Gluwa, a platform for real-world assets, announced on March 7 its partnership with the Central Bank of Nigeria. The partnership arrangement aims to improve the functionality of the Nigerian central bank’s digital currency and promote financial innovation through blockchain technology. Improving the CBDC’s Utility Gluwa, a real-world assets platform, has entered into a partnership arrangement […]
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Jan van Eck, CEO of the prominent global investment management firm VanEck, believes there are two major hurdles hindering the tokenization of real-world assets (RWAs).
The CEO shared his insights on the matter during a recent interview with Raoul Pal. His remarks come in the wake of VanEck’s recent accomplishment of being among the 11 firms approved by the U.S. SEC to launch a spot Bitcoin (BTC) exchange-traded fund (ETF).
The tokenization of real-world assets, such as real estate, art, or commodities, has the potential to revolutionize investment strategies by providing increased liquidity, transparency, and fractional ownership. However, the challenges outlined by van Eck are significant hurdles that need to be addressed.
Liquidity provision requires sophisticated market-making mechanisms, and the regulatory environment needs to evolve to provide clear guidelines and a supportive framework for these innovations.
According to van Eck, the first and primary barrier to tokenizing real-world assets is liquidity — specifically, answering the question of “who provides the liquidity?”
Tokenization, the process of converting rights to an asset into a digital token on a blockchain, theoretically allows for any asset to be tokenized. However, van Eck said that the presence of a buyer and seller is not sufficient. He noted:
“Someone has to make a market in it [the tokenized RWA], and someone’s got to make money making a market in it, so it’s not just that [someone] can create a tokenized real-world asset of anything, it’s who’s providing the market structure around the liquidity.”
This highlights the need for a market maker, a role that requires not only pricing the asset but also profiting from the market-making process. This aspect brings forth the challenge of who would and could fulfill this role, especially for assets that are not as straightforward to price as major stock indices like the S&P 500.
Meanwhile, the second main issue hindering the tokenization of RWAs is the regulatory landscape.
According to van Eck, there is no clear answer to the question of where to establish a market for tokenized assets without encountering significant regulatory challenges.
The CEO said the U.S. currently presents a complex regulatory environment for such ventures and is unlikely to become the primary jurisdiction for such markets until the landscape changes. He added that despite regulators beginning to warm to tokenization, the lack of clear regulations for the industry means progress will remain subdued.
On the other hand, van Eck said that Europe’s combination of a large retail market and a more accommodating regulatory framework for crypto investing and trading makes it a more viable candidate for these developments.
Europe’s regulatory approach to cryptocurrency and blockchain technology has been more progressive compared to the U.S. The EU has been actively working on a comprehensive framework for crypto assets, known as Markets in Crypto-Assets (MiCA), which aims to harmonize regulations across member states and foster innovation while ensuring investor protection.
Raj Gokal, co-founder of blockchain protocol Solana and chief operations officer of Solana Labs, started his career in venture capital with a focus on high-growth tech business.
For seven years, Gokal focused on health tech, first with wearable sensors using Bluetooth Low Energy as a wireless protocol, then leading product management at Omada Health. He aimed to address the fractured, challenging United States healthcare system but “encountered challenges with health plans and regulators, leading me to recognize the industry’s persistent issues,” he told Cointelegraph.
After meeting Solana co-founder Anatoly Yakovenko and seeing his “vision to resolve scalability in crypto,” Gokal immersed himself in the crypto industry. “The journey has been rewarding over these past five years.”
Recently, Gokal sat down for an interview with Cointelegraph to discuss Web3, scalability, tokenization and more.
Cointelegraph: There has been a noted absence of substantial real-world use cases in the Web3 domain. This contributes to the perception that there’s no product-market fit for the industry. What are a few real-world use cases Web3 is currently prioritizing?
Raj Gokal: A real-world use case that comes to mind is decentralized physical infrastructure networks, or DEPIN. Developers often lead the way, as seen with projects like Helium, which established a decentralized 5G network with 1.5 million hotspots before transitioning to Solana. Similarly, Hivemapper launched its decentralized maps, utilizing a distributed global workforce equipped with dashcams. This is now an alternative to a centralized organization like Google deploying tens of thousands of cars that it owns to map the roads.
The Hivemapper network remapped 8% of the world’s roadways in just a few months, which is very much a real-world application of Web3 on Solana. These ventures showcase the viability and significance of leveraging low-cost, scalable blockchain technology to create innovative solutions. Developers across the world come together without any central authority and create successful business models with tangible value.
CT: Your ambition was to resolve scalability challenges within Web3. What architectural considerations are essential when building real-world solutions on layer-1 platforms?
RG: The benefits of parallelized transaction processing and validation are foundational, offering various advantages for developers and users. Solana pioneered these features, optimizing for speed with 400-millisecond block times and near-instant confirmations. We hear testimonials from users that a transaction was completed on Solana even before they could switch tabs. This fast, seamless experience builds trust and user satisfaction. Additionally, low transaction costs are crucial.
