset (RWA) tokenization, even in TradFi’s deepest and most liquid markets. These advanced features can lower entry barriers for a broader investor base, fostering more competitive and liquid markets and improving price discovery.

Empirical evidence from the performance of exchange-traded funds (ETFs) can provide insights into the potential benefits of tokenization. ETFs, akin to tokenized assets in representing other assets, show a strong positive correlation between their liquidity and that of the underlying securities. Increased trading activity in ETFs enhances the informational efficiency of the underlying assets' markets. Applying this dynamic to tokenization suggests that higher liquidity in crypto markets can lead to more accurate pricing of the tokenized assets’ reference markets.

Furthermore, the tokenization process also unlocks new opportunities by opening up additional use cases and distribution channels, thereby significantly enhancing the potential for scaling and increasing the value of the original assets for both issuers and end-users. Tokenization democratizes access to various markets, which are traditionally restricted due to high entry costs. For instance, real estate tokenization allows investors to acquire fractional ownership in specific properties. This differs from real estate investment trusts (REITs), where investors purchase shares in a portfolio of properties. Tokenization thus enables direct and more granular investments, broadening the spectrum of potential investors.

Overall, the move towards asset tokenization represents a significant evolution in asset management, offering a more dynamic, accessible, and efficient framework that addresses the limitations of traditional systems.

The Process of Asset Tokenization

The process of making an asset "tokenized" is more complex. Tokenized assets generally possess three defining characteristics:

1. Location of the Asset: Whether the asset is onchain or off-chain.
2. Collateral Location: Where the collateral backing the asset is held—either onchain or off-chain.
3. Type of Backing: Whether the asset is directly backed (fully reserved) or indirectly backed (synthetic).

For an asset to be considered a tokenized RWA, it must be off-chain, and its backing—either direct or indirect—must be established.

Tokenized assets require backing to represent the value of the asset accurately. This backing can be achieved through various methodologies, each with distinct advantages and disadvantages.

A prime example of off-chain collateral directly backed is the USD Coin (USDC). The collateral for USDC is held off-chain, meaning that the real dollars (and dollar equivalents) backing the tokens are stored in a bank account. Each USDC is directly backed, making it exchangeable on a one-to-one basis with USD. This system operates through a centralized exchange methodology, where Circle, the issuer of USDC, ensures that each token can be redeemed for one USD at any time. This assurance maintains the token's value stability and facilitates its use in exchange trading.

In contrast, Parrot’s PAI stablecoin exemplifies onchain collateral indirectly backed by cryptocurrencies. As of 2024, billions of dollars are locked in DeFi systems and converted into scantly-used yield-generating tokens (e.g., Uniswap LP tokens). These LP tokens have seen little adoption in DeFi, thus far but represent a huge market opportunity. Parrot Protocol aims to make the value in LP tokens accessible by establishing a liquidity and lending network collateralized by these tokens. The plan includes:

1. Creating the PAI stablecoin: Backed by LP tokens, PAI serves as a common unit of account, facilitating transactions between holders of different LP tokens.
2. Developing the Parrot Lending market: This market accepts LP tokens as collateral, enabling LP holders to borrow against their locked value.
3. Introducing a margin trading product (virtual AMM): Using PAI as the unit of account, this product allows the Parrot community to earn fees and enhance liquidity.

The general tokenization process typically involves ~four meticulously structured steps:

1. Identification and Valuation: The initial phase involves selecting the asset to be tokenized, which can range from physical properties like real estate or art to intangible assets such as revenue streams from music publishing. Once identified, the asset undergoes a valuation process to determine its worth, which could be based on a set or variable price, depending on the asset’s characteristics and market conditions.
2. Legal Structuring and Compliance: This critical step ensures the tokenization process adheres to legal and regulatory standards. It involves setting up legal frameworks that outline the ownership rights, revenue sharing, and other contractual obligations associated with the tokenized asset. These agreements are often embedded into smart contracts on the blockchain, allowing for transparent and automatic enforcement. Additionally, compliance with regulations such as KYC and Anti-Money Laundering (AML) is essential, especially considering the varying legal landscapes across different jurisdictions.
3. Token and Smart Contract Creation: At this stage, smart contracts are developed on the destination blockchain. These contracts are programmed to represent ownership and manage the distribution and governance of the tokenized assets. The smart contracts serve as the backbone of the tokens, ensuring that all transactions and interactions with the tokens are secure and conform to the predefined rules.
4. Distribution and Trading: Finally, the tokens are distributed to investors or interested parties, who can then trade them on secondary markets such as decentralized exchanges or through DeFi platforms. This step is crucial as it introduces liquidity to assets that are traditionally illiquid, simplifying the transfer of ownership and enabling broader participation. Furthermore, the ongoing management and governance of these assets are facilitated through blockchain-based systems, where token holders can exercise their rights and influence decisions through voting mechanisms integrated into the smart contracts.

