August 2023: Real World Assets (RWA) & Stablecoin Recap

Curious what happened last month in RWA & stablecoins? We've got you covered!


Crypto Overview: What Happened Last Month?

Just when market participants were starting to believe that August would buck the trend of historically being a negative returning month for the broader cryptoasset industry, the bears reared their ugly heads into month-end. Said differently, last month initially looked like it was setting to be a favorable month for the bulls after July surprised to the upside, but a mid-month retrace proved that crypto markets remain in a “crab” market of consolidation. After hitting an intra-month high of $30.2K on August 9, 2023, BTC corrected more than -17% the following week, resulting in the crypto behemoth notching a 2-month low. The decline coincided with BTC open interest plunging from $14.7B to $11.2B in the largest liquidation since the collapse of FTX in November 2022. Not even a federal appeals court ruling that the U.S. Securities and Exchange Commission (SEC) must "vacate" its rejection of Grayscale’s bid to convert its Bitcoin Trust into an exchange-traded fund was a match for the bears. The news set the broader cryptoasset market soaring more than +6% on Tuesday, August 29, 2023, only to fully retrace (and some more) as the month concluded.

Fig. 1: August 2023 Returns - Top 10 Cryptoassets by Market Capitalization

Despite the ruling for Grayscale going down in history as a major win for the broader industry and further proof that a BTC ETF is merely a function of time, a month-end sell-off drove the cryptoasset market lower and erased all prior gains and some more. Of the top 10 largest cryptoassets by market capitalization, the only one to finish the month in the green was TON, a Layer-1 blockchain that was originally created by messaging platform Telegram, with a remarkable +46% return. The surge can be attributed to a jump in network activity, the launch of a new programming language designed for creating smart contracts on the network, a continuation of a multi-month uptrend, and a plethora of exchange listings that helped propel the cryptoasset into the top 10. Meanwhile, the month’s laggards were ADA (-17%), DOGE (-18%), and XRP (-27%). The underperformance on behalf of XRP can be explained by market participants taking profit after a U.S. judge ruled in July 2023 that Ripple Labs, the company behind the Ripple protocol and XRP cryptoasset, did not violate federal securities law by selling its XRP token on public exchanges. 

Notwithstanding the crypto market bleeding for much of August and returning to levels last seen in June 2023, innovation and adoption within the Real World Assets (RWA) and stablecoin sectors were strong. With that said, next, we’ll cover the most notable developments and trends that took the industry by storm and are worth being cognizant of as we head into the tail-end of 3Q2023 and start to wrap up the year.

RWA: August 2023 Milestones & Developments

August might have proved to be an underwhelming month for the broader crypto industry, but August was anything but for RWA. Staying true to the year’s trend, a handful of industry developments and breakthroughs separated RWA from the rest of the market. In addition to a handful of indicators hitting noteworthy levels, legacy traditional finance institutions also expressed their interest in the sector in one capacity or another. Needless to say, while market participants are waiting for macroeconomic headwinds to subside and the cryptoasset industry to regain momentum and interest, RWA remain in a bull market of their own. But don’t just take our word for it; here are some of the more notable developments that occurred last month:

Fig. 2: RWA TVL vs. Tokenized Treasuries TVL

  • RWA TVL failed to finish the month higher, thereby marking the end of what was a 7-month winning streak; RWA TVL rose to a year-to-date high of $1.21B in early August before slipping lover into month-end and finishing the month down a modest -1.7% at $1.17B. Similarly, tokenized treasuries TVL advanced to a year-to-date high of $663M in late August before tumbling lower into month-end and concluding the month down -4.5% at $625.5M.

Fig. 3: RWA Protocol TVL Change (MoM)

  • Protocols with the most notable month-over-month change in TVL included Backed (+$35M), Tangible (-$22M), and Matrixdock (-$35M). The jump in Backed’s TVL can be attributed to an inflow of capital into their Backed Govies 0-6 Months Euro Investment Grade (bC3M) investment product, which launched at the start of August.

Fig. 4: RWA-to-DeFi TVL Ratio vs. Crypto-TradFi Risk-Free Yield Spread

  • Despite RWA TVL finishing down month-over-month for the first time this year, TVL across the broader DeFi ecosystem shed more than $5B in August and finished at $69.5B, a level last seen on January 15, 2023. Accordingly, Fortunafi’s RWA-to-DeFi TVL ratio advanced from 0.0158x to 0.0165x, a level last seen in July 2022. Meanwhile, Fortunafi’s Crypto-TradFi Risk-Free Yield Spread, the difference between the 10-year U.S. Treasury yield and the average supply yield for USDC on Compound and Aave, fell from a reading of 8.43% to -0.32%. The drop can be explained by borrow/lending markets normalizing after Curve’s founder Michael Egorov, successfully avoided a potentially massive liquidation on Aave V2 that was set to send shockwaves across all of DeFi. However, note that the spread has advanced nearly +150bps year-to-date, as borrow/lending markets have slowly, but surely, caught up with the 10-Year U.S. Treasury.

