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February 2024: Real World Assets (RWA) & Stablecoin Recap

February 2024: Real World Assets (RWA) & Stablecoin Recap

After an underwhelming Jan. 2024, the crypto market posted its best monthly performance since May 2019. However, momentum in RWA slowed for a second month.

Crypto Overview: What Happened Last Month?

Following a rather underwhelming Jan. 2024, the broader cryptoasset market posted its best monthly performance since May 2019 in Feb. The outperformance can be attributed to a multitude of bullish market forces that materialized last month and supported the notion that crypto’s next bull market is on the horizon; said differently, there were a plethora of favorable developments that caught both crypto and TradFi market participants by storm and drove cryptoasset prices materially higher, including the following:

Nine spot Bitcoin (BTC) ETFs bought 100,000 BTC 7 days after launch.
Spot BTC ETFs hit a $10B milestone just one month after approval.
Hong Kong Securities and Futures Commission accepted the first spot BTC ETF application.
China said that it plans to introduce revised crypto regulations by 2025.
Former U.S. President Donald Trump changed his tune on BTC, stating last month that BTC is something he can live with and acknowledges its growing demand.
A 2-month countdown began for BTC’s next block reward halving event, which is expected to take place mid-Apr. 2024.

Fig. 1: Feb. 2024 Returns - Top 10 Cryptoassets by Market Capitalization

Notwithstanding news that the U.S. Fed doesn’t anticipate an interest rate cut in Mar. 2024 following a higher-than-expected inflation reading last month, the aforementioned flurry of positive news that hit the tape in Feb. catapulted BTC and virtually every altcoin meaningfully higher. As shown in Figure 1, BTC was the third best-performing cryptoasset of the top 10 with a remarkable +44% return in Feb. With animal spirits high and heightened levels of speculation having entered back into the market last month; few were surprised to find that DOGE was the best performer with a monthly return of +51%, with ETH close behind at nearly +47%.

When all was said and done, the jump in interest across all corners of crypto resulted in virtually every sector seeing meaningful adoption and capital inflows - RWA and stablecoins included. However, a handful of signs indicated that RWA momentum did slow modestly in Feb. despite persistent innovation. On the flip side, the world of stablecoins saw unprecedented innovation and a continuation of momentum that came to light late last year. We still fully believe RWA and stablecoins are best positioned to be the key themes of 2024. That said, next, we will cover the most significant milestones and notable developments of Feb. 2024 for RWA and stablecoins to help you better understand why this year could be the biggest ever for both sectors.

RWA: Feb. 2024 Milestones & Developments

Fig. 2: RWA TVL vs. Total Tokenized Products

RWA total value locked (TVL) slipped lower for a second consecutive month. At the same time, the number of tokenized products on Ethereum, Avalanche, Base, Optimism, Arbitrum, Polygon, and Gnosis, or what we see as a proxy for the broader RWA industry, also retreated modestly. RWA TVL fell more than -4% in Feb., the biggest month-over-month decline since Sept. 2022, while the number of tokenized products dropped from 81 to 80. The most notable retraces at an individual protocol level were Franklin Templeton, Clearpool, Matrix Dock, and Maple Finance. The decline for both metrics suggests that momentum and excitement around RWA continue to cool ever-so-slightly after an unprecedented 2023.

Fig. 3: RWA TVL by Category

The decline in RWA TVL in Feb. can largely be attributed to a drop in TVL for the Government Securities (-$46M), Commodities (-$36M), and Equities (-$4.3M) verticals. However, it should be noted that while most verticals saw TVL decline month-over-month, the Asset-Based Finance vertical outperformed peers after rallying nearly +7% to $382M - an all-time high. The underperformance of Government Securities and outperformance of Asset-Based Finance supports our view, which we outline in a recent report, “2024: 10 Predictions for RWA & Stablecoins,” that TVL growth in tokenized treasuries will lag new and/or existing verticals as RWA innovation and adoption persists.

Fig. 4: RWA TVL by Blockchain

Ethereum led the decline in RWA TVL for the second consecutive month after shedding nearly -$120M in tokenized assets deposited in protocols deployed on the blockchain. Second and third to Ethereum were Gnosis and Polygon, which saw their RWA TVL retreat -$92M and -$67M, respectively. Despite Ethereum's massive underperformance, the blockchain remains the largest by RWA TVL at $1.84B as of the month's end. However, the dramatic decline for Gnosis resulted in the blockchain having just north of $3M in RWA TVL as of month-end, now ranking it as the smallest chain by RWA TVL of the blockchains listed in Figure 4; the drop was primarily fueled by outflows of RealT. Similarly, the drop in TVL for Polygon represented a near -60% overall decline in the blockchain’s total RWA TVL, leaving Polygon at a total RWA TVL of close to $44M as of Feb. 29, 2024.

