Can RWAs Survive the Bull Market This Time 01 March 2024 03 57 56 PM

off a conversation about rwas or real world assets are they the sexiest Corner in defi no but they were bread and butter um following the 2022 credit collapse think t- bills tokenized getting picked up by crypto corporates and DOW so that they can sit out crypto Market risk the situation now though is that there's a Vibe shift and the question that were wrestling with today is if they build it will you all be there even in a bowl now let me introduce my esteemed panelists starting all the way over there that's Assad khon from centrifuge yeah yeah do it do it do it h brought my friends brought my friends thank you next is kadora Kieran and Lynn from AUM Labs Justin Schmidt from Ando finance and of course Sydney pow from Maple kadora what's your take on the situation and what is osteum Labs doing to strategize for the bulll um so quickly to introduce what we're building uh we're building osteum which is rewad AET perpetuals uh maybe also known as rwas for Deens so I think we are uniquely positioned to uh sort of take the bull market in stride just to give you a little context uh it's all synthetic so there's it's one not a tokenization protocol uh it's all usdc settled uh looks and feels like your favorite per decks but gives you price exposure to assets like WTI natural gas gold silver padium uh and even my favorite commodity lean Hogs if you're familiar with those they're skinny pigs uh soon tradeable on chain um so many of those assets uh are sort of highly correlated to usually traded around uh sort of macro events so uh for Forex specifically people often trading this around CPI prints or uh fed announcements rate changes uh on a lot of the energy sort of the rationale behind listing these is uh due to a lot of the sort of geopolitical events occurring recently um sort of increased interest in energy trading um and then there are plenty of more memeable Commodities lean Hogs among them uh I'm not sure if you guys are on crypto Twitter when frozen concentrated orange juice was pumping uh that's another interesting one so uh yeah maybe to answer your question uh we are uniquely positioned in that we are catered towards Traders not towards long-term holders and so we you know are dealing with assets that maybe are less sexy in a bull market but we have the ability to sort of respond to uh demand and what's in the meta and list things that are a little bit longer tale and more exciting um in a way that you know hasn't been done before and people have really nowhere else to access these assets certainly on chain and even offchain uh the ability to access assets is pretty limited um due to constraints around like fractionalization and some other stuff but I'll turn it over to any of the other panelists well Sydney um you do some institutional lending I'm curious to know like what's the word on the ground over at your shop uh institutional lending is definitely picking up again so I think uh if we look at 2023 there was a lot of uh focus on lowrisk assets so T bills um investment grade in investment grade assets higher yielding shorter payback periods when it came to private credit um what we've seen this year though is a shift where people are going more risk on so I consistently see that corporate treasuries Dows want to get t- Bill exposure on chain because it's low risk very liquid they just have to you know concern themselves with payroll and Runway but hedge funds family offices and kind of your ultra high net worth are now looking at more risk on assets so we're seeing in the rear World asset space appetite for like private credit but in the regular onchain credit and yield space uh appetite for uh altcoin lending uh for even still early days but things like nft lending are starting to show pricing increases so what I would say is if you're looking um at the market as an investor what we're seeing is a broadly risk on appetite from your crypto native institution so hedge funds we're still a ways away from seeing traditional um Wall Street institutions coming in and um buying these assets but it does indicate that we're kind of the you know the early stages of a of a new bull market Assad do you have thoughts yeah I mean I think in the last cycle we learned a lot about I think everyone learned a lot about uh you know what it is actually have low-risk assets diversifies assets uncorrelated assets and so I think that kind of sentiment will be there even despite what happens with risk sentiment or rates you know t- bills have a role to play in everybody's portfolio I think is kind of the safe way of saying it so I think that there's always going to be interest in lowrisk principal assets I think real world assets can kind of fit that bill pretty pretty safely there's nothing more liquid than T bills and investment grade credit so I think we'll see that kind of continue to play out but I definitely think Sid's right like the the interest and appetite is coming back I mean cador is talking about meme rwa like that's a pretty bullish signal in my opinion if we're getting there in the market right there are more than one um interest venues to talk about Ando Finance had some you know jaw-dropping news yesterday Justin do you want to talk about it a little bit uh sure yeah um and I guess thanks everybody for coming on a Friday afternoon it's uh actually good to see people in the crowd um yeah so just for those who are not familiar Ando Finance is um our mission really is to build a tokenized financial services firm of the future uh we very much believe that trafi and defi are emerging over time we started with um tokenized money like assets so like T bills and money market funds um and importantly we also think that um in addition to building the tokenized assets you actually have to help develop and build onchain protocols as well and that the two actually have to duvail nicely together um that said I think the the world of real world Assets in particular you know less so the security less so the commodity side more so the security side of the world it's not entirely clear that you need necessarily all of the benefits that like a blockchain may give you say 24/7 settlement like I don't think it's particularly clear that you need to settle your Nvidia stock on a Sunday afternoon or anything like that uh so we announced something called Ando Global markets or Ando GM um and the point there really is to think about what it takes to bring the next thousand uh public liquid Securities on chain and a fashion that actually makes them compatible with these dii protocols um and I think I think the the major real unlock here is that we have a pretty opinionated rethink of what tokenization means um this is a developer conference so I'm going to sort of use some developer analogies I kind of think of it like we are connecting API keys where you're interacting with a broker dealer to actual smart