From Boring to Billions: How RWAs Won Crypto, and What's Next

All right, up next we have a panel from boring to billions. How RWA's won crypto and what's next. So I will pass the mic back to Dean Condellan, head of growth at RWA.xyz fan in the audience.

Hello. Long time no see. Um yeah, I'm now going to be moderating uh a panel on tokenization with people who are much more of an expert than I am. So yeah, we're going to welcome the the panelists to the stage. We have Bargie from Centrifuge.

Yeah. What do we want to do for seating? I I I'll sit here. Uh we have uh Danig from Panta and Ray from from Grayscale. Cool.

Actually, yeah, why don't we we go around and do uh quick intro? You want to you want to go first?

Hi everyone. Thanks for having me. I'm Rey. I lead product and research at Gayscale. We were the world's largest cryptofocused asset manager and I have been at Grayscale since 2018.

So, I was lucky enough to help build the company from when it was five human beings.

Hi everyone, I'm Denning. I'm head of research at Penta Capital. We're a crypto native venture fund uh since 2003. Um and basically I usually cover DeFi and like microstructure research but also have witnessed so much like investment in our team uh across RWA stack. So excited to be here.

Hello I am Baji CEO of Centrifuge. So this is fun for me because usually these RWA panels are all RWA platforms and now we have some different perspectives on the stage. Uh we were founded in 2017. We're a tokenization platform. We work primarily on the financial product side.

So have a T-Bell fund that's at about 600 million, aa CLLO fund, a private credit fund, and then a S&P 500 uh equity fund. So can speak from the perspective of the institutional asset managers we're working with, the supply side, why they're coming on chain, and then where we're seeing demand for these products on chain.

Yeah, Baji, why don't we start with you actually? Why why has real world assets taken off this cycle? I mean, you've been around for for a few cycles. Uh real world assets of course were a thing in 2021, but they hadn't faced the same sort of explosion of growth. Why do you think we faced this exponential growth now?

There's a lot of factors that went into play that make this time different than previous times. previous times were what we found was there was really this adverse selection bias where a lot of the products that were being tokenized and the folks that were looking at tokenization as a solution there really wasn't demand for those types of assets. So they would come on chain and they would not be able to drive any growth or any activity into those products. When that started really changing was when the DeFi rates went down and when T-Bill rates went up. So when the risk-free rate was at five six% then an onchain allocator um and primarily what that demand side looked like were stable coins they want to access T bills instead of the traditional crypto yield products that they had access to.

So that's where we started to see this inflection where there was actually some product market fit and some demand on chain for real world assets. Um, then we had BlackRock and Larry Frink take the microphone and start talking about tokenization and giving the industry a lot of coverage around the ability to innovate and build and removing that reputational risk of being early for these types of products. And then we had regulatory clarity in the US and a lot of actual activity happening in the administration trying to build structures where there is comfort and there are ways in which you can safely and compliantly build on chain. So the combination of RWA yields becoming interesting, asset managers putting their brand behind these types of products and then regulatory clarity have led to this perfect inflection point where we are in a position where we're seeing real growth.

Yeah, I think like I want to dabble double tap on the regulation environment for sure. as someone who were working in like D5 protocol like zerox unis swap was the first one getting like penalty and like getting court like basically stuff and until this recent uh administration and we've experienced market maker we're trying to like market maker on defi but then they shied away because of unclear regulation you know stuff around it um but this cycle is different because now with the bill is so clear and like institution and banks are not now like not worried about those like concerns and We've seen a lot more like DeFi experiments for example like Apollo is buying out more and more like morpho treasury and so basically asset managers now can basically expose those to their like traditional in financial investors and I think recently there's a news about like uh black rockck also tapping into unis swap's uh treasury and so basically like you are going to access like liquidity through unis swap x trading basically it's provided by black rockck and which means also in the counter side as a retail how you have your money in Black Rockck, your yields may come from a DeFi protocol now. So, it's like pretty exciting.

