Romeo Ravagnan, 3F Labs | RWA Looping is Broken

Hello everybody. My name is Romeo. I'm one of the co-founders of 3F. Today I'm going to be talking to you about why RWA looping is broken, how to fix it, and bring the next two trillion dollars of stablecoins on chain. Now, why don't we start with a show of hands?

How many of you are lending in DeFi right now? We've got a few hands. Well, why? I mean, you're lending at really really really silly rates. Last year, you could get 15% or soish on RWA Morpho, but just as as March came round, we were seeing 1.

8% yields, below money market rates, which are around 3.75 as you can see there. I mean, this makes no sense. How is it possible that you're lending at below risk-free on DeFi? And I think we can find some answers in this chart, actually.

If you look at the chart, you can see both stablecoin growth, and also market cap growth of crypto without stablecoins in sight. And in the past, these two have sort of grown together, and fallen together, but actually now we're seeing something very very different. So, from 2020 to 2026, stablecoins have grown 150% annually. And the crypto market cap has grown 30% annually. But if we see during the last drawdown, actually stablecoins have kept growing.

And this is very very interesting. So, why is this happening? Well, this is happening for many reasons. And that is just that stablecoins are obviously amazing. There is people around the world that don't have access to financial rails, and DeFi provides those rails.

But if stablecoins continue to grow as they are expected to, Standard Chartered uh, predicts that there'll be $2 trillion in dollars in stable coins by 2028. Uh, we need to find a place to deposit these stable coins. And if we think that even now crypto market cap is just around the $2 trillion mark, uh, basically crypto is not big enough to actually provide access to yield to these stable coins. So, what can we do? Well, real-world assets are actually, in our opinion at 3F, uh, the next wave of collateral assets that will be integrating into DeFi to bring the next demand for stablecoin borrowing and therefore stablecoin yields on chain.

Right now, we're in the early innings. There's only around $27 billion of RWAs on chain. But, the global market is $300 trillion. And even if we just tokenize a fraction of those and borrow against them, we can really, really get a ton of borrow demand and a ton of yield for these stable coins, right? Um, as I said, it's still early doors, but some of the biggest institutions in the world are already coming to market, the likes of BlackRock, Apollo, Fidelity, Franklin Templeton, and others.

And it's only going to be more from here. Uh, 2026, we believe, is going to be the year of RWAs. And a lot of these asset managers are positioning themselves to, uh, to launch. So, there's an interesting happening with RWAs, which is that the borrow rates on these RWAs are higher than the crypto market, uh, collateral rates. Uh, about 50 to 80% higher.

So, if you look on Morpho right now, well, this is actually as of the 16th of March, people were borrowing against Acre Dex, which is a private credit vault, and the Falconics, the yielding instrument, around 4 and 1/2 to 5 and 1/2%. But, loans on Coinbase Bitcoin, wrapped Bitcoin, and wrapped staked ETH were far, far lower. And why is this? Well, this happens because RWA yields are coming from the real world, right? And so, they're not anchored to the cyclicity of leveraged demand from traders and and people speculating on the price of crypto assets.

What people do is they take these RWAs that yield some premium, and they can borrow against them at a lower rate and do these leveraged carry trades, right? It's an arbitrage trade. It's a leveraged carry trade. People have been doing this in traditional finance for decades and decades. Just off the run on the run treasuries are trillions in notional.

So, now we get to the interesting thing here, which is RWA looping, right? This this this way to make leveraged carry trades on chain. And you can see Calvin one of the founding partners of Multicoin Capital. Unfortunately, he's left now, but he tweets, "The primary unlock of tokenizing random RWAs is looping." And we agree at 3F.

So, how does this work? Well, people buy the RWA, they deposit it in a place like Morpho or Aave. They borrow, they buy more of that asset, and they keep going. They crank it up, right? This is called RWA looping, leverage looping.