Fig. 5: RWA-to-DeFi TVL Ratio vs. Crypto-TradFi Risk-Free Yield Spread

Further proof indicating a slowdown in RWA momentum last month can be seen by our RWA-to-DeFi TVL ratio, which compares the total TVL in RWA protocols against the entirety of DeFi. After reaching a peak of 0.034x in late October 2023, the ratio has been on a relentless downtrend and finished the month at a 2-year low of 0.0143x. Meanwhile, DeFi TVL surged by roughly $31B to $91B amid newfound demand from market participants. Outsized interest in DeFi relative to RWA can also be seen by the jump in the average stablecoin supply yields for major DeFi protocols, such as Aave and Compound, relative to the 10-Year Treasury Rate; our Crypto-TradFi Risk-Free Yield Spread roared as high as 6% into month-end before plunging to 0.7% as the average stablecoin supply rate rerated down towards the 10-Year Treasury Rate. The case could be made that the current trend could result in RWA and other DeFi sub-sectors garnering interest and demand as DeFi adoption continues to ramp up.

Fig. 6: Number of RWA Token Holders

Despite indications that the momentum for Real World Asset (RWA) tokens cooled in Feb. along with the general market, the count of RWA token holders for BST, CFG, FACTr, GFI, MPL, ONDO, RIO, TRADE, TRU, and wCFG (representing the wider RWA sector) still reached new peaks in Feb. The total number of token holders reached 118,702 by month's end, marking a 5.3% increase. However, it's worth mentioning that this growth rate was the smallest recorded in the last four months.

Fig. 7: Feb. 2024 Performance

Additional evidence supporting the notion that other corners of crypto saw more bullish inflows and interest than RWA can be seen when looking at the monthly performance of our RWA Index relative to our DeFi Index, ETH, and BTC. As shown in Figure 7, our RWA Index posted a relatively underwhelming return of +25%. This compares to our DeFi Index posting a whopping +54% return over the same period, with ETH and BTC trailing close behind at +46% and +44%, respectively.

Notable RWA Developments:

Neutral, an environmental technology firm, and DLT Finance, a BaFin-licensed trading and brokerage firm, launched Europe's inaugural regulated trading platform for tokenized environmental assets - including carbon and renewable energy credits. Users can choose particular assets for redemption or deposit, return credits to their registry account, or retire them directly within the platform - thereby enhancing the efficiency and simplicity of environmental asset trading.
Citi announced its collaboration with Wellington Management and WisdomTree to explore tokenizing private funds using Avalanche blockchain technology, aiming to enhance functionality and operational efficiency through smart contracts. The initiative aims to address the complexities and manual processes present in private markets, with Avalanche's smart contract capabilities potentially enabling swift and efficient asset movement.
The Hong Kong Monetary Authority (HKMA) issued letters to authorized institutions (AIs) on tokenization and digital asset custody, outlining standards aligned with international practices. AIs must meet these standards when providing custody services, whether through standalone services or other activities, by demonstrating compliance with the HKMA. Additionally, the HKMA emphasized that tokenized products not regulated under the Securities and Futures Ordinance are subject to prevailing supervisory requirements and consumer protection measures, reflecting similar terms, features, and risks as their underlying products.
UBS' Hong Kong subsidiary and crypto exchange OSL collaborated on the tokenization of warrants on Ethereum, with Xiaomi Corporation, one of the largest consumer electronic manufacturers in China, as the underlying stock. The tokenized product was subsequently sold on the OSL Exchange, marking a significant step in simulating the entire product lifecycle of an equity-linked structured product token.
BitGo, a crypto financial services company, has acquired Brassica, a firm specializing in investment infrastructure for alternative assets, to revitalize the stagnant tokenization space. Brassica provides back-end infrastructure services for private securities and alternative investments, aiming to bridge the gap between traditional finance and digital assets. BitGo's CEO Mike Belshe aims to digitize the alternative asset industry by supporting both traditional private securities and blockchain-based assets, envisioning infrastructure that enables alternative assets to transact at scale similarly to public equities, according to Brassica CEO Youngro Lee.
The Swiss City of Saint Gallen announced it plans to utilize the SIX Digital Exchange (SDX) to issue a CHF 100 million, three-year digital bond, becoming the fourth municipality to do so in the past three months. These bond issuances coincide with wholesale central bank digital currency (CBDC) trials conducted by SDX, facilitating settlement using the CBDC issued by the Swiss National Bank. Lead managers for the St. Gallen issuance include Basler Kantonalbank, UBS, and J. Safra Sarasin, with all bonds listed on SDX denominated in Swiss Francs and issued under Swiss law, although FINMA's approval for euro-denominated bonds and settlement with tokenized euros opens up further possibilities for SDX.
Finoa, a regulated German cryptocurrency custodian, announced it is partnering with Centrifuge to provide clients access to RWA. The initial RWA token will originate from Centrifuge's Anemoy fund, consisting of short-term U.S. Treasury bills regulated in the British Virgin Islands, and will be accessible to Finoa's 300-plus institutional customers.