The Ideal Blockchain for RWAs

Any blockchain looking to become the leader in the RWA space must exhibit several key aspects and attributes:

1. Security: Robust security protocols are paramount. The blockchain must protect against hacks, fraud, and unauthorized access. This includes secure smart contract functionality to ensure transactions and token operations are safe, as well as clear and effective governance structures to manage protocol upgrades, resolve disputes, and implement community-driven improvements.
2. Scalability and Efficiency: The ability to handle a high volume of transactions quickly and efficiently is crucial. The blockchain must be able to scale as the volume of tokenized assets and users grows. Additionally, low transaction fees and minimal operational costs will be required to “tokenize” the millions/billions of RWAs in the TradFi space.
3. Regulatory Compliance: Adherence to local and international regulations is vital. The blockchain must support features that facilitate compliance with Know Your Customer (KYC), Anti-Money Laundering (AML), and other regulatory requirements.
4. Transparency and Auditability: Complete transparency in transactions and the ability to audit the blockchain ensures trust among users and regulatory bodies. This includes immutable records of all transactions and ownership details.
5. User Experience and Token Standards: Intuitive interfaces and ease of use for both developers and end-users. This includes well-documented APIs, user-friendly wallets, and accessible transaction management tools. Support for standardized tokens and the ability to create custom tokens for various asset classes. Flexibility in token design allows for diverse asset tokenization.
6. Interoperability: Seamless integration with other blockchains and traditional financial systems is critical. Interoperability ensures that tokenized assets can be easily transferred, traded, and managed across different platforms.

Solana's Advantages for RWAs

Scalability

The Solana network offers several distinct advantages that make it particularly well-suited for hosting real-world assets (RWAs). Two of the key benefits are its low gas fees and high transaction speed. These features are crucial for the frequent trading of tokenized assets such as forex and stocks, ensuring efficient and cost-effective transactions. 

Infrastructure

The development of specialized infrastructure is essential for the growth of RWAs on Solana. Several key components contribute to this infrastructure:

1. RWA-Specific Tools: Platforms like Bridgesplit are instrumental in facilitating the tokenization and financing of RWAs. Bridgesplit is an infrastructure platform that enables asset custodians and marketplaces to offer financing products to businesses and individuals. Originally designed for tokenizing off-chain assets as NFTs, Bridgesplit has since shifted its focus towards RWAs.
2. DEXs and Oracles: Efficient, decentralized exchanges in the Solana ecosystem  (Jupiter, Raydium, Orca, etc.) and oracle services, such as Pyth and Switchboard, are vital for providing liquidity and accurate data for RWAs.
3. On/Off Ramps: Seamless conversion between fiat and cryptocurrency is critical for the broader adoption of RWAs.
4. Bridges: Tools like Wormhole enable the necessary cross-chain interaction for a multi-chain RWA ecosystem.

Beyond simply these primary infrastructure needs, as the image below illustrates, a fully mature and well-functioning RWA ecosystem requires dozens of high-quality projects, spanning insurance, analytics, custody, staking, and more.

Token Standards

Current token standards on Solana include the SPL Token, which is the primary standard for fungible tokens. This standard allows for functionalities such as minting, burning, and dynamic supply adjustments. Two important programs in the SPL are the Token and Token-2022 programs. These two programs manage 100% of the tokens currently used on the Solana network and are what constitutes the “SPL Token Standard.” Using just these two programs to handle everything related to tokens on Solana means that users can trust that transferring any specific SPL token is not able to include malicious code capable of stealing their funds.