Compatibility and composability are essential, too, allowing various applications to work together. Decentralization is a linchpin, ensuring longevity and reliability. For instance, on Solana, we have close to 3,000 validators and the highest Nakamoto coefficient of 33 across all blockchains. While achieving these feats within a decentralized, high-performance network is challenging, it has been achieved through rigorous effort and innovation.
There are several such architectural decisions that make real-world solutions possible on blockchains. It is often not just one feature — it is the convergence of several architectural considerations that make it viable and scalable.
I also think blockchain networks must be battle-tested across multiple cycles. As ecosystems thrive through difficult market conditions, it provides developers, users and investors confidence that the network is here to stay.
CT: Let’s move on to Web3’s approach to mobile and payments. Solana has taken steps to introduce Solana Pay. You also recently launched the Saga phone. What are the motivations behind this, and how does it impact the broader mobile and payments landscape?
RG: The Solana Saga phone has shown that there is a huge opportunity for handset and operating system makers to create a sandbox where developers can build what they want with token incentives and without any restrictions on nonfungible tokens. Since the launch of the Saga, Apple and Google have eased their stance on digital assets in their application stores.
We have seen similar initiatives in the past, when Tesla created a new market for electric vehicles. It started with the Roadster, which initially only sold a few thousand cars. But over time, it has made it a more accessible mass-market product. We should see a similar trajectory for Web3-friendly mobile phones over the coming years, and Saga is just the beginning.
Solana Pay, on the other hand, operates at the crossroads of fostering a more accessible and open payments ecosystem. If you look at the Bitcoin white paper, the initial purpose of Bitcoin and the whole idea of digital money was to facilitate permissionless peer-to-peer online payments. That was the initial vision for cryptocurrencies.
By providing an alternative platform, Solana aims to influence these giants to adopt more user-centric and app-friendly frameworks. As for Solana Pay itself, it’s designed to enable any developer to integrate QR code-based payment features across various contexts, whether in point-of-sale systems, mobile apps or web-based services.
This has sparked initiatives like Decaf in over 30 countries, focusing on cross-border remittances. Sling, another Solana-powered platform, competes with Venmo on a global scale. Over the next few years, we can anticipate an upsurge in grassroots and enterprise-driven solutions that leverage crypto for payments.
CT: Let’s talk about real-world asset tokenization. While this area holds immense potential, it hasn’t fully taken off. What are the barriers preventing the widespread adoption of real-world asset tokenization, and how can these hurdles be overcome?
RG: Real-world asset tokenization indeed presents enormous opportunities, especially in sectors like real estate. Initiatives such as Parcl and Homebase are pioneering this space, though it requires time for adoption. For instance, Homebase is focused on individual properties that are tokenized and fractionalized so that you can get rental income that is globally accessible to anyone.
This space is about providing assets that people actually want and then making sure the narrative is good enough to win mindshare and convince users that real-world asset tokenizations are now something that’s possible. The idea looks sound on paper, but often, it takes time to execute, and we just need founders who are good at carrying the messaging for this space and have strong product skills. Success hinges on creating accessible, user-friendly, trustworthy platforms that offer real value to users, but also in delivering the narrative to the target users.
Over the next few years, the collective efforts of dedicated teams and the introduction of innovative platforms will likely drive increased adoption and establish a strong presence in the market.
CT: What strategies can mitigate risks associated with potential outages or technical difficulties within the Web3 ecosystem?
RG: Addressing liveness [i.e., the guarantee that a protocol can exchange messages between the network nodes, allowing them to reach a consensus] and reliability issues is essential to ensure seamless operations in real-world applications. The industry has learned from mistakes committed in the past and has actively implemented solutions to minimize outages. This will be critical for institutional adoption, as they will want to see reliable infrastructure before embracing this innovation at scale.
Networks like Solana have made significant strides in enhancing liveness and minimizing potential issues. Collaborative efforts between multiple validator clients, diverse solutions and continuous refinement of the ecosystem have led to increased stability and dependability. While the Web3 space is still evolving, the focus on these aspects will likely lead to even greater reliability over time.
CT: What would you define as a product-market fit for layer-1 protocols and the broader Web3 ecosystem? What would the user experience look like in your view?
RG: I think there are two stages of product-market fit. One is where founders and developers are able to either fund themselves or get funding to launch products that work toward end-user product market fit. And I believe we have achieved that level of product-market fit. Even in the depths of the bear market, you still see quality teams get funded, things are getting pushed forward, and new products are being launched.
Then, there is the second level, which is end-user product-market fit. And I would say that is a stage where the majority of the value that users are getting is not speculative from buying and holding assets but is from earning by contributing to networks, where the value is being shared back to the user. That’s why sectors like DEPIN, even though there are not 100 DEPIN examples, are happening. Users are using their hardware to earn money in crypto by supporting a network that adds real-world value to users. It’s exciting, and I’ll admit that it’s early.
Meanwhile, the European Union has recently proposed a comprehensive regulation called the Markets in Crypto-Assets (MiCA). MiCA aims to offer legal certainty and consumer protection for crypto-asset issuers and service providers.