So, actually just just on that note, this is something Bar and I were talking about before backstage. You mentioned institutional demand. Uh I think we can all agree a lot of assets are being tokenized and like I showed on on my slide, [clears throat] you know, JP Morgan tokenized their own money market fund, obviously Black Rocks, Bidd. So, a lot of assets are being tokenized and the supply side is pretty secure. But are you seeing institutions actually purchase tokenized assets in in waves or they kind of more so just experimenting?

Um I mean I think like it's not only just tokenization but also there is like company that's exper uh experimenting with new type of assets issuing like for example figure got IPOed and so it's not only distribution of traditional assets. So um and then there's also like I I see kind of like a stack of like a supply chain right like you have different components and so when you have all these assets uh distributed or issued on chain you need also people to encourage the utilization of it and so like payments like built by coinflow and where like they're allowing e-commerce or like uh gaming company to to get get usage of all these onchain assets are definitely key component to those um institution sites I'm curious uh how you guys have seen Yeah. So I think from my view I agree with what my panelists have said. Uh it's great to start seeing this product market fit. I think the regulatory backdrop plays a role.

I think institutions don't want to be left out and this is a way for them to not sit on the sidelines as we see the proliferation of blockchain and crypto. I think that primary secondary is is interesting to focus on because at the end of the day we can put anything on a blockchain. Like we could put my self-esteem on the blockchain and it's not going to matter if there's no capital velocity if no one wants to buy and sell it. So to me it's just really early. So like what 02% of all assets have been tokenized and the real opportunity is around future generations because you know we work with we have brokerage accounts but I think there's a world where there are future generations that are not interacting with the financial services world in the same way and they might be more cryptonative and have wallets and they are likely to still want economic exposure to the assets that we invest in today.

So to me it's just very early and we're and we need to think about it from a long game perspective.

Where we're seeing the demand right now is on from onchain capital allocators. So stable coins and foundations and treasury managers. And that's because they don't have access to these traditional products in other uh access points. So they don't have a traditional bank account. They don't they can't just easily buy a T- bill.

So they're buying the tokenized version of a T- bill. We're not seeing new capital come on chain for these products because it's easier and it's cheaper for them to just buy the traditional product. So why would you buy a tokenized T- bill if you can just buy the T- bill? Same with we have JA. It's a AAA CLLO fund managed by Janice Henderson.

The ETF is a $25 billion ETF. You can just buy that. Don't buy the tokenized version. However, where it starts to get interesting is when the tokenized version does actually become better than the traditional version. So, you mentioned Apollo.

We have a product that we're building that we have live with Christine at Apollo. It's her private credit fund and it's a quarterly redemption fund. The yields about 9%. Onchain. We have two strategies that make that product actually better onchain than offchain.

So there's a liquidity facility that offers daily liquidity for a fee. So instead of the quarterly redemption cycle offchain, you can get instant liquidity onchain and then it's actually available on Morpho. So you can buy the product, you can deposit into Morpho, you can borrow against that and you can loop it. So when there's when there becomes this interesting looping arbitrage where borrow rates are 2% and the RWBA yields 9%. Then you start to see a new segment of buyers on chain that are interested in these products, but then also Christine and Apollo are talking to their traditional customers and compelling them to come on chain and to actually access the tokenized version.

So that's where it becomes really interesting is when that tokenized version has better liquidity, has better utility and operationally is more efficient than the off-chain version. One question on uh on liquidity and specifically secondary liquidity. Um I'm seeing a lack thereof and just zero or or almost zero to to no secondary liquidity. What's bottlenecking that right now? An open question to to any panelist.

Is it, you know, regulatory reasons, market structure? What do you think's hindering secondary liquidity? In my view, it's just like Baji said, it's the lack of the need for a lot of today's like capital allocators to go onchain to get a thing. And that's what I think could change in the future.

What what's the catalyst to to change that?

A new generation of investors that have are more comfortable interacting with crypto wallets and are not using the on-ramps into the financial system the way that we do today. So when you say a new generation of investors, does that mean you don't see kind of traditional institutions necessarily allocating on chain because they already have access to these products or what would that mean for traditional institutions and how they interact with tokenized assets?