From the developers’ standpoint, this makes composability more straightforward. With a single program interface (Token / Token-2022 share the same Application Binary Interface) that exposes the token mint, burn, and transfer functions, other smart contracts can “compose” with these Token programs safely. These programs do not require “preapproval” flows to allow the transfer of tokens, reducing the risk related to using DeFi smart contracts and ensuring that users cannot be exploited using stale approvals.

Metaplex standards for non-fungible tokens (NFTs) also play a significant role, providing templates for compressed and programmable NFTs that can represent unique assets such as real estate or art.

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Newly released in 2024, Solana token extensions are a new token standard enabled by Token-2022 with more optionality, including features like confidential transfers, interest accumulation, and programmable restrictions on token transferability that specifically cater to the needs of RWAs. ​

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Despite these advanced standards, RWA-specific standards within the Solana ecosystem can be improved. To address this, several features could be incorporated into a dedicated RWA standard for Solana:

1. Asset-Level Tokenization: Tokenizing at the asset level, rather than pooling assets, would enhance transparency and traceability by allowing for the performance of individual assets to be monitored.
2. Incorporation of Best Practices: By learning from existing standards such as ERC-3643 and ERC-1400, Solana’s RWA standard could incorporate proven features from other blockchains.
3. Business Development and Flexibility: Initial adoption of the RWA standard would require significant outreach and flexibility to meet the diverse needs of potential users, including traditional finance entities and fintech startups.

By leveraging these proposed features, Solana can enhance its infrastructure and standards to better support the tokenization of real-world assets, thereby fostering broader adoption and integration within the blockchain ecosystem.

Pyth Oracle Network

The Pyth Network, an oracle solution for integrating exogenous real-time data into the blockchain, has proven to be a reliable and critical piece of the DeFi ecosystem as well as pushing the space forward with new initiatives like Solana Permissioned Environments (SPEs). 

In DeFi, accurate and timely price information is crucial for functions such as trading, lending, and risk management. Pyth's integration with Solana allows it to provide these services efficiently, catering to the high demands of modern financial applications.

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Solana's architecture offers an optimal environment for the Pyth Network due to its rapid block times and low transaction costs. These features allow Pyth to update its data feeds every 400 milliseconds, aligning perfectly with the block production rate of Solana, thus facilitating an almost instantaneous data relay.

Solana Infrastructure Highlights:

• High Throughput and Low Latency: The Solana protocol supports thousands of transactions per second with minimal delay, which is ideal for applications requiring near real-time data updates.
• Cost Efficiency: Low transaction fees on Solana ensure that operating costs remain manageable for data providers and users alike.

Furthermore, Solana Permissioned Environments (SPEs) are specialized SVM networks designed to meet the unique requirements of enterprise applications within the Solana ecosystem. SPEs offer the flexibility to create governed networks where access and operations can be finely tuned to serve specific business needs. This customization is crucial for applications that require both the robust security of blockchain technology and the ability to restrict and manage access effectively.

The Pyth Network is the first SPE implemented on Solana and was designed for the Oracle services market. Pyth provides a robust solution by aggregating multiple data sources to deliver accurate and timely financial information.

Advantages of Pyth Network include:

1. Real-Time Data Feeds: Pyth offers high-frequency updates essential for trading and financial applications, supporting a broad array of assets, including cryptocurrencies, equities, and commodities.
2. Decentralized Data Sources: By aggregating data from multiple vetted providers, Pyth enhances data reliability and reduces the risk of manipulation.
3. Community and Governance: Governed by a decentralized autonomous organization (DAO), Pyth emphasizes community involvement and open participation, ensuring a transparent and equitable data ecosystem.

RWAs Categories

Before 2022, stablecoins were essentially the only meaningful RWA on various blockchains. As the space has grown and expanded into nearly every financial sector, the way the crypto space talks about and evaluates RWAs has also evolved. As of 2024, stablecoins are largely regarded as their own crypto category and traditionally not included when discussing “RWAs.” With that distinction made, one of the broadest ways to divide the RWA asset class is yield-bearing and non-yield-bearing assets. While this defining line is quite clear and intuitive, it can also combine very distinct and separate RWA themes (e.g., real estate and treasuries)depending on the circumstances. Therefore, below, we have formatted the RWA discussion through the lens of yield-bearing vs. non-yield-bearing while also going deeper into individual categories and projects (treasuries, private credit, etc.) when appropriate.

