Earnings-type Physical Assets on the Blockchain: US Treasuries Drive Rise, Native User Demand Soars

There are various types of physical assets on-chain ( RWA ), each with its characteristics, suitable for different scenarios. While certain RWAs like stablecoins and tokenized gold have existed for years, other types of RWAs such as U.S. Treasury bonds have emerged recently against the backdrop of rising interest rates. This article will briefly outline the following types of income-generating RWAs:

• Real Estate
• Private Credit
• Treasury Bonds

Note: The following analysis focuses on these tokenized assets and their market values, excluding information about the underlying Blockchain protocols or auxiliary services. To avoid obscuring the rise of other small market cap RWAs, the report does not involve stablecoins (, which account for the largest share of approximately 125 billion dollars ).

Integration of the Real World and the Digital World

RWA is created by the issuer through one or more of the following activities:

• Acquire assets in the real world
• Tokenize assets on-chain
• Distributing RWA tokens to on-chain users

If there is no issuing party, ( centralized company, decentralized protocol, or a combination of both, RWA will not exist on-chain.

Some major RWA issuers include:

• Centrifuge) actively issued $238 million RWA(: the largest on-chain private credit issuer
• Franklin Templeton) actively issued $310 million RWA(: a traditional financial institution issuing tokenized government bonds.
• Wisdom Tree) actively issued 11 million USD RWA(: institution tracking government bond funds.

This highlights the situation where off-chain entities endorse on-chain RWA. Franklin Templeton and WisdomTree are two established traditional financial companies, whose main businesses are unrelated to cryptocurrency. Franklin Templeton was founded 76 years ago and provides various fund products for individuals and institutions, managing assets of $1.5 trillion. WisdomTree was established in 1985 and offers a diverse range of exchange-traded products, managing assets of $95.9 billion.

In recent years, these companies have started to explore RWA, aiming to meet the needs of institutional clients by tokenizing traditional financial instruments. Although still in the early stages, the issuance of RWA by traditional financial companies is expected to attract a large number of new users into the crypto space.

Yield-bearing RWA rise

As of September 30, the market value of RWA reached $2.49 billion, down 9.6% from the peak of $2.75 billion on April 19. Although RWA related to government bonds has seen strong growth, the active loans issued by private credit issuers have significantly decreased over the past 18 months, resulting in the market value of RWA being lower than its historical high.

In the first three quarters of this year, the value of non-stablecoin RWA rose by $1.05 billion, of which $855.7 million came from government bonds and other securities, real estate, and private credit.

![Yield RWA Report: US Treasuries Drive Yield Rise, Native Crypto User Demand Soars])https://img-cdn.gateio.im/webp-social/moments-a1269c49e185e79601956994f6883134.webp(

) private credit

Private credit is financing provided by non-bank institutions. After the financial crisis in 2008, bank regulations were strengthened, leading to a significant rise in the private credit market. Currently, this trend has further expanded under the interest rate cycle. Private credit offers flexibility to borrowers and interest rate protection to lenders. As of August 2023, the global private credit market is valued at $1.5 trillion.

In the first three quarters of this year, the active value of on-chain private credit loans rose by $210.5 million ###84% (. Centrifuge made the largest contribution, with an increase in the outstanding loan balance of $155.7 million. Clearpool grew the fastest, with a loan balance increase of 966% to $23.96 million.

![Yield-bearing RWA Report: US Treasuries Drive Yield Growth, Surge in Demand from Native Crypto Users])https://img-cdn.gateio.im/webp-social/moments-372ec61e0aba15ad359d9a8760f35af7.webp(

Despite a rise this year, the total value of on-chain private credit loans is still 70% lower than the high of $1.54 billion on May 15, 2022. Active loans have significantly decreased after the Federal Reserve's sharp interest rate hikes.

The yield on on-chain private credit loans is significantly higher than that of DeFi lending protocols. In the first three quarters of this year, the average daily interest rate difference between the two was 7.7%. However, the risk conditions are different; most DeFi lending is over-collateralized, whereas private credit may be unsecured.

