Currently, the DeFi and Web3 market still has a large gap compared to the traditional financial market in terms of volume, but the emergence of RWA (Real World Assets) tokenization brings new hope for Web3 to enter the next trillion-dollar market.
Among them, Africa is undoubtedly one of the most promising RWA fertile grounds. Just like the core reason why Axie Infinity could rise rapidly in 2021, it grasped the basic public in Southeast Asia, such as the Philippines. The third world, which now craves asset liquidity such as financial services, mineral land, etc., is where RWA can flourish.
Why do we need “RWA” for real-world assets?
Since Compound ignited the DeFi summer in 2020, the entire DeFi world has ushered in rapid development. Even with the volume retracement caused by many industry black swan events in 2022, the TVL is still as high as 45.5 billion as of June 9, 2023 (DefiLlama data).
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Among them, lending (pledging) agreements represented by Aave, MakerDAO, and Lido not only contribute the main share of funds, but also become a key infrastructure for a group of DeFi Lego agreements: transactions, derivatives, synthetic assets, insurance, and other DeFi tracks Almost all are built on the funding volume of lending agreements.
In fact, in the early development of DeFi, the on-chain form of credit expansion through collateral, lending, and other native assets between each other can be understood as the “cold start” of DeFi to some extent, because it solves the seed money demand for early development while also stimulating DeFi ecology to spontaneously improve the efficiency of capital utilization with various borderless innovations.
It can be said that it has made great contributions to the early development of DeFi, but at the same time, with the further development of DeFi, the bottleneck of on-chain native assets has gradually emerged. The most direct one is that the scale of on-chain high-quality assets directly sets the ceiling for DeFi. To solve this problem in lending agreements, collateral is the key.
Currently, the main lending and mortgage model in DeFi relies on over-collateralization. This means that to ensure that unsecured loans can occur, borrowers need to deposit collateral worth more than the loan amount. Ultimately, this depends on the types of collateral and collateral ratios in various DeFi lending protocols.
Among the types of collateral, DeFi lending is still mainly limited to the digital asset field, with little connection to real-world assets. Essentially, they are native on-chain assets, which also limits the choices – basically only a few mainstream cryptocurrencies such as Bitcoin and Ethereum. After all, the liquidity and trading depth of long-tail assets are extremely poor, and one misstep can lead to a repeat of Venus’ mistakes.
On the other hand, since 2017, under-collateralized loans have been the holy grail of DeFi that has been difficult to achieve. Currently, Aave and others are gradually experimenting with under-collateralized loans, which means collateralizing 100 dollars to lend out 200 dollars, which is equivalent to using leverage. However, compared to this, the author can only be regarded as an auxiliary technical means, solving the symptoms, not the root cause.
A completely new path is also being explored – by accepting real-world assets such as real estate as collateral to achieve better integration of traditional finance and DeFi, while introducing real-world assets onto the chain, completely opening up the ceiling of DeFi and on-chain finance.
For example, Empowa, which is committed to solving the shortage of 50 million housing units in Africa on Cardano, creatively creates an “rent before buy” model of affordable housing, and endows the ownership of the house with liquidity through DeFi, thereby solving the pain point that most Africans lack credit records and cannot obtain traditional mortgage loans.
This not only opens up the market for strong lending demand in the African market, but also avoids the risks of purely on-chain collateralized assets through the ownership of affordable housing, which is also a successful example of bringing real-world assets onto the chain and solving practical problems.
Overall, “Real World Asset Support” is the key, and integration with traditional real-world assets is the inevitable trend for DeFi to break through the bottleneck of existing development volume. Even the DeFi breakthrough trend we expect cannot continue to grow exponentially without the access of entity asset scales outside the circle.
RWA Track on Cardano
This is not just starting now. Both MakerDAO and Aave, as old lending leaders, have been trying to allow asset initiators to convert real-world assets into tokenized tokens for loan financing.
One of the most classic approaches is to allow cryptocurrency investors to borrow digital currency to earn interest income, and borrowers can obtain short-term loans of cryptocurrency by using their real-world assets as collateral.