Fig. 5: RWA Token Holders

  • The number of RWA token holders climbed to an all-time high of 87,957, a +2.3% increase month-over-month and a +45% increase year-to-date. August’s addition of +3,010 RWA holders marks the largest monthly gain since April 2023, further proving that growing interest in the RWA sector has yet to slow.

Fig. 6: RWA Token Dex Volume

  • Last month, decentralized exchange (DEX) trading volume for RWA tokens, a proxy for general interest in RWA, climbed higher for a fourth consecutive month.

Fig. 7: August 2023 Performance

  • Fortunafi’s RWA index posted a loss of -11.9% in August, relatively in line with BTC (-11.1%) and ETH (-11.4%). Meanwhile, Fortunafi’s DeFi index tanked a whopping -22.6%. The outsized underperformance was driven by bluechip DeFi governance tokens posting significant losses, including Compound’s COMP token sinking -33%, Uniswap’s UNI token falling -28%, and Curve Finance’s CRV token dropping -22%. The disparity between the RWA and DeFi index can be interpreted as the RWA sector not only seeing persistent organic demand, but the underlying tokens part of the index having a lower risk profile given the nature of their respective protocol.

Fig. 8: Centrifuge Cumulative Loan Originations

  • Cumulative loan originations on Centrifuge surpassed $350M in August and finished at an all-time high of nearly $355M. Institutional loans have made up 37% of all loan originations, while real estate and receivables made up 30% and 19.2% of loans, respectively. The near +78% increase in loan originations in 2023 alone is yet another sign that 2023 is the sector’s biggest year to date.

  • Coinbase CEO & founder Brian Armstrong stated on Twitter that the tokenization of real world assets is among his list of the top 10 things he is"most excited about in crypto right now."

  • Maple Finance, an on-chain, institutional credit marketplace that’s aspiring to fill a gap left behind by the collapses of crypto lending heavyweights like BlockFi and Celsius, announced plans to expand to Asia as part of a broader effort to integrate into the region's financial hub, like Hong Kong and Singapore, where more regulatory clarity around digital assets exists. To fuel its expansion, Maple also closed a $5M strategic investment in August from a group of crypto-focused investors. The announcement coincided with plans to restart the use of the Solana network after eight months, expanding its stablecoin cash management offering to the network.

  • Money manager Franklin Templeton said it may also issue tokens on the Avalanche, Aptos, and Arbitrum blockchains, a move that comes after an April 2023 integration into the Polygon side-chain.

  • Dinari, a company founded in 2021 with the mission to provide blockchain-backed access to corporate equity, announced a $7.5M seed investment in anticipation of its dShare Platform's launch outside the U.S. The round attracted notable investors such as SPEILLLP, members Susquehanna International Group, 500 Global, and Balaji Srinivasan, the former CTO of Coinbase. Dinari's Share platform will allow users to access securities like Apple or Tesla stock through a wallet on the Arbitrum network. Similar to stablecoins like USDC or Tether, each dShare token is backed on a 1-1 basis.

  • Homebase, a Solana-based platform focused on building tech infrastructure for the real estate industry, successfully completed the sale of its second tokenized residential home. Users who participated in the sale will begin getting a proportional net rent delivered to their digital wallet each month in the form of USDC.

  • Pendle Finance, a DeFi platform that offers users yields in the form of tradable tokens, announced that it is entering the RWA sector with a new product that derives gains from traditional sectors. The platform will leverage MakerDAO’s Boosted Dai Savings (sDAI) and Flux Finance’s fUSDC stablecoin for their RWA product.

Fig. 9: Frax Finance RWA Proposal

  • Sam Kazemian, the founder of Frax, proposed using a U.S. corporation as a channel for Frax to hold cash deposits, reverse repo contracts, t-bills, and other traditional financial assets. The proposal elaborates on how partnering with FinresPBC will enhance FRAX v3 RWA asset strategy by bringing traditional financial assets onto the blockchain. FinresPBC is equipped to hold U.S. dollar deposits in FDIC-insured IntraFi savings accounts, earn interest on those deposits, and manage the minting and redeeming processes for Paxos' USDP and Circle's USDC stablecoins as required by the Frax protocol. The company is also authorized to hold, buy, and sell U.S. t-bills in segregated brokerage accounts. On August 14, 2023, the proposal successfully passed with 35M FXS staked in favor of the proposal and only 334 FXS not.

McKinsey, one of the world's largest global management consulting firms, published a deep dive report on tokenization. Some of the biggest takeaways from the report include the following:

  • While crypto has been under substantial pressure since 2022, companies in financial services, retail, music, gaming, media, & other sectors continue to adopt the tech.