Yield-Bearing Assets

Yield-bearing RWA protocols strive to merge offchain yield sources with onchain functionalities, offering a gateway to integrate offchain returns into the onchain ecosystem. The appeal of tokenizing real-world assets and yields has been revitalized, particularly when offchain U.S. Treasury yields began outperforming native DeFi asset yields. This development triggered a heightened interest in refining tokenization models. Although all yield-bearing assets share the objective of transferring offchain yields to onchain platforms, the protocols vary in their design and operational approach, primarily in yield generation and user resemblance to debt holders or equity investors.

The asset types that dominate yield-bearing debt protocols include:

U.S. Treasuries

Known for their stability and reliability as a yield source, U.S. treasuries offer a huge opportunity/TAM for any project looking to integrate this financial instrument. Furthermore, the rapid ascent of Treasury Bill yields to ~5% in 2022 provided a new avenue for yield, just as DeFi yields were contracting. Even more, the introduction of tokenized Treasuries presents a contrast to the fluctuating yields of DeFi platforms like Aave, Compound, MarginFi, and others. While the potential returns from crypto real yields are higher, they come with increased volatility and inconsistency. Tokenized Treasuries offer lower volatility and are deemed more robust against counterparty risks, making them particularly attractive to DAOs and startups for treasury management.

Platforms such as Maple, Centrifuge, Backed, Ondo, and TrueFi, which had existing operations in DeFi, seized this opportunity to launch tokenized Treasury products. These offerings tapped into a growing demand for secure, yield-generating alternatives at a time when traditional stablecoins offered no inherent returns and DeFi yields were insufficiently compelling on a risk-adjusted basis.

Ondo Finance

Ondo Finance is a blockchain company specializing in the tokenization of various financial products, including tokenized securities like its flagship product, OUSG. OUSG is a tokenized security backed by the SHV ETF, providing users with exposure to short-duration US Treasuries. A notable attribute of OUSG is that it is a permissioned token, meaning only addresses whitelisted by Ondo can mint, transfer, or receive it.

Since its launch in January 2023, Ondo Finance has become the second-largest RWA issuer in the tokenized treasuries and securities market, trailing only Franklin Templeton. Ondo Finance offers three primary products:

1. OMMF: Tokenized U.S. government money market funds.
2. OUSG: Tokenized U.S. Treasuries providing liquid exposure to BlackRock's SHV short-term Treasuries ETF.
3. USDY: A tokenized note secured by short-term U.S. Treasuries and bank demand deposits, functioning similarly to a stablecoin with a U.S. dollar-denominated yield.

The Ondo I LP Fund, created in February 2023, introduced its initial product, the Ondo Short-Term US Government Bond (OUSG). The fund's sole underlying asset is the iShares Short Treasury Bond ETF (SHV), which comprises US Treasury bonds with maturities of less than a year. As of May 2024, SHV has ~$23 billion in net assets and an average daily trading volume exceeding $300 million. The fund automatically reinvests dividends from the underlying position. Fees include a 0.15% management fee for the ETF and an additional 0.15% management fee charged by Ondo, capped at 0.3% overall. NAV Consulting provides daily attestations of account balances and statements of assets and liabilities, and Ondo updates the contract price of OUSG daily based on these calculations. A substantial portion of OUSG's investments is directed towards BlackRock's BUIDL fund. Additionally, Ondo offers the USDY yield-bearing stablecoin, which has a market cap exceeding $120 million. 

Additionally, Ondo has recently launched Ondo Global Markets (GM), a new platform enabling onchain users to execute buy, sell, and transfer orders for public securities using blockchain as a messaging system. Ondo GM leverages smart contracts to submit trade and settlement instructions to traditional market intermediaries, connecting with broker-dealers at trading, clearing, and settlement venues. This system allows users to supply liquidity and receive tokens representing securities like stocks and bonds.

In practice, Ondo GM users can use stablecoins to purchase stocks such as MSFT and TSLA from exchanges like NYSE and NASDAQ. Liquidity supplied to the platform enables Ondo GM to buy the stock and hold shares in its broker-dealer’s account. Users then receive a token for their Ondo GM account, which serves as an onchain receipt for the assets. Transfer restrictions on issued tokens ensure asset security, limiting transfers to other Ondo GM account holders.

