DigiFT and HashKey Capital jointly release a blockbuster RWA report

Real-Word Asset Tokenization saw exponential growth of 600% since the beginning of 2023, signalling a new era of financial services backed by blockchain technology

Singapore, 5 December 2023 — DigiFT, the leading regulated real-world asset (RWA) exchange, and HashKey Capital, today published a report on RWA tokenization and its market potential. Titled “RWA Tokenization, The Next Generation of Capital Markets,” the study examines the trends surrounding tokenized RWAs, models and mechanics of RWAs, regulatory complexity and investor appetite.

The research finds that despite its limited market size, RWA tokenization holds big potential in capital markets, attracting major financial institutions to explore tokenization of government bonds and capital market products through blockchain. The majority of the Total Value Locked (TVL) in tokenized RWA was concentrated in the US Treasury Bill-related products, which rose around 600% from USD 100 million at the beginning of 2023 to currently USD 784 million. It also found that the appetite for stable yield was driving the demand for tokenized RWA for short-term treasury management and collateral diversification.

“As the blockchain-powered financial innovations take another leap forward, we are seeing an uptick in demand for tokenized RWAs such as fixed-income products. This trend can also be seen in many jurisdictions, especially in Asia, that are exploring security tokens and RWA applications. As the legal framework becomes more robust and complete in the future, we will see a more diverse range of RWA assets and the emergence of the next generation of capital markets powered by on-chain tokens.” said, Henry Zhang, Founder and Chief Executive Officer of DigiFT.

Tailored for Qualified Investors

The report found that the majority of the investors holding on-chain RWAs are institutional investors. It states that, based on wallet type distribution, approximately 29.1% (measured by USD value) of the tokens are held in multi-signature addresses, indicating institutional or corporate ownership. 53.9% (measured by USD value) of the tokens are held in Externally Owned Accounts(EOA), with large amount of holdings, indicating those wallets to be Multi-Party Computation(MPC) wallets, custodial wallets or hardware wallets that are commonly used by institutions.

The report illustrates that the strong institutional presence in the field is encouraged by most RWA products being tailored to qualified investors or accredited investors. It alludes that the high cost of regulatory compliance and complex processes involved in offering RWAs to retail investors are the main reasons for the focus on qualified investors. While there are exceptions with a few projects that have managed to issue RWAs to retail investors under specific rules of their jurisdiction, that was not the case for most projects.

Built for a New Generation of Capital Markets

The research points out that RWA assets bridge the gap between the real world, particularly for the traditional financial sector, and the digital assets world. From the traditional financial industry, RWAs offer reduced time and cost of financial transaction settlements, transparency and traceability, enabling overall cost-efficiency. For the digital assets industry, RWAs offer stable returns, better liquidity, alternative yield sources, and portfolio and collateral diversification. Based on these complementary features, the research indicates that building a new generation of capital markets with blockchain and smart contracts at its core is a trend that is unlikely to reverse once established.

“The RWA space holds astronomical potential with a market capitalization that could reach trillions of dollars. Although at present, RWA’s Total Value Locked (TVL) is primarily concentrated in US Treasury bill-related products, with institutional investors taking the lead, we can also see many DeFi protocols entering the space and many possibilities of tokenizing different kinds of assets. The report provides a wide understanding of how RWAs are structured and issued, the required infrastructure, the benefits, and how institutions can take advantage of it, the regulatory space, and the key participants that are trailblazing this space.

The RWA market is expected to be dominated by fixed-income products in the short to medium term. But as legal frameworks evolve and become more robust, we anticipate a more diverse range of RWA assets, potentially steering in the next generation of capital markets. A special word of appreciation to DigiFT for being a true pioneer leading the on-chain RWA space in a regulated manner, as well as helping educate the crypto community with insightful reports like this.” said, Henrique Centieiro, Senior Research Manager of HashKey Capital

Innovation Models to Unlock New Horizons

As most security-type RWAs are limited to qualified investors, the research indicates that many RWA projects and protocols are exploring innovative business models from legal and operational perspectives to expand the market and bring RWAs into DeFi. Tapping into innovative pathways such as lending and token wrapping allows for permissionless access to the yield from US Treasury bonds, creating infrastructure similar to an on-chain money market fund. However, compliance with KYC and AML frameworks, sales restrictions, and unresolved asset ownership issues based on the anonymous nature of DeFi remain challenges to be addressed by the industry in order to establish a more regulatory-compliant way of DeFi.

Outlook: Navigating Regulatory Currents to Reach Big Potential

RWA encounters diverse regulatory landscapes worldwide given that the majority of RWA assets are tokenised securities. The research states that RWA tokens are regulated by the relevant securities laws of each jurisdiction, with the US enforcing strict laws with global reach, while Switzerland, Singapore, and Hong Kong SAR give a more friendly regulatory environment for asset tokenization.

The research concludes with the expectation of more experimentation in tokenizing financial assets, further expanding the domain of RWA. In the medium term, RWA assets will likely remain focused on financial assets, particularly US treasury bond products that are considered essential in a high-interest rate environment. As a result, an increasing number of financial institutions will explore direct issuance models on the blockchain with treasuries as the main anchor, accumulating practical cases and regulatory frameworks.

Henry added, “As a regulated exchange for on-chain RWAs, DigiFT looks forward to the future of RWA. The financial sector, known for its sensitivity to costs and efficiency, is gradually entering a new era of capital markets driven by blockchain technology. To embrace this inevitable transition, RWA projects will continue our collective efforts to bridge any gaps in compliance and offer a trusted way of exploring new ecosystems and market structures.”

About DigiFT

DigiFT is the first regulated exchange for on-chain real-world assets, approved as a Recognised Market Operator with a Capital Markets Services license by the Monetary Authority of Singapore. DigiFT allows asset owners to issue blockchain-based security tokens and investors can trade with continuous liquidity via an AMM.

Established in Singapore in 2021, DigiFT is fully committed to meeting regulatory requirements to operate in the capital markets space in Singapore, while providing innovative financial solutions that push the boundaries of financial services in a responsible manner.

DigiFT’s founding team comprises executives who have held positions within the finance and fintech worlds at Citi, Standard Chartered, Morgan Stanley, Shenzhen Stock Exchange and possess deep blockchain technology knowledge, having successfully developed digital asset exchange and products in the past.

About HashKey Capital

Global in influence and crypto-native, HashKey Capital is a digital asset and blockchain leader helping institutions, founders and talents advance the blockchain industries. As one of the largest crypto funds and the earliest institutional investor in Ethereum, HashKey Capital has managed over US$1 billion in client assets since its inception, with over 500 investments in infrastructure, tools, and applications. With our deep knowledge across the blockchain ecosystem, HashKey Capital has built a robust network connecting founders, investors, developers, and regulators.

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