Original Source: ThePrimediaDAO

Original Author: Jerry, BeeGee 

"Today, I am pleased to announce the establishment of a new company, Superstate, whose mission is to create regulated financial products that connect traditional markets with the blockchain ecosystem." DeFi lending protocol Compound's founder Robert Leshner announced the birth of his new company Superstate on June 29th on Twitter.

He is targeting the current hot narrative of real-world asset tokenization (RWA).

This is consistent with our judgment: we believe that in the era of Web 3 native applications, it is necessary to mobilize more real-world assets/capital (RWA) to integrate into the crypto market and provide capital support. Especially in a compliance context, we believe that RWA is the most valuable wealth code in this cycle.

However, in terms of specific data, LSD L 2 narrative is the winner in the second quarter of 2023, led by projects such as Pendle, Lybra, Tenet, etc.; Meme 2.0 has experienced a typical rise and fall; RAW has not yet released energy. Therefore, our analysis is based on the prediction of encrypted narratives and the objective environment.

The Past: Why Haven't Synthetic Assets Blossomed?

Before explaining the predictive logic, it is necessary for us to trace the history of RWA and explore its conditions and development process to predict the future.

RWA existed as a concept in synthetic assets in the earliest days. It is not something fresh for the DeFi world. Including stablecoins, such as the US dollar stablecoin, can be regarded as synthetic assets (RWA). It plays a role in connecting two worlds and has not shown strong investment value. It wasn't until January 28, 2021, when the popular investment battlefield brokerage platform Robinhood and several local US brokers successively announced restrictions on opening positions for stocks such as GME and AMC. Individual investors were only allowed to sell and not buy. Synthetic asset protocols became a lifeline and were highly anticipated. Therefore, its value is not only in the pure crypto world but also extends to the traditional capital market, including US stocks, foreign exchange, etc.

People were excited about Synthetic Asset (RWA) at that time. Synthetic assets are tokens that represent financial derivatives in digital form. If derivatives are financial contracts customized for underlying assets or financial positions, then synthetic assets are tokenized representations of similar positions. A more intuitive example of synthetic assets is the simulation of assets with prices, such as Apple stocks. You can simulate the synthetic asset of Apple stocks, synthesize all assets on the NASDAQ and NYSE, and even synthesize fiat currencies (foreign exchange), gold, BTC, and other assets.

In November 2021, the synthetic asset project Synthetix upgraded to the Avior version on Optimism. The new version added a new WrapperFactory contract that can deploy new wrapping contracts to support any ERC20 tokens. The lending and synthetic asset protocol dForce partnered with the physical asset financing platform EntroFi to promote the integration of physical asset financing (including real estate, bonds, guaranteed loans, acquisition financing, accounts receivable, etc.) across protocols.

This can be seen in the context of the DeFi iteration 2.0 process, which is an adjustment and optimization made by synthetic asset developers. Since 2019, we have witnessed a booming DeFi, but project developers and industry observers have started to examine, reflect, and attempt to iterate into a new era. In May 2021, Vitalik Buterin questioned the bubble-like valuation of the crypto market, stating that the actual achievements of DeFi projects and others cannot justify their popularity and valuation. The efforts of synthetic asset projects (RWA) like Synthetix, dForce, and EntroFi in 2021 did not achieve the expected success. Subsequently, the market experienced multiple collapses in the crypto circle in 2022, especially under the impact of regulatory actions by the US government and the sentiment of the US crypto circle damaging the market. Synthetic asset projects in the US market were not accepted by the market.

However, as time entered 2023, the narrative of RWA has gradually been established. Take several on-chain national debt projects as examples:

Ondo Finance announced the launch of tokenized funds starting from January this year, bringing risk-free interest rates onto the chain, allowing stablecoin holders to invest in bonds and US Treasury bonds; Matrixport, an asset management company, launched its online bond platform, Matrixdock, in late January this year with government bond-related services; OpenEden, created by former employees of Gemini, launched tokenized US Treasury bonds in April this year, where stablecoin holders can mint TBILL through the OpenEden TBILL Vault to gain risk-free returns from US Treasury bonds...

Opportunity: RWA in the context of application ecology and compliance

In "Discussing the Three Transformations of Ethereum: V God's Offense and Defense," we analyzed that in some difficult life-or-death moments, V God made big promises, saying that he would create 1024 shards to increase performance by 1000 times; in other difficult life-or-death moments, V God talked about dreams, imagining DeSoc and searching for the soul of Web 3...But now, V God can talk about life and death, and this is when V God is most confident. V God has the confidence to promote key and specific transformation plans to build his Ethereum's decentralized non-monetary application ecology.

This will be the most powerful fundamental support in this cycle, indicating that Ethereum is entering the era of application ecology, which will inevitably require mobilizing more real-world assets/capital (RWA) to integrate into the crypto market and provide capital. Ethereum's entry into the application ecology will give us confidence in the crypto narrative, but we believe that RWA is the biggest support at the market level.

In early June, MakerDAO conducted a nominal survey vote to establish a Real-World Assets (RWA) Vault called BlockTower Andromeda. This Vault is managed by BlockTower Capital and will invest up to $1.28 billion in short-term US Treasury bonds. US Treasury bond yields are typically regarded as risk-free rates by the capital market. At that time, the context was that as US short-term interest rates continued to rise, DeFi interest rates fell, and the demand for stablecoins to earn returns through off-chain markets increased. The latest news is that the founder of Compound has entered the RWA track. This is consistent with our consistent attitude and judgment:

1. In "Why "Integration" Becomes the Value Research Theme of the Next Bull Market": The "integration" theme of the next bull market includes three dimensions: the integration of web 3 technology with various industries; the integration of crypto economy with sovereign finance; the integration of DeFi with the web 3 industry. In this way, with the crypto economy as the core, the entire world's economic system will be reshaped, and the world financial landscape and order will also be rebuilt.