The euro stablecoin market is poised to expand in the coming years, according to Patrick Hansen, European Union strategy and policy director at Circle. Hansen noted this while speaking at the EthCC conference in Paris on Monday, July 17. Circle currently has one of the top 5 Euro-pegged stablecoins, the Euro Coin (EUROC). The firm will also be looking to grow its market share.
According to Hansen, the stablecoin market is currently worth about $120 billion. However, euro stablecoins have a meager market share of about $300 million. This represents barely 0.3% of the entire stablecoin market.
At first glance, this may seem like the norm because the US dollar is the most-preferred currency by central banks for trading. However, the Euro is worth up to 20% of the traditional money market. This suggests the euro stablecoin market has more potential for growth. Hansen believes the stablecoin market is dominated by the dollar because it began with the US dollar. Hence, the dollar-pegged assets have been able to gain a first-mover advantage.
Armin Schmid, Head of Pay & Stablecoins at Bitcoin Suisse AG also opined that the dollar-pegged stablecoins are preferred due to the negative interest rates and regulations attributable to the Euro. This, Hansen explained, is because “Liquidity begets liquidity”. With lower liquidity in the market, euro stablecoin users face higher risks and usage costs.
As the crypto market transitions from mere speculation to real-world utility, Hansen expects the use of stablecoins to grow. Already, there are calls to begin using stablecoins in remittances and business-to-business transactions. There are also calls to integrate euro stablecoins into existing European payment systems. Hansen believes this will make users demand stablecoins in their local currency.
Again, decentralized finance uses like mortgage payments and car loan payments will need to be delivered in local currency. Hansen argued this should increase the size of regionalized liquidity pools and boost the euro stablecoin market.
Meanwhile, the European Union has recently proposed a comprehensive regulation called the Markets in Crypto-Assets (MiCA). MiCA aims to offer legal certainty and consumer protection for crypto-asset issuers and service providers. Per the framework, MiCA considers payment stablecoins as a means of payment, similar to traditional fiat currency and electronic money.
While they will be subject to more stringent rules and supervision than other crypto-assets, the clarity will help many crypto firms. When the framework kicks off in 2024, it will create a harmonized and innovation-friendly environment that can boost the euro stablecoin market.
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An experienced writer with practical experience in the fintech industry. When not writing, he spends his time reading, researching or teaching.
Real-world asset (RWA) protocols have become a hot trend within decentralized finance (DeFi) circles.
An RWA protocol is a decentralized application that allows entities to tokenize and trade real-world assets. These assets range from stocks and government bonds to real estate and commodities. They are also known as asset tokenization protocols.
DeFi provides certain advantages over TradFi by making the smart contracts transparent and enabling a wide degree of financialization of assets by making them divisible, transferable and tradable on decentralized platforms.
The top uncollateralized lending protocols for institutions, TrueFi and Maple, have increased by 26.6% and 117.8%, respectively, in 2023. Centrifuge, a real-world asset tokenization platform, has surged by 32% year to date.
In comparison, the gains recorded by the DeFi pulse index in the same period were 13%. Glassnode’s index of DeFi blue-chip tokens has lost 7% since the year’s start.
Recent data from Nansen found that the governance tokens of RWA protocols surged significantly in January and April thanks to the rising interest in them.
Previously, experts had suggested that many DeFi veterans were already implementing RWA-based strategies but that the lack of sufficient RWA on-chain was hindering the ecosystem’s development.
This is changing due to increased tokenization of real-world assets.
The top RWA protocol by total locked value, Ondo Finance, is a DeFi platform that enables stablecoin holders to directly invest in exchange-traded funds managed by top-tier asset managers like BlackRock and Pimco. United States bonds of more than $100 million have been issued via Ondo, per DefiLlama data.
Goldman Sachs, Microsoft and Deloitte have eyed digital asset tokenization by partnering with the blockchain startup Digital Asset. German technology giant Siemens issued a digital bond on a public blockchain worth $64 million in February 2023.
The RWA assets account for 25% of the largest decentralized stablecoin Dai’s (DAI) collateral, having increased from zero before the start of the year.
MakerDAO, the community-led decentralized autonomous organization, has approved the conversion of centralized stablecoins like USD Coin (USDC) to U.S. Treasury bonds. The DAO accepts tokenized government and corporate bonds and commodities as collateral for minting DAI.
So far, debt market protocols like Maple Finance, TrueFi, Goldfinch and Clearpool have led the price action and activity among RWA protocols. These protocols enable non-collateralized lending for institutions.
Some of the top-ranked RWA protocols by total value locked, like Ondo Finance, MatrixDock and RealT, do not have a governance token attached to them. Nevertheless, these protocols have attracted usage thanks to the chances of a potential airdrop in the future.
Related: DeFi securitization of real-world assets poses credit risks, opportunities: S&P
Notably, the non-collateralized lending protocols carry the risk of debt default. FTX’s collapse led to a significant decline in Maple Finance’s price and pushed the protocol to the brink of insolvency.
The yields of the U.S. Treasury bonds are also set to fall once the Fed starts cutting its benchmark interest rate, which could make these assets less attractive.
Nevertheless, it is encouraging to see the increasing tokenization of real-world assets and their financialization through DeFi finally catching positive momentum as they gain institutional support.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.