But, it has a big, big problem. And this is the atomicity problem. Unlike typical crypto assets, we can't flash loan into the position. There's really not very liquid secondary markets for these assets. They're often permissioned.

And so users have to do this arduous process, right? They collateralize the asset, they wait, and then they have to wait till the next settlement to buy it. It then settles, they borrow again, they buy it and they they buy the asset, they wait for it to settle, they borrow again, and so on and so forth. Now, if you think about it, asset that settles on a T+1 basis, like most financial assets, if you want to leverage this five times, it's going to take you around 25 to 30 loops, right? And if you have to wait each day between each loop, that's 30 days to put on this leverage carry trade, something that makes no sense, right?

You're compounding the duration of the trade. And that brings risk and settlement delays, and just it makes it a pain in the ass to do. So, how do we fix this? Well, there's a few models right now. One of them is, you know, to just basically do that looping behavior on behalf of the users.

Um, other vault models, they have a liquidity sleeve and they say, "Well, if you can get in and out instantly, it's fine." But at 3F, we want to build something different, right? And the 3F model is basically to bring a bunch of participants together, bridge facilitators, the RWA issuers themselves, lenders in stable coins and liquidators, and make a system where we can build the whole position, the leverage position, in one settlement cycle of the underlying, rather than having rather than having to loop, right? We want to kill looping. We don't want looping.

How does it work? Well, it works because in our smart contracts, we have created an auction mechanism by which bridge facilitators can front some capital to our protocol that we use alongside the principle of our platform user to buy the RWA with the full leverage size in one cycle. As soon as the RWA settles, we immediately collateralize it in Morpho and refinance that bridge. So, instead of having to do this arduous looping process, we've built the whole position in one go. And this basically breaks down the duration of the leverage carry trade from 30 days, as I said before with the 5x leverage on the a T+1 asset, to just 1 day.

And we can unwind in 1 day. This is a material improvement, right, to the RWA carry RWA leverage carry trade because as you reduce that duration, it makes it much more feasible, much less risky for, you know, users and funds and institutions to put these positions on. There's a seat for everyone in the capital stack at 3F, depending on your risk preference. The highest seniority are the stable coin lenders, and we're constructing these markets with our friends at Steakhouse to ensure that we're really protecting them, but you can earn your very low-risk 4 to 7% against these RWAs, a material increase from lending against crypto collateral. And you can be much more risky, right?

You can want to crank up the yield by putting on these leverage carry trades, and depending on your leverage factor, you know, you can get beyond 20% yield for some of these assets. And if you want to help us build these positions on behalf of our user, be a bridge facilitator, then you know, you can get some nice stable yield for doing so, maybe between 5 and 10% something like this. So, what happens when we allow for this flywheel to occur? Well, as more bridge facilitators compete to issue this liquidity, we've designed it as an auction where we fill at the end of the auction the different offers of our bridge facilitators on a best rate basis. We're going to get better rates, and better rates means that it's cheaper for our users to build a position, which means that we'll have more users build a position, which drives more borrow demand in the lending markets, which makes the yield higher for these depositors, and so there's more deposits, and we can really drive demand for the stable coin yield on these markets and on chain.

Morpho already has 750 million in RWA deposits, and 30 330 million in borrows against these assets, right? And that ratio is is really interesting. I mean, it's incredibly high. It's like, you know, more than 30%, more than 40% something like this. So, actually RWA lending itself is driving a ton of demand for these for these for these asset issuers.

Here is the graph of Morpho. As you can see, it's it's parabolic. We're working closely with them. Our our first our first instance of the protocol is built on top of Morpho. And as I said, we're very excited about it.

If you'd like to come and find us, you can so on Twitter or X at 3f.x yz. Our website 3f.xyz or you can email me or come and meet me afterwards. Thank you very much.

We're very excited about 3F. We're going live with our private beta this week. And and yeah, we're excited to bring the next two trillions of stablecoins to crypto. Thank you.