I think they could. I think at the end of the day it just you're going to see secondary liquidity take off over time where there is a benefit. So you fractionalized something that needed to be fractionalized. you have you know taken for instance you know something that could only trade 9 to4 9 to5 and given it 24/7 rails you have created an additional layer of liquidity or faster settlement that was an actual bottleneck before I think at the end of the day a lot of the financial products today are more or less efficient so for me it comes back to where are you actually changing capital velocity and um kind of speed and those factors and then when are where at what point are you serving a new set of customers that are actually wanting to get exposure to the same things onchain?

I feel like this question maybe go back to a little bit from what uh what I was mentioning earlier which is like building the utilization layer for the onchain assets. So like okay there are all these stable coins today and like we know maybe like a lot of the country that are debanked are using it that people are using as alternative but like uh what about onchain like FX or like say like crossber payment like building the payment rails and like tap that into like real world commerce uh merchandise um like companies and stores are going to be helpful for the secondary liquidity that you're mentioning here. Um, yeah,

we're also seeing some interesting use cases on chain as well around why secondary liquidity is important. So, you want to have atomic settlement. You want to be able to swap in and out of these RWAs. I think Athena did a uh was early in this strategy where they worked with Bidd and when the basis trade rates went down, they would swap into the T-Bell product. So these types of yield products where it's either a basis trade or it's a any any sort of DeFi yield um structured product on chain where they can start to have RWAS as part of their overall portfolio.

Then as crypto rates move they have this floor yield which is provided by a safe and stable asset. So that's where there's still quite a lot of opportunity and growth around the uh drivers for demand for RWBAs from the existing onchain allocators and a lot of the builders that are coming and that's where you when you're mentioning stable coins and fintexs and apps and all of these new consumerf facing products that might not even necessarily market themselves as web 3 but are using tokenized products in the background for better settlement and better liquidity is where I think we can start to see quite a big growth. grow and jump and how these are used across chain. Maybe one more thing to add is like I think there is still some compliance risk that are a lot of the institution are facing like we can see evidence like so much inflow from ETFs great and but like u if you're trying to like deploy your liquidity into a onchain vaults then it's like who are your KYC and so seeing company that's building the compliance framework to offload that like concern and regulatory risk to uh away from the institution can be also helpful. This following question may be a bit controversial as we have a variety of different players on the stage.

Um but maybe I'll point this to to Bargie first. Um who wins in the tokenization race and which layers will get commoditized? We have you know we have issuers, we asset issuers, we have platforms, we have chains. Uh do you see any of them getting commoditized and who will kind of lead the way? Um I think probably many of them get commoditized.

We're we have historically been focused on tokenization and just bringing these products on chain. I believe that will become commoditized. So where we're shifting our focus is you called it the orchestration layer. But how do we connect these? How do we become the DeFi strategist for these large institutions?

So we can tokenize their product, but then what how do we integrate it into DeFi protocols? How do we create utility and liquidity and actually create this layer across DeFi where any product can be multi-chain, multi-protocol and atomic and move at the speed of DeFi, not at the speed of traditional finance and RWA. So I think where we view the most opportunity and mo in the future is actually being that um orchestration layer for RWBAs across DeFi. Yeah, I I definitely feel like stable coin issuers um can be commoditized like just seeing from for example um don't know if you guys remember like perex hyperlquid gets so much traffic and like people are like wait circle just sitting there earning all these yields by being used as a main settlement payment uh currency and there's all these people are like bidding for becoming the stable coin of that and you can see the margin getting pushed lower and lower uh in the competition so definitely issuers I think Another uh commoditized layer will be something like clearing layer or like settlement layer where like you're basically just like kind of doing the swaps on chain and it's there's a lot of mature D5 aggregators uh infra that can provide that so seems very competitive to me as well. So not so controversial after all I guess I agree.