2. In "On the Value Logic of "Bear Market Bottom on Civilization"": In the crypto economic system, when the energy emitted by the integration of DeFi and the web 3 industry unfolds, it will propel the narrative of the crypto world to a higher level. If the growth logic of traditional financial capital markets can only come from the main line of economic growth, DeFi can match the excessive number of users and user funds in terms of depth and breadth, demonstrating unprecedented economic development at an exponential level.

3. In "Don't Panic! Opportunities and Challenges under "US Regulation and Hong Kong's New Policy"": Hong Kong needs to integrate the role of "financial center" into the narrative of Web 3/crypto economy. It needs to convert the restless speculative force of the cryptocurrency market into capital that supports the development of the web 3 native market. The key point lies in how the Hong Kong government utilizes the capital allocation function of native DeFi in the crypto economic system. Of course, the Hong Kong government's current choice of the entry point of putting off-chain assets worth trillions on-chain (RWA) is a relatively shrewd and smart choice - in the future one or two bull and bear cycles, Hong Kong will take the promotion of the integration between the virtual assets of the crypto economy and the real-world financial system as its main battleground, capable of both offense and defense.

Therefore, compared with BlockTower Andromeda of MakerDAO and the founder of Compound's Superstate, we are more concerned about the RWA digital notes worth 200 million issued by China International Capital Corporation via UBS for the Hong Kong market in mid-June. We believe that this is a successful practice of RWA - UBS stated that this transaction marks the first product of its kind in the Asia-Pacific region that complies with Hong Kong and Swiss law and is tokenized on the Ethereum blockchain. However, there are also some opinions and suggestions - the "main Ethereum blockchain" mentioned in the original UBS announcement actually refers to a centralized consortium chain deployed using the Ethereum open-source code, rather than the Ethereum mainnet. Under the risks of policy compliance, regulation, and transaction efficiency that are beyond control, traditional institutions still have a long way to go in deploying business on public chains.

In "Decoding RWA: Can "Dubai WEB 3 New Trends" Serve as Reference for "Hong Kong Crypto Narrative"?", we introduced BG Trade as a case study with more native encryption genes and real business deployment on the public chain. But how does it operate and how is its mechanism set up? Can the functionality and services covered by the BG Trade ecosystem be a reference for the Hong Kong Crypto Narrative in practical terms? BG Trade aims to integrate multi-dimensional asset investments on the same platform, providing efficient connection opportunities between the traditional stock market and the cryptocurrency world. It plans to build an ecosystem that backs tokens and traditional stocks in a 1:1 ratio, breaking down the barriers between the cryptocurrency market and the stock market.

1. Issuance platform: BG Trade provides a convenient way for the RWA project to issue tokens and conduct initial decentralized transactions (IDO). By providing this platform, BG Trade facilitates fundraising for the RWA project and attracts potential investors.

2. Over-the-counter trading: BG Trade enables over-the-counter trading, which provides privacy protection and minimizes market impact, offering solutions for participants with large trading volumes.

3. Asset swapping: The BG Trade platform integrates assets from Web 2 to Web 3, ensuring users can convert between different asset categories and providing a cross-asset trading experience.

4. ve-Governance: BG Trade empowers users to participate in decentralized governance and decision-making processes. By involving the community in important decisions, BG Trade strives for a fair and transparent ecosystem that allows the community to have a voice.

5. Staking mining: Participants can stake their BGT tokens on the BG Trade platform, contributing to the platform's stability and growth as liquidity providers and earning rewards.

6. zkDID: BG Trade utilizes zkDID technology, allowing users to manage self-sovereign identities without revealing personal information to third parties. This feature ensures privacy and data security while enabling real data mining.

During the process of writing this article, we had hesitation because the RWA (synthetic assets) track existed in the previous cycle but did not flourish. So why do we judge it to be the most valuable wealth code in this cycle? Therefore, we always pay attention to industry trends. We discovered BG Trade through the theme forum "Exploring Unleashed: Web 3 and RWAs" and conducted a case analysis. We also gained confidence in our judgment on this theme due to the founder of Compound entering the RWA track.

As mentioned earlier, we believe that the application ecosystem of Ethereum and other public chains will be the strongest fundamental support in this cycle. However, it mostly brings us confidence. From a market perspective, we believe that the biggest support is RWA - RWA includes "any real-world asset with clear monetary value," including tangible assets such as gold and real estate; or intangible assets such as government bonds or carbon credits. However, the on-chain registration of trillions of dollars of off-chain assets has uncertainty and cost pressures, and it cannot be fully realized in the short term. However, the Hong Kong government's on-chain registration of trillions of dollars of off-chain assets can become the foundation of Hong Kong's encrypted narrative in the next decade. Citibank, BCG (Boston Consulting Group), and other traditional institutions have estimated that the RWA market worth trillions or even tens of trillions of dollars in 2030 has already started. This mainly applies to digitized and structured assets, including BlockTower Andromeda, Superstate's main business chain-secured bond market, and BG Trade's tokenized stock market.

As the era of the application ecosystem in the crypto world approaches, RWA is becoming a bridge between traditional finance (TradFi) and decentralized finance (DeFi). We look forward to reaping rewards in the new cycle, whether it's in ecosystem development or market investments.

Note: This article was collectively researched and created by TheprimediaDAO, with major co-authors being the initiator of TheprimediaDAO, Jerry (@ThePrimedia), and TheprimediaDAO Builder, TigerVCDAO Investment Head BeeGee (@BeeGeeETH).