Maple Finance

In 2024, Maple Finance announced its return to Solana with its cash management product, serving as one of the vanguards of the Solana tokenized treasury space. Maple Finance, an institutional capital market protocol launched in 2020, has issued nearly $2 billion in loans and manages over $30 million in deposits. Its newest product, the Cash Management Pool, is a purpose-built onchain cash management solution designed for web3 native entities such as DAOs and treasuries. This pool meets the liquidity, risk, and accounting requirements of non-US DAOs, offshore companies, and web3 treasuries, allowing these entities to deposit their capital and outsource cash management, including access to off-chain options. The pool offers access to the 1-month US Treasury bill rate minus fees, facilitated by a standalone SPV established by Room40 Capital, the sole borrower from the pool. There is no lock-up period, with withdrawals serviced on the next US working day, and interest accrues immediately. Assets are held in a standalone single-purpose vehicle, custodied by a regulated prime broker.

With its offering, lenders deposit USDC-SPL into the Pool, receiving LP tokens in return. The Pool then issues a USDC-SPL loan to Room40 Capital’s Solana wallet, where the USDC is converted to USD via Circle. The USD is subsequently wired to a prime brokerage, with Room40 managing the T-bills as the borrower. 

Despite supporting two of the biggest RWA names in the space (Ondo and Maple, as the pie chart below illustrates, Solana’s treasury market remains small compared to Ethereum and even the Stellar blockchain.

While traditional onchain treasuries have seen notable adoption, the landscape of yield-generating stablecoins backed by U.S. Treasury assets remains niche as of 2024, yet the sector is seeing growth, predominantly outside of the U.S. With a total value locked (TVL) slightly above $1 billion, this segment makes up less than a fifth of the market, primarily driven by MakerDAO using U.S. Treasury bills as collateral for its DAI currency. Emerging players like Ondo and Mountain Protocol also contribute to this space, offering a model akin to conventional stablecoins but with added yield benefits passed to users from reserve assets.

The tokenization of U.S. Treasuries highlights the intricate balance between providing attractive yields and managing economic and competitive pressures. While the demand is evident, especially with the vast amount of USD-pegged stablecoins in circulation, the economics of issuing these products remain challenging due to thinner profit margins and intense competition. Furthermore, the investor base for these tokenized products is still largely unproven outside of entities like MakerDAO, and the ongoing attractiveness of these offerings is heavily dependent on the prevailing economic conditions controlled by the U.S. Federal Reserve.

Tokenized Cash and Carry Trades

Cash and Carry trades leverage market arbitrage opportunities to generate yield. Products like Ethena (on Ethereum) have proven popular, allowing investors to engage in hedged trading strategies while earning sustainable (non-inflationary) yield. Ethena operates by balancing user deposits in stETH with a corresponding short position in ETH, generating returns from both the inherent yield of stETH and the trading strategy on exchanges. The resultant yield is distributed among USDe stablecoin holders, correlating with the fund's assets under management.

Debt-Based Protocols

Debt-based RWA protocols permit users to lend assets in return for a fixed or variable interest rate. These protocols then allocate the capital to offchain yield-generating opportunities, profiting from the yield spread. Users benefit from the yield without the volatility of the underlying assets. Yield to users is often facilitated through yield-bearing stablecoins. Here, users essentially hold a debt instrument from the RWA protocol, with a simplified operation flow for these stablecoins as follows:

1. KYC-verified institutional investors and arbitrageurs provide cash or equivalent to the RWA protocol.
2. The protocol issues stablecoins to these entities, redeemable on a 1:1 basis with the deposited value, positioning the stablecoin as a liability.
3. The deposited funds are used to purchase yield-generating assets. The yield is then redistributed to stablecoin holders through mechanisms like rebasing tokens or staking.
4. For redemptions, users return their stablecoins to the protocol and reclaim their initial deposits.

This model subjects users to the credit and liquidity risks associated with the protocol’s ability to fulfill redemptions but shields them from the price volatility of the underlying assets.

Etherfuse, a blockchain infrastructure platform on Solana, offers 'Stablebonds,' a tokenized bond offering aimed at retail investors in Mexico. Despite the Mexican bond market being the second-largest in LatAM and boasting substantial trading volume primarily driven by institutions, governments, and foreign investors, retail participation in the bond market remains minimal, with only ~2% of bondholders being Mexican. Etherfuse aims to address this gap by offering Stablebonds to retail investors onchain, aligning with the growing trend of tokenizing real-world assets.