It can be said that the boundary innovation of head DeFi projects is often the most directional and direct, which can make decentralized credit markets more convenient for more use cases and further promote DeFi towards the mainstream, but this is basically around Ethereum, and few people pay attention to the RWA attempts on other public chains.
It should be noted that the usage scenarios of Web3 are not only related to the financial market. Blockchain technology also has great potential in other non-financial fields in the African continent. In addition to the aforementioned technological infrastructure backwardness, another major problem in the African region is the lack of reliable and verifiable land ownership records, which has led to many disputes and conflicts.
From this perspective, Africa, with a total population of over 1.2 billion, a shortage of financial services, a real-world asset system in urgent need of construction, but easier to achieve popularization on the Internet, is a naturally undeveloped RWA (Real World Assets) fertile soil.
Taking HouseAfrica and Seso Global, which are committed to the RWA track on Cardano, as an example, they are currently aiming to use blockchain technology to create transparent and immutable records that clearly indicate the ownership of land.
Seso Global is a blockchain-based secure real estate management, documentation, and transaction platform for the African real estate market. It can unlock the financing method of real estate type assets through DeFi and open the door for the real economy in Africa to enter the DeFi liquidity.
This allows for the attraction of trillions of dollars in value from traditional finance to meet the development needs of African countries while also revitalizing the application paradigm of real-world assets.
Tokenized real-world assets can also achieve fragmented or shared ownership and give them excellent liquidity (for real-world assets, the liquidity factor is undoubtedly one of the important influencing factors of valuation).
From another perspective, even though RWA (Real World Assets) mainly introduces real-world assets such as gold, real estate, debt, bonds, artworks, carbon credits, etc. onto the chain, the basic volume of on-chain assets, active on-chain user base, including further on-chain DApp ecology, is a key prerequisite for the thriving development of RWA.
As a long-standing and market-tested public chain that has undergone challenges from new public chains such as Solana, Terra, Fantom, and even Aptos and Sui, Cardano is still standing in the top 10 cryptocurrencies with a total market value of as high as 11.2 billion U.S. dollars and a total locked-in value of more than 160 million U.S. dollars, with more than 500 existing DApps.
This means that as a base asset, Cardano can provide sufficient volume and innovative support for the subsequent ecology of RWA.
Opening up the bottleneck of volume and pushing DeFi into the mainstream
MakerDAO founder Rune Christensen previously mentioned that when it comes to real-world assets, it is a “paradigm shift” that real-world asset-supported scalable DeFi has opened the door and also protects DeFi with the world’s strongest legal structure.
For DeFi, this is indeed an anticipated “paradigm shift”, especially at this moment when regulation is facing a key turning point. Finding a way to legally combine DeFi with real-world assets will be the next “explosive point” of DeFi.
In short, the tokenization of RWA (Real World Assets) is not only a key to DeFi and Web3 going mainstream, but also has the potential to subvert certain financial fields.
It’s actually about connecting DeFi with real-world assets, because one side provides gameplay and the other provides funding, and this is also the solution that the African continent is currently lacking and craving.
It is important to note that the African continent has vast untapped resources, whether it is land or minerals, which can be introduced to the chain through the form of RWA (Real World Assets) and the liquidity can be fully released.
The attempt by countries such as Central Africa to tokenize national mineral resources in recent years is a microcosm of this, which will greatly expand the volume and types of encrypted assets for the blockchain world, and may become one of the catalysts for a new round of DeFi boom.
After all, after the cryptocurrency industry broke through the trillion-dollar market value threshold, the entire industry’s race track became more and more segmented, with various innovative projects emerging one after another, and the iteration speed was extremely fast. The competition among public chains is also more focused on improving the ecology and creating new vitality.
The key to Adaverse’s layout in the RWA track is also to embrace the African continent, which is urgently needed to be developed, to further consolidate and expand Cardano’s position as a smart contract public chain outside of Ethereum, and to lay a foundation for the growth of new DApps, new users, and ultimately the TVL of the Cardano ecosystem.
At present, we have confidence in anticipating its arrival soon.