Author | Lao Bai From ABCDE

In the previous article, we explored market perspectives from both Eastern and Western viewpoints. Today, in light of YZi Labs officially announcing their investment in Plume Network, a platform for Real-World Assets (RWA), I would like to discuss some recent developments I’ve observed in the RWA sector.

This discussion can be divided into four key areas:

1. Is there a genuine application scenario for RWA, or in other words, is there Product-Market Fit (PMF)?

2. Which types of RWA assets are suitable for tokenization, and which are not?

3. What were the past solutions, and what are the current ones?

4. Have you noticed any trends in RWA over the past few months?

Let’s begin with the first point — Is there a genuine application scenario for RWA, or is there a PMF? (Here, I will initially exclude the stablecoin sector related to U.S. Treasury bonds, as platforms like Usual and MKR seem to have already established their PMF.) Taking the example of tokenizing U.S. stocks, this has become a topic of considerable debate on Twitter. Many argue that tokenizing U.S. stocks is redundant; if someone wants to trade U.S. stocks, they have their own channels, and any asset on-chain is likely to be more volatile than U.S. stocks, making on-chain trading unnecessary.

I hold a different view; I believe that U.S. stocks on-chain do have their significance.

1. From the perspective of access — It is true that most major players above A8 and A9 utilize platforms like Futu and FirstTrade for their securities trading, diversifying investments across crypto, stocks, gold, etc. However, I believe that most retail investors in the crypto space do not have U.S. stock accounts. Trading U.S. stocks on-chain could at least provide them with barrier-free access to purchasing opportunities.

From another angle, the total market capitalization of stablecoins like USDT and USDC is expanding, representing another avenue for the diffusion of the dollar’s dominance over traditional finance. If one day crypto, through stablecoins, Payfi, and user experiences akin to Alipay’s smart wallets, truly achieves mass adoption, do you think Americans would be willing to let the entire world take control of their U.S. stocks? Most individuals from other countries would likely prefer to open accounts with various banks and brokers to invest in their own struggling domestic stocks rather than simply clicking to invest in major companies from the world’s largest economy.

2. From the application scenario perspective, consider this case: as a memecoin PVPer, you’ve recently made a profit of $100,000 trading MUBARAK. Knowing that Tesla’s stock price has recently halved, you recognize it’s a good time to buy the dip, and you wish to convert that $100,000 into Tesla stock.

Even with a U.S. stock account, converting $100,000 from crypto to fiat via OTC, wiring it to a brokerage, and finally purchasing stocks can take 3 to 5 business days (back in 2017, before I got into Bitcoin, I used FirstTrade in Australia to buy U.S. stocks; just the SWIFT transfer took 4 to 5 days and incurred hefty fees of over $50). If one day Tesla’s stock rises and you want to sell it for BTC or USDT, you would have to go through that entire process again… Imagine if U.S. stocks were available on-chain; you could instantly convert your profits into Tesla stock. This reduction in friction costs isn’t just marginal — it’s a tenfold or even hundredfold enhancement in user experience.

Now, let’s move on to point 2 — Which RWA assets are suitable for tokenization? Similarly, T-Bills, which have already proven themselves, are not under discussion here. The suitability of other RWA assets actually depends on the specific target audience.

For the consumer segment (To C), stocks are undoubtedly the most suitable. Most retail investors likely have never encountered primary private equity; even if you tokenize shares of a private company, very few would be able to understand, buy, or hold them long-term. Similarly, private credit collateral on platforms like Centrifuge, such as bridge loans in the real estate market or corporate receivables, are also unsuitable for To C. The overwhelming majority of consumers are only familiar with stocks. More scenarios for To C should involve opening up an asset to users who previously had no channels to purchase it — essentially a process of going from 0 to 1.

For the business segment (To B), there are many more assets that can be tokenized. However, compared to the 0 to 1 journey for To C, To B should focus more on reducing friction, moving from 1 to 100. Just as primary private equity is already circulating among some institutions and high-net-worth investors, bridge loan collateral on Centrifuge can likely still secure bank loans; it’s just that the circulation process is relatively cumbersome and involves significant friction. Placing this on-chain can significantly enhance user experience and flow speed, akin to the improvement from Payfi to SWIFT.

Reflecting on a project I discussed last year; the parent company is a prominent asset management firm in the U.S. They intended to issue tokens based on their clients’ primary equity, such as Elon Musk’s SpaceX, on their trading platform, allowing these tokens to circulate easily. Ultimately, when SpaceX goes public, it could settle in one go. Thus, for To B, the targeted trading users are limited to institutions and enterprises, and the issuing entities are also somewhat constrained. Just like the previous example, unless you already manage a significant amount of SpaceX equity, you cannot simply attract holders of SpaceX equity to issue tokens representing that equity without involving substantial friction from resource cooperation and legal agreements.