Stablecoins: Feb. 2024 Milestones & Developments

Fig. 8: Stablecoin Total Market Capitalization

The stablecoin total market capitalization ended Feb. up a respectable +4.4% at $149.7B, a 14-month high, in what remains a five-month-long uptrend. The relentless climb is not only indicative of the bulls having reclaimed the broader cryptoasset market. Still, it is supportive of the notion that stablecoin adoption has started to march back up towards levels not seen since 2022. Not only that, but the climb higher is also reflective of the next wave of innovation being here.

Fig. 9: Top Stablecoin Market Capitalizations

The rise in the market capitalization of all stablecoins can largely be attributed to Tether's USDT stablecoin and Circle’s USDC stablecoin - which saw their market caps expand by more than $3B and $2.2B, respectively. While other major stablecoins saw modest growth month-over-month, the most notable behind USDT and USDC was Ethena’s USDe stable, an Ethereum-based “synthetic dollar” that aims to maintain its $1 peg by a delta-neutral strategy to ensure stability and currently offers an APY in excess of +25%. The remarkable outperformance of USDT comes off the back of news that Tether notched $2.85B in profits in Q4 2023. Not only that, but USDT and USDC's latest rise is yet another indicator of unabated stablecoin adoption that we expect to persist alongside the rise of the next-gen stablecoins.

Fig. 10: Change in Stablecoin Supply by Chain

With Ethereum being the dominant blockchain by total stablecoins issued, it’s of little surprise that it was by far and away Feb.’s leader in terms of change in stablecoin supply by chain. Advancing more than $3B to roughly $74B, Ethereum remains the juggernaut of the stablecoin sector. However, Tron isn’t far behind Ethereum after having added an additional $900M in stablecoins and finishing the month at more than $52B in stablecoins issued. Though it should be noted that Circle announced last month that USDC will no longer be supported on Tron given the company's risk management framework, which leads some to think that other stablecoin issuers might follow suit, including Tether. But should Tron continue to see stablecoin issuers migrating away from the chain, it stands to reason that it'll be quite some time before Binance Smart Chain flips Tron, as the third largest chain by stablecoins issued supports a relatively menial $4.6B worth of stablecoins.

Fig. 11: Stablecoin Daily Active Addresses (30D MA)

Although several data points and developments indicate that stablecoin adoption and innovation ramped up in Feb., when looking at the 30-day moving average of stablecoin active addresses, one will see that the number of addresses sending and/or receiving stablecoins retreated lower for a second month in a row. The drop can be seen as momentum slowing modestly despite animal spirits being high or what could be considered a leading indicator for the broader market.

Notable Stablecoin Developments:

Per the latest request for startups (RFS) released in Feb., Y Combinator added stablecoin finance as a category in its list of areas for potential investment. The RFS tradition, dating back to 2009, outlines YC's investment interests and aims to guide startups in aligning their projects with YC's focus areas. Brad Flora, a Group Partner at YC, expressed interest in funding teams developing products and platforms related to stablecoins, citing the growing adoption of stablecoins by major players in TradFi, like PayPal and major banks.
It was reported that Fed Chair Powell expressed support for the imminent bipartisan agreement on stablecoin legislation in a closed-door meeting with House Democrats from the Financial Services Committee, emphasizing the necessity of a regulatory framework for stablecoins. Powell also addressed concerns about the potential issuance of a central bank digital currency (CBDC), stating that Congress would need to authorize it.
Tether reported a record-breaking $2.85B profit in 4Q2023, roughly $1B of which stemmed from interest earned on the company's vast U.S. Treasury and other investments. The latest attestation revealed $97B in assets to cover $91.6B in liabilities, leaving $5.4B in excess reