Leading crypto exchange says links between DeFi and TradFi assets will be a key trend in 2023
The push to marry DeFi to real assets just got a major boost.
Coinbase, the #1 US crypto exchange with a market cap of $7.5 billion, predicts that institutional entities will seek to leverage permitted DeFi platforms and drive innovation in tokenizing real-world assets (RWAs).
on chain
The forecast echoes the push by DeFi stars MakerDAO and Aave to bring the burgeoning market for placement of bonds, real estate and other traditional assets on-chain.
In its 2023 Crypto Market Outlook report released Tuesday, Coinbase said it expects more dApps to adapt their platforms for “permitted DeFi activities as regulated institutional entities seek greater involvement in the sector.”
“This could have compelling use cases for settlement and cross-border payments alongside innovations in real-world asset tokenization (RWA),” the company said. “Permitted DeFi would likely target different use cases and solve different problems (like undercollateralised loans) than permissionless DeFi.”
DeFi stalwarts explore connections to Weather Bear Market and FTX Fallout
Aave, MakerDAO, Compound, and Yearn seek partnerships as DeFi moves to the next phase
Coinbase highlighted significant RWA projects already underway, including a partnership between MakerDAO and Societe Generale, a major French bank that issues AAA-rated French home loans as collateral for loans of up to DAI 30 million.
It also highlighted the project in which JPMorgan Chase, DBS Bank and SBI Digital Asset Holdings traded tokenized currencies and government bonds on the Polygon network last month.
Approved Platform
Coinbase tips that have established DeFi protocols could soon launch approved anti-money laundering or AML/KYC compliant liquidity pools separate from the permissionless liquidity pools used by non-institutional participants.
Aave, TVL’s leading DeFi money market, launched its accredited platform Arc in January, initially whitelisting 30 institutions for the platform. It was launched later that same month on Ethereum’s leading Layer 2 networks, Arbitrum and Optimism.
Colin Cunningham, head of business development at Centrifuge, a DeFi platform used to fund real-world assets, told The Defiant Coinbase that tokenizing RWAs and other off-chain assets is the next frontier for DeFi.
The digitization of real-world assets (RWAs) will be a momentum-changing theme for institutional crypto over the coming year, with stablecoin technology taking center stage.
Timo Lehes
“Given market conditions, it’s important to recognize the need for crypto to offer real value, and RWAs represent that,” Cunningham said. “I hope that the RWAs finally get their maturity in 2023: Crypto liquidity is hungry for yield.
Timo Lehes, the co-founder of Swarm, a regulated platform for accessing decentralized finance, agrees that tokenized RWAs will be a major narrative in 2023.
momentum shift
“The digitization of real-world assets (RWAs) will be a momentum-shifting theme for institutional crypto over the coming year, with stablecoin technology taking center stage,” Lehes told The Defiant. “Digital assets show low correlation with other traditional financial assets like commodities and bonds. Regulated DeFi projects are actively pursuing the adoption of classes of tokenized collateral from TradFi as the lack of correlation is a feature, not a bug.”
Lehes suggested that RWAs can be brought on-chain with the same structure used for fully fiat-backed stablecoins. “Since stablecoins are already a category of tokenized RWAs with a market cap of over $100 billion, it’s only natural to extend the same tokenized structure to public stocks, bonds, ETFs and other assets,” he said.
What is DeFi borrowing?
An introduction to one of the most popular practices in DeFi
Coinbase makes a surprising connection and also expects RWAs to be a testing ground for non-fungible tokens.
The company said NFTs are increasingly being used to certify and authenticate real assets on the chain, including real estate, physical goods and financial instruments. Coinbase added that RWAs are an opportunity for non-fungible tokens to expand beyond largely speculative use cases.
“Topics such as digital identity, digital footprint mapping, soul-bound tokens and tokenization of real-world assets have the ability to eliminate the speculative nature of art/collectibles and highlight the fundamental benefits of non-fungible tokenization,” the report states .
Less liquid
Despite Coinbase’s optimistic outlook for RWAs, the company warned that new forms of real assets will be slow to come on-chain due to regulations. “While issuers are clearing the financial and legal hurdles to tokenizing other less liquid real assets like real estate, the market for it is still underdeveloped.”
According to Fortunafi, the total value of RWAs on Ethereum is $612 million compared to an all-time high of $1.75 billion in Q2.
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
Comments are closed.