Non-Yield Bearing Assets

Non-yield-bearing RWAs represent a distinct segment within the blockchain economy, primarily involving the tokenization of tangible assets or shares in institutional funds that do not offer inherent returns. Classified under equity RWAs, these tokens provide investors with equity-like positions in a digital format. A significant portion of this TVL (90+%) is concentrated in tokenized commodities like Tether’s and Paxos’ tokenized gold offerings. 

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Despite the innovative approach to encapsulating real-world assets on the blockchain, the adoption and market integration of non-yield-bearing RWAs lag behind their yield-generating counterparts, highlighting a slower uptake and potential challenges in market fit within the broader digital asset landscape.

Real Estate

Real estate, the largest global asset class, has traditionally required substantial capital investments due to high property values. Tokenization disrupts this by making real estate investments accessible onchain, allowing for fractional ownership and promising enhanced liquidity.

However, the transition of real estate to blockchain faces inherent challenges due to the sector's natural illiquidity. Real estate transactions are typically lengthy and complex, and the limited pool of buyers has made it difficult to align buyers and sellers effectively onchain, particularly as the sector still largely relies on traditional legacy systems.

In response to these challenges, innovative projects are emerging aiming to simplify property fractionalization, allowing property owners to easily divide and sell portions of their assets and enable buyers to acquire shares in tokenized form. Additionally, platforms like Parcl, Upside, Homebase, and others are pioneering mechanisms that enable speculation and fractional ownership of real estate values across various locations, such as different U.S. cities, directly onchain.

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Parcl

Parcl is a digital real estate protocol leveraging the Solana blockchain, enabling users to invest in specific geographic real estate markets without the need for direct property ownership. This platform allows investors to benefit from price movements in real estate markets, capturing value without the traditional risks and costs associated with property ownership.

Parcl offers a significant advantage by removing minimum investment requirements, allowing investors of all sizes to participate in high-value property markets. This democratizes access to lucrative real estate investments traditionally reserved for large-scale investors.

Additionally, Parcl enables investors to engage with high-growth real estate markets without the burdens of ownership or high closing fees. By utilizing the Solana blockchain, Parcl maintains low transaction (or "gas") fees, making it a cost-effective option for investors looking to participate in the real estate market through a digital platform.

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Parcl quantifies the value of a geographic area using the price per square foot of properties within that area. This metric is then digitized and integrated into Parcl's proprietary Parcl Price Index. The index adjusts dynamically in response to market shifts, effectively transforming real estate values into a tradable commodity.

Parcl assigns a digital representation to high-value areas based on the price per square foot of properties in those neighborhoods. These values are tokenized into units called "parcls," whose worth reflects the market appreciation of their respective neighborhoods.

Investors in Parcl can benefit from property value appreciation without actually owning real estate. When property values in a specific neighborhood increase, the value of an investor's Parcl portfolio also rises. Conversely, if property values decline, so does the portfolio's value. This model allows investors to engage with real estate market trends and potential appreciation without the need for direct property investment.

Importantly, investors in Parcl are not purchasing real estate; instead, they are betting on the future appreciation of property values in specific areas. Parcl converts properties in popular neighborhoods into a digital index, enabling users to invest in the potential for property value growth. Essentially, users invest in the likelihood of property values rising in these areas.

Homebase

Homebase tokenizes real estate assets and enables fractional ownership utilizing the Solana blockchain and NFTs. This model significantly lowers the entry barrier for real estate investment, making it accessible to a broader audience. In March 2023, Homebase tokenized a single-family rental property in South Texas valued at $235,000, raising $246,800 from 38 investors within two weeks. 

Key Features of the Homebase Model

1. Broadened Participation: Approximately 80% of Homebase’s investors are non-institutional, reflecting a shift towards more inclusive investment opportunities.
2. Minimum Investment Threshold: With a low entry point of $500, Homebase opens the market to investors who would typically be sidelined in traditional real estate transactions.
3. Enhanced Liquidity and Flexibility: Investors can buy or sell their shares directly on the Homebase platform, streamlining what would traditionally be a complex and lengthy process.