  • Unlike six years ago when tokenization was first starting to be pushed by many market participants as a killer use case for blockchain tech, adoptionis picking up and this time “could be different.”

  • Tokenization may be at an inflection point given recent trends, such as advances in cash tokenization (stablecoins), emerging regulatory framework outside the US, improving business case fundamentals given that higher interest rates have improved the economics for some tokenization use cases, and increasing market readiness and infrastructure maturity.

  • Early institutional experimentation across certain asset classes and use cases have shown the potential for tokenization to “scale in the next two to five years.”

Stablecoins: August 2023 Milestones & Developments

Although having struggled to meet the same level of activity, development, and momentum that was witnessed for RWA last month, a number of noteworthy stablecoin developments occurred that caught not only the sector by storm, but all of crypto. However, several data points tell us that stablecoin activity has yet to hit abnormal levels indicative of the sector experiencing its next leg of growth. Be that as it may, all signs suggest that better days are ahead and the sector is alive and well.

Fig. 10: Stablecoin Total Market Capitalization

  • The total stablecoin market capitalization slipped to a 22-month low of $132.8B amid further BUSD & USDC redemptions; a rebound into month-end resulted inthe sector finishing August at $135B. The relentless drawdown in the total stablecoin market capitalization over the past 15 months is seen by many as a direct result of the Federal Reserve raising interest rates and pushing capital out of the industry. Additionally, many see the drop as bullish for stablecoin king Tether (USDT), which commands nearly 62% of marketshare as of the end of August.

Fig. 11: Stablecoin Market Capitalizations

  • The spread between USDT and USDC, the two largest stablecoins by market capitalization, widened to $56.7B amid further USDC redemptions. At the start of the month, the spread widened to an unprecedented $57.7B, proving that USDT remains king in a hazy U.S. regulatory environment and continues to distance itself from competitors despite a history of limited transparency. But it should be noted that while Tether has yet to relinquish its rein, the stablecoin market is expected to heat up later this year, and new and improved stables with added utility are expected to come to market.

Fig. 12: Cumulative Stablecoin Transaction Volume

  • Cumulative stablecoin transaction volume passed $18T in August and finished the month at $18.5T, a remarkable feat that speaks to the growing demand and usefulness of stablecoins. Consider that since BTC and the broader cryptoasset market hit an all-time high in November 2021, cumulative stablecoin transaction volume has exploded by nearly +200% from $6.25T to $18.5T despite market volume and volatility dwindling all year.

Fig. 13: Stablecoin Daily Active Addresses (30D MA)

  • The 30-day moving average of daily active addresses for stablecoins indicates that activity slumped for most of the largest stablecoins at the start of August as summer seasonality weighed further on the flow between market participants. However, month-end volatility across the market coincided with a jump in activity as market participants took advantage of unexpected price action.

  • On August 7, 2023, MakerDAO introduced the Enhanced DAI Savings Rate (EDSR), a temporary mechanism that increased the DAI Savings Rate (DSR) from 3.19% to 8% through a utilization-based multiplier. This move aimed to stimulate DAI growth by incentivizing deposits into the DSR contract, effectively reducing its circulating supply and making DAI the highest-yielding stablecoin. However, a recent proposal was passed to lower the DSR to 5% to prevent undue benefits to ETH whales exploiting the system through "borrow arbitrage." The introduction of EDSR has revived DAI demand, increasing the supply by nearly +17%. The jump in DSR provides a competitive on-chain alternative to U.S. Treasury bills, a move that’s expected to bode well for increasing adoption of Maker's Spark lending protocol and yields across the broader ecosystem.

  • Circle, the issuer of the second largest stablecoin, announced that USDC will be launching on 6 new blockchains between September and October, thereby bringing multi-chain access of the stablecoin to up to 15 different chains and further accelerating USDC’s momentum with developers around the world. According to a press release, “Support for new chains allows USDC to better serve a growing number of businesses, applications, and developer communities who are choosing USDC as the on-chain dollar.”

Fig. 14: PayPal’s PYUSD Stablecoin Transactions and Total Supply

  • PayPal launched PYUSD, a stablecoin backed by U.S. dollar deposits, short-term U.S. treasuries, and similar cash equivalents. The stablecoin isredeemable 1:1 for U.S. dollars and is issued by Paxos Trust Company. Although having only launched in August, adoption right out of the gate was weak. Month-end data shows that total PYUSD transactions came up short of 550, and total supply stood at nearly 44.4M PYUSD. However, market participants remain optimistic that PayPal will be successful in leveraging its existing user base and product offerings to fuel the growth of its stablecoin.

  • Binance announced plans to end BUSD support by Feb. 2024 and encouraged users to convert BUSD for First Digital USD (FDUSD), which waslaunched in June by the Hong Kong-based trust company First Digital Group.

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