There are also many hybrid scenarios, which can cater to both To C and To B. For example, IP tokenization on Story Protocol, or the tokenization of royalties from a novel, box office revenues from a film, or sales from a game, are still in the early exploratory stages and need to be tested and validated one by one. For instance, the tokenization of influence has seen FT fail while Kaito has been relatively successful. The tokenization of celebrity time, such as the brief success of Time.Fun, has now faded into obscurity… These things need to develop gradually.

Next, let’s discuss point 3 — What were the past solutions, and what are the current ones?

Using U.S. stocks as an example, past solutions primarily revolved around synthetic assets, represented by platforms like SNX, Terra’s Mirror, and GNS.

This approach has largely been discredited at this point, and the aforementioned platforms have long removed their synthetic U.S. stock assets for two reasons. Firstly, people are generally uninterested in “fake assets” created using stablecoins or native tokens (like SNX). Just compare the market caps of BTC, WBTC, and SBTC to see the difference. To be honest, synthetic assets are less appealing than “mapped assets” like WBTC. Secondly, when the SEC was scrutinizing the market, although synthetic assets are not real, the SEC could investigate you without needing a reason. Thus, it was better to avoid trouble, leading these platforms to remove synthetic U.S. stock offerings.

With Trump’s presidency and a new SEC chair, regulatory conditions have noticeably improved in this regard compared to the past two years. Currently, two new solutions for tokenizing U.S. stocks have emerged.

One path is to follow the traditional compliant Broker-Dealer model, where the moment a user buys a tokenized stock on-chain, it triggers off-chain compliance actions by the broker in the U.S. stock market. Essentially, it operates similarly to Robinhood, where Citadel “buys” stocks on the user’s behalf. The advantage is that the stock you acquire is “real stock,” or at least 1:1 backed by that broker — similar to WBTC in relation to BTC. The downside is that trading hours are tied to the stock market, unlike crypto’s 24/7 trading, and you need to establish trust in that broker or platform. Furthermore, selling would trigger a Taxation Event; U.S. citizens may need to submit tax-related forms, while non-U.S. citizens at least have to undergo KYC, which can be cumbersome.

The second approach is by Ondo Global Market. According to their documentation, they originally intended to follow the Broker-Dealer model but later shifted to a model similar to stablecoins, allowing authorized issuers to directly issue tokenized stocks (much like Tether issues USDT and Circle issues USDC). The advantage here seems to be greater flexibility, potentially freeing users from the constraints of U.S. stock trading hours, ultimately allowing settlement through the issuer at some point. The downside is that it likely can only cater to non-U.S. users, and it raises questions about whether different issuers will issue different contracts for the same stock (similar to how different chains may create incompatible versions of USDC). These specific details haven’t been addressed in their documentation, as their product is set to launch next year.

Lastly, platforms like Plume appear to function more as a framework, incorporating KYC/AML, data storage/execution, consensus, and ZKTLS verification, theoretically allowing partner institutions to issue various tokenized RWA assets. This brings us back to the previous topic of which assets are suitable for tokenization, so I won’t elaborate further on that.

Finally, let’s talk about point 4 — Have you sensed the trends in RWA over the past few months?

If you’ve been paying attention, the momentum for RWA has been quite strong in the past two months. Here are a few notable developments I’ve observed:

1. Ondo plans to launch Ondo Global Market, an on-chain stock market, by the end of this year or next. They’ve also been closely partnering with Trump’s WLFI, indicating upcoming collaboration.

2. Sui has also been aligning itself with WLFI.

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

4. Ethena launched a new product today, Converge, which focuses 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 coin, Horizen, which has sparked significant community reactions, prompting Stani to clarify that “the Horizen initiative aims to fill the current gap in Aave’s RWA business segment, with expectations of surpassing the revenue of Aave’s existing business line in five years.”

6. The South Korean Financial Services Commission plans to release a statement in February 2025 to allow corporate entities to engage in virtual asset trading in phases. From friends in the Korean crypto space, I’ve learned that Korea may restart its STO (the previous term for RWA) plans. Consider this: allowing “corporate entities to trade virtual assets” is not about letting companies speculate on coins; it’s clearly aimed at tokenizing certain real financial assets into “virtual assets” for inter-company circulation.

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

These developments indicate strong momentum. I believe the next big sector, similar to Circle’s success, lies in PayFI, RWA, and Web2.5 consumer applications. As for AI + Crypto, I can only say there is potential, and I’m still observing and discussing it. After I finish writing the next piece on “noteworthy elements of ETH and Solana,” I will write a separate article reflecting on recent thoughts regarding AI + Crypto as the concluding part of this comprehensive collection.

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