Homebase’s journey to market was meticulously planned, with significant emphasis placed on legal and regulatory compliance. The platform spent seven months preparing and partnering with law firm Hunton Andrews Kurth to create a novel token wrapper that supports necessary oversight measures.

Compliance Features in Homebase’s Token Wrapper

• KYC Enforcement: Ensures all investors are verified and aligned with financial regulations.
• Escrow and Lockup Mechanisms: Funds are escrowed until funding goals are met, and a one-year lockup period is enforced to comply with Regulation D.

Homebase’s model represents a significant shift in how real estate investments are perceived and managed. By lowering entry barriers and increasing market liquidity, Homebase is setting a new standard in the industry.

Private Credit

Private credit represents a significant segment within RWAs, where loans generated outside traditional banking systems are tokenized, offering higher transparency and inclusivity. This sector offers higher potential returns but also carries greater risk. The RWA sector extends into underwriting protocols where participants act more like traditional bank depositors, underwriting offchain loans through onchain deposits. This blend of traditional finance and blockchain allows protocols such as Centrifuge and Goldfinch, along with decentralized platforms like MakerDAO, to manage risks and maximize returns by selecting loans with favorable risk/reward profiles. Credix Finance is a leading Solana project in this space, connecting investors with emerging fintech projects and offering a novel approach to accessing diverse credit opportunities through the blockchain. 

With Credix, investors can allocate stablecoins, such as USDC, into the liquidity pool or invest in specific tranches of deals available in the market. For borrowers, primarily FinTech companies in emerging markets, Credix facilitates borrowing USDC, which is then converted to local currencies like the Brazilian Real. These local currencies are subsequently lent to various businesses, offering diverse types of credit, including trade receivables (via Clave), asset-backed car loans (via Atria), and revenue-based financing (via Brazil and Mexico).

While private credit on blockchain offers vast potential, it faces challenges such as the risk of bad debt and the difficulty of tracking off-chain data. Innovative solutions like decentralized underwriting and integration with open banking APIs are being explored to address these issues.

Physical Goods and Others

Any physical goods, including art, trading cards, and sneakers, can be tokenized and transferred onto the blockchain. Here's how the process works:

1. Vaults: Physical items are authenticated and securely stored in vaults. These items are then represented on the blockchain as NFTs or fungible tokens.
2. Marketplaces: Users can buy, sell, and transfer these tokens on various marketplaces.
3. DeFi: These onchain assets can also be used as collateral for loans.

Noteworthy players on Solana include:

• BAXUS: Founded by a whisky trader and a software engineer, BAXUS is a secure marketplace for authenticating, storing, buying, and selling wine and spirits. The bottles are securely stored in US vaults and then tokenized.
• CollectorCrypt: This service brings real-world collectibles onto Solana, similar to Courtyard but specifically for Solana. Users can deposit their physical cards to have them tokenized.

Finally, straddling the physical good and commodity sectors is AgriDex, a platform digitizing agricultural commodities. The pre-seed round just concluded in 2024, raising $5 million from Endeavour Ventures, African Crops—a sub-Saharan agricultural organization, and South Africa's Oldenburg Vineyards. AgriDex enables the purchase of various crops on its marketplace, with finalized transactions being secured through NFTs that encapsulate the critical details of each deal.

Challenges and Opportunities in RWA Tokenization

While even some of the most stubborn anti-blockchain advocates generally agree that the future involves more tokenization and not less, tokenizing RWAs presents a unique set of challenges that still need to be addressed to ensure reliable and efficient adoption.

Generally, these challenges include:

• Regulatory Compliance: Navigating the complex regulatory environment is crucial, especially when tokenizing assets like U.S. stocks or private credit.  Tokenization faces particular regulatory uncertainties and complexities when operating across multiple jurisdictions. These challenges have largely kept major regulated institutional players either on the sidelines or confined to private blockchains. While private blockchains might grow in tandem with public chains, they could also fragment liquidity due to interoperability issues, complicating the realization of tokenization's full benefits.

Internationally, regulatory developments are noteworthy, especially in jurisdictions like Singapore, the EU, and the UK. Singapore's "Project Guardian" has facilitated numerous tokenized proof-of-concept projects involving tier-1 global financial institutions on both public and private blockchains. The EU's DLT Pilot regime is pioneering frameworks that allow multilateral trading facilities to use blockchain for trade execution and settlement. The UK is exploring even more advanced frameworks for public network tokenization. These initiatives reflect a robust commitment to advancing the regulatory landscape to support tokenization.