![Yield RWA Report: US Treasuries Drive Yield Growth, Surge in Demand from Crypto Native Users])https://img-cdn.gateio.im/webp-social/moments-2fd503e18fc84000f3dfc5aba608fefc.webp(

) real estate

Real estate is a tangible asset, including residential, commercial buildings, and land. It attracts investors through passive income such as rent. The global real estate market was valued at approximately $613 trillion in 2023.

In the first three quarters of this year, on-chain real estate rose by $1.78 million, the smallest increase among income-generating RWAs. RealT is the largest issuer, accounting for 49% of the market share. Tangible has seen the fastest growth this year, with total locked value increasing from $100,000 to $64 million.

![Yield-generating RWA Report: US Treasuries Drive Rise in Returns, Surge in Demand from Native Crypto Users]###https://img-cdn.gateio.im/webp-social/moments-2ca56c1264c5a021135f06756ad7951c.webp(

) government bonds and other bonds

U.S. Treasury bonds are considered the safest and most reliable income assets. In contrast, corporate bonds carry higher risks but may offer higher returns. In 2022, the global bond market was valued at $133 trillion, with U.S. companies issuing $1.02 trillion in corporate bonds in the first three quarters of this year.

In the first three quarters of this year, the value of tokenized government bonds and other bonds rose by $555 million. Ondo Finance, Franklin Templeton, and Matrixdock are the three major issuers of government bond RWAs, collectively issuing $572 million in assets, which accounts for 85% of ###, with an additional $468.5 million this year.

Frigg.eco issues bonds related to sustainable infrastructure developers, which are more akin to corporate bonds. stUSDT is another tokenized national debt asset with a market value of about $1.8 billion, but it has been questioned due to a lack of transparency.

For nearly 18 months, short-term U.S. Treasury yields have consistently exceeded on-chain stablecoin deposit rates, with an average daily interest rate spread of about 3% this year. The yield spread between AAA-rated corporate bonds and on-chain stablecoin yields is 2.7%.

Prospects

The demand for returns from native crypto users has driven the rise of on-chain RWA. This year, approximately 82% of the new value in RWA comes from income-generating assets. In the total market value of RWA, the proportion of income-generating RWA has nearly doubled from 31% at the beginning of the year to 53%.

From 2021 to 2023, the Federal Reserve's aggressive interest rate hikes pushed the benchmark rate to its highest level since 2007, creating a new demand for high-yield RWA among native DeFi users.

Most RWA users are crypto-native users, rather than newcomers or traditional investors. The average user address interacting with RWA was created before the on-chain time of these assets.

As of the end of August, 3,232 independent addresses hold major RWA assets. The average age of these addresses is 882 days (2.42 years ), while the average age of RWA assets is 375 days. 20% of RWA user addresses started on-chain trading before 2023.

However, some new users (34%, 188 addresses ) hold assets issued by Franklin Templeton and WisdomTree, indicating that traditional financial companies' RWA products may be attracting new users.

RWA faces real-world risks and limitations

Although many RWAs are issued on-chain, users still need to complete KYC/AML or whitelist verification to participate. This means that RWAs have not expanded the accessibility of financial instruments.

RWA also faces unique risks. For example, private credit RWA may be unsecured, and off-chain borrower defaults can lead to on-chain depositors' losses. RWA issuers need to address this through risk/reward adjustment and transparent governance.

The Federal Reserve's policy is crucial

The Federal Reserve's actions have greatly promoted the adoption of RWA this year. The interest rate hike has made off-chain yields more attractive to on-chain users. In Q2 2022, private credit RWA accounted for 56% of total TVL, while government bond RWA was 0. In Q3 2023, the share of private credit RWA dropped to 18%, while government bond RWA increased to 27%. The Federal Reserve's policies are influencing the expansion and layout of the RWA DeFi sector.

Conclusion

The rise of RWA is mainly driven by the demand from native crypto users, rather than new users. However, the adoption of RWA by traditional financial giants like Franklin Templeton shows the potential to attract new users. In 2023, RWA has strong momentum, with many assets' market values nearing new highs. Changes in the macro environment and user demand will continue to affect the development of this field.