Uh so I think look right now there is you know a way for value to acrew to the L1s. Um over time I think that does become commoditized. I think value concentrates on a smaller number of chains that you know have the right compliance infrastructure, the right speed, scalability and so then value occurs elsewhere in the stack and I think that maybe it's does come down to like the underwriting choices you make. I do think there is money to be made if you're an issuer and then I think the orchestration layer um can be really meaningful.

Maybe one thing that's slightly controversial is who owns the customer. So the distribution side is something we personally have gone back and forth on a lot. I talked to a lot of our VCs about and we our strategy is B2B to see because we don't want to compete with Robin Hood and Coinbase and all the exchanges to own the customer. And when real Trady comes on chain and Apollo's curating products and Fidelity is building their own curation strategies, we won't win against these massive players that already own the customer. So the position we're playing in is can we we started at the bottom layer which is tokenization and now we're moving up the stack and we'll build everything up to distribution and then we'll plug into those platforms that already own the customer.

Maybe also one counter point I'm curious you guys take uh which is issuers that are coming from different country and regions uh I feel like they might have their own edge because having the local like um connection and like um how to say um very uh localized kind of like uh connection with the uh regulatory side um that is hard to be reached by other countries issuers. I'm curious do you see that coming up from you know non US stable coin like issuers

we run we have a regulated asset management arm that builds all of our funds out of BVI so we know that jurisdiction very well they have they have had very clear structures and strategies for tokenized securities which is why we chose it and a lot of the asset managers we're working with aren't ready to to take on the regulatory risk and complexity and make that bet. So they want to work with a platform like us to effectively shield them for now and then as it becomes more clear what does the US structure look like, what does Luxembourg look like, what do these other jurisdictions look like, um then they'll likely build themselves.

Yeah, I think over time in intermediate term you're going to see tokenization as a way to access other jurisdictions and to get more global distribution. H how do you think about the RWA race when it comes to uh the the chain layer? Will will everyone kind of issue on Ethereum? Will issuers focus on privacy chains? Will issuers kind of create their own chains?

Who who do you think is going to going to win from a chain perspective? And floors open.

We are betting on a multi-chain future. So our structure is that we can seamlessly scale multi-chain. So from the asset management perspective, you can run your entire fund, your strategy on one chain, and then you can distribute to any chain, collect any currency, build on any strategy, and then bring it back to the hub chain. So I think one if if there's chain abstraction, if there's seamless communication, bridging information between all of the chains, it doesn't really matter how many there are. I agree.

I think in this just zooming out right now we're in a world in the near term where as an because again I'm thinking about it from an investment lens you're rewarded for having a broad kind of being broad right if crypto is democratized access to VC I think over time you're going to have value concentrate not on like one or two chains but a handful of chains and I think composability is going to going to play a key role um and I think that's also going to drive just commoditization across a handful of chains Yeah, just that echoing all all these and I think one thing you guys mentioned earlier which is distribution is a power which is also the key for this question. I feel like like tempo as a stable coin chain that they just announced the launch hasn't really launched the product but they already announced the how to say like partnership with Door Dash. So yeah in real world people are going to like settle their stuff through whatever app they're using to whatever the back uh back back end will be. So will be multi-chain but also depending on the distribution power. Yeah,

whilst we have a couple minutes left, let's go go round and do some predictions. Can be anything relating to tokenized assets. And what fancy predictions do you have for us?

Well, I think I think I did mine. I think that over again I think the generation of people that are maybe like I don't know, kids, teens today, I think that there's going to be a world where they're going to access traditional assets through the blockchain, through crypto wallets. Yeah, I think also we'll have more normal like people having access towards like private investment for example like the companies that is not IPO have private equity maybe now going to be tokenized and people will uh allocate more risky investment and I see that and also I see like the basically the mingling of the trify and the defi um where we mentioned earlier like if you're a bank uh customer you might be actually getting your ys without knowing that your money is on chain 100 billion by end of year.

What? Distributed asset value.

Yes.

There we go. Now we're talking

only distributed. That's what we care about. [laughter]

Cool. Well, now we can we can wrap up. Let's give the panelist a huge round of applause. Thank you for everyone's time.

Thank you for having us.

Thank you.