• Enforceability: Blockchains hold immense power and value for various reasons, but primarily for their ability to enable trustless commerce in a self-custodial manner. This means that two people, anywhere in the world, can conduct transactions on a blockchain without needing to trust that the other party has the funds they claim or will fulfill their promises. Instead, they only need to trust the underlying protocol. However, introducing Real-World Assets (RWAs) onto a blockchain diminishes many of these advantages. RWAs are inherently tied to traditional financial systems, which means their trust attributes differ significantly from those in a purely decentralized finance (DeFi) ecosystem that focuses on crypto-native assets.

When a blockchain protocol incorporates elements external to its native environment, such as RWAs, it inherits the complexities and challenges of the physical world, including counterparty, custodial, and regulatory risks. Consequently, any issues that arise with RWAs require social or community-level interventions, which undermines the principles of "code as law" and the immutable nature of blockchain technology.

Ensuring that the sale of an NFT representing a physical asset results in the actual transfer of the item is problematic. For example, if Alice converts her $1 million estate into an NFT and sells it to James, James expects to receive the keys to the home upon purchase. If Alice refuses, there is no robust mechanism to enforce the transfer of the physical property. This gap highlights the lack of legal enforcement linking the token to the tangible asset.

• Reliance on Oracles and Value Retention: Oracle solutions like Chainlink's Proof of Reserves and the Pyth Network attempt to address the “Oracle Problem” associated with RWAs but this inarguably adds a degree of complexity. Users must trust that RWA custodians accurately represent their assets and that oracles relay this information correctly. To build trust and prevent fraud, the industry needs to establish new standards, such as Proof of Reserves or third-party audits. Without these safeguards, the successful integration of RWAs into the crypto ecosystem could be at risk from dishonest actors.

While price feeds effectively maintain the value of tokenized real-world assets (RWAs), determining a fair value for NFTs, such as houses, remains difficult. The value of such unique assets is highly subjective and depends on what someone is willing to pay for them, complicating the process of establishing a consistent and fair price.

Conclusion

The tokenization of RWAs on Solana is poised to revolutionize various sectors by making assets more liquid, accessible, and integrated with the global DeFi ecosystem. As the technology and regulatory landscape evolve, Solana's infrastructure and community are expected to play a pivotal role in shaping the future of decentralized finance.

The potential for growth and innovation in the field of Real World Assets (RWAs) on Solana is vast, encompassing the development of a robust ecosystem with comprehensive infrastructure, including standardized protocols, dedicated decentralized exchanges (DEXs) for RWAs, and integrated oracle services for real-time asset valuation. 

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By leveraging Solana’s high throughput, low transaction fees, and robust infrastructure, RWAs can achieve enhanced liquidity, broader accessibility, and increased trading and asset management efficiency. This development not only democratizes access to high-value asset classes but also facilitates continuous, global trading, overcoming the limitations of traditional financial markets.

As Solana continues refining its infrastructure and standards for RWAs, it is well-positioned to support a diverse range of assets, from real estate to private credit. The integration of yield-bearing and non-yield-bearing RWAs into the Solana ecosystem promises to attract both institutional and retail investors seeking secure, yield-generating opportunities. Furthermore, the ongoing advancements in oracle services, compliance frameworks, and interoperability protocols will ensure that Solana remains at the forefront of the RWA tokenization revolution, setting new standards for asset management and financial innovation in the blockchain era.

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This report was created with inspiration from the Solana Foundation research team's Yash Agarwal's original article on RWAs here: https://yashhsm.medium.com/state-of-real-world-assets-on-solana-the-opportunities-23ebff9a50c9

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Disclaimer: This report was commissioned by the Solana Foundation. This research report is exactly that — a research report. It is not intended to serve as financial advice, nor should you blindly assume that any of the information is accurate without confirming through your own research. Bitcoin, cryptocurrencies, and other digital assets are incredibly risky and nothing in this report should be considered an endorsement to buy or sell any asset. Never invest more than you are willing to lose and understand the risk that you are taking. Do your own research. All information in this report is for educational purposes only and should not be the basis for any investment decisions that you make.