contracts and one way we want to do this is basically thinking about fractalize your API key and then allowing that via asset actually held at a broker dealer to interface with the cool different dii Machinery that people in this room people in this panel are making I have like an inkling that that might help solve crypto's credit problem which is a real thing but I'll you know hold to see how it plays out I can see things like that being used for you know collateral on loans you might not necessarily want to settle your Nvidia stock on a Sunday but you might want to post it as collateral to borrow at Short noce and I think bringing these assets on chain allows ultimately credit expansion which also helps reduce the correlation for onchain the correlation that onchain activity has with the price of Bitcoin and eth because we're all very constrained by that at the moment but the more real world assets come on chain the less constrained we are the more credit we can do or lending activity that you can do ultimately how do you think about like what assets to choose to bring on chain and when uh I think two things there's got to be the demand for the asset so think about an asset that people can't easily locate and use elsewhere that's this is one of the reasons I think real estate has struggled to come on chain in a big way because it's very efficiently priced already and there's an abundance of it elsewhere in in traditional financial markets so if you think of things that are kind of Niche that aren't as easy to to get then you have an advantage because you're you're um uh doing it on chain is going to be less efficient to begin with and so you're not getting penalized as much for that inefficiency when it's an asset that isn't easily available elsewhere and then the other thing though is you do want it to be something that can actually scale it's no good if you bring an asset on chain and you can only do 1 million of it better if you can bring it onchain and do 50 or 100 million of it it doesn't need to be there doesn't need to be 10 billion of it though because our Market's not that large so you want something where you can scale it so that you've still got a business but where there's also a real customer need otherwise this has been the problem that a lot of rwa um initiatives have had is that it's just pushing assets on chain without anyone clearly wanting to buy them yeah I just to add to that though I do think that the long-term like holy grail for all of us is still kind of the inaccessible markets and access for credits that just haven't been able to come to mainstream markets as easily right so private credit for me is like the best representation of that it trades over the- counter it's largely opaque it's pretty difficult to kind of access unless you're a certain type of investor you can start to use all the benefits of blockchains and stable coins and kind of new Financial infrastructure you can build transparency to your portfolios you can on the issuer side you can build structured Credit in a really interesting and efficient way but that's like the hard stuff that takes the right mix of demand that like s is talking about but you know also can leverage kind of blockchain I think in an interesting way and It ultimately at the end of the day it is about really improving credit access for businesses and investors Alik right yeah on the other side I can sort of see how that works for trafi as well sort of how like secondary trading actually improves transparency gives investors more information so thinking about that though I mean what y'all are doing Wall Street also wants to do and they're working on it but can y'all do it better and why do you think that's the case for anyone I wanted to maybe just add on to what Assad was saying and answer your question around how you pick assets I think there's two main things that we think about one is like what is in the meta and I alluded to this earlier but what uh I think maybe drawing analogy to onchain per dexes that have done very well in the last 6 months one strategy that has really distinguished dex's has been the ability to quickly list assets that are sort of in the crypto meta um you've seen this with for instance like pre-launch futures or index tokens on things like frch um I think these are this the sort of strategy is great at capturing mind share and capitalizing on what people want to trade at that moment and so we think about this sort of in analogous way in the sense that um you know when there's a lot of interest I know opic cut Supply there's a lot of interest in trading oil we would basically tap into that and uh there's obviously like the large caps uh G10 Forex large Commodities that we would list by default but as we think about which ones we would list down the line um I I think of sort of like macro there's like crypto Twitter and there's like macro Twitter and there's a little bit of like filtering in um and I think increasingly as also a lot of these assets get listed on chain and as the two as the traditional markets and the onchain markets start to become more and more Blended uh the things that are in The macr Meta will increasingly be in the crypto in the crypto meta as well so we see um basically capitalizing on what sort of is in the macr meta and trickling into crypto and listing those things I think the second component which is uh a little bit less short-term and more around Market structure is specifically within Commodities this is actually originally where the idea to build off came from and what made us really excited about it was uh Commodities are quite difficult to access for most investors um and have a lot of unique features that differentiate them from Securities like uh treasuries or equities and so forth um and I think Commodities are going to be one of the most difficult things to tokenize hence why actually listing them in a synthetic fashion with all usdc settlement and effectively uh virtual exposure as what we would call it is a sort of the most viable near and medium-term solution and just to give you an example of that uh you know WTI for instance there are between 12 and 15 different contract expiries that are open at any given time uh and there is no you know linear obvious linear Decay over you know where the most open interest or the most volume is so there may be a lot of contract a lot of volume or oi on the March contract uh and like more as the expiring years more on the April contract but that doesn't mean that it sorry linearly decays over time for instance there will be often more oi on the December 2024 expiry contract than on the one that expires in say June or July because of just the Dynamics of uh you know traditional commodity uh or like actual commodity producers or traders that need to do physical settlement and how that impacts where they need to hedge themselves so uh maybe to conclude I think Commodities are a unique asset class that they're they're quite difficult to tokenize there's not just like you know one you it's very you don't know precisely which contract you should be tokenizing it'll roll over it'll expire um I think they're uniquely suited towards being listed in this sort of synthetic fashion and then there's the The Meta portion but anyways turn it over to someone else and see I think institutions would want this type of stuff on chain right and I think you know to your question about are the institutions coming will they come why aren't they here right now I mean I'm so bearish that we'll ever see them doing this type of stuff it's so hard to build onchain defi structures everyone here knows it and then integrate real credit real assets real Commodities whatever it is I mean you know I would our lives would be easier if Black Rock brought their liquidity on chain but they're so far from doing that like I just don't think that future is ever going to be there but must we rely on Black Rock for everything exactly exactly we can build it ourselves I think ultimately none of us want those bigger players to kind of come and compete with us why is that well because then it hurts our businesses but um less prosaically uh I think the the the issue is this uh a lot of people might have heard of The innovator's Dilemma but a lot of these companies are set up in such a way that they have a core business and you particularly see it for some of these big trading firms where they started a crypto team or a desk within and then last end of the last bull market they shut it down because this tiny little re Revenue producer was a massive reputational risk for the core business and I think that's why they will struggle to compete because they're not solely focused on building this onchain business line which you know all of us on this stage and and you know everyone at this conference is kind of motivated by and so you know their marketing team their sales team their Tech structure none of that is set up to deliver this product in a way that you know our customers and our users want to to access it this is one of the reasons that you know General Motors and the conventional car companies are not the most successful electric car companies today and I think we should expect to see that same same patent play out in financial products and defi what do you what do you think Justin um you were just there I guess I have a pretty different take I I think that almost all these major institutions have been watching this with like laser-like Focus for a very long time there are a lot of very smart people in these firms that very much would like to do more than they do but they are also going to be much slower movers than those of us on chain um I very much you know welcome all of that I think we've all seen the positive benefit that black rock and Fidelity and others have brought to the ecosystem with their effectively opening up their distribution networks to a way for their clients to buy Bitcoin in The Trusted way that appeals to them so that that market access of the enormous amount of capital that is beyond the onchain universal capital I think is is tremendous um I do think where the incumbents will struggle is that in inovation is not as simple as like lift and drop my old thing onto new rails I think if you are trying to do something in this new world you have to sort of ask and be very ruthlessly honest with yourself like what really is so bad about the traditional Financial rails there are some examples right like you know different countries have different rails different asset classes have different rails and wouldn't it be nice if everything was on the same rail Etc and I think that's where we're going with all this that's why a lot of the people are so excited about tokenization um but you you know like if if you just tokenize something and then don't do anything with the token like what's the point right I think a lot of us here are very keen on actual utility of the tokens Sid makes a great point about collateral I think that's a tremendously important part of where we're going with all this um I think the biggest challenge for the institutions is not whether they're going to get here I think they eventually will I do think it's going to take some time for sure um you know but I I do think that when they come it's going to be a large positive effect on the industry um and you know I I I I welcome that with open arms and we work with a lot of the largest institutions in the world we learn from them hopefully they're learning from us um but I do think they have to do a pretty deep think about what that thing looks like so I think one example of this very briefly is our version of a money market fund is very different than a traditional money market fund we have it in token form where the token actually basically get new tokens every single day you know it looks much more like a crypto native version of a money market fund rather than just like a traditional one that you LIF and drop on chain so I think there's very much making sure that if you're out there from a traditional financial institution make sure you're building something in the right way for where all this is going I get it well we don't have that much more time till happy hour um so I guess my question is what is your outlook for rwas this year you want to just go down the line starting with the side yeah sure I think we'll see a lot more onchain Capital coming to re World asset especially as utility gets built out I think that'll be the big theme towards the end of this year and when Bitcoin hits a million bucks I think you know all those High networks in whales will be investing um I mean Echo your sentiment I think uh everyone in the rwa space is well positioned in the sense that more Capital flowing on chain during a bull market is always beneficial Rising tide lifts all boats even if there's uh on a relative basis there might be more hype around more deeply Crypton native stuff um yeah positive out yeah I think we've transcended when Bitcoin itself is a real world asset um but yeah I think I'm incredibly bullish right I think there's just tremendous energy tremendous smart people working on this tackling all different types of real world assets from stable coins that are more currency like to commodity like to security like you know it's a I think very very very optimistic for the future here I'll take the under I think uh you'll see more of the really conservative ones so T bills on chain and the lower risk instruments but I think at the higher risk Spectrum people are trying to get that from onchain assets so I I actually expect to see RW continue to grow slowly but the onchain risky stuff will will take off a bit faster this year you heard it here first you know what we live for rwa but also Applause so can we have some all right thank you thank you speaking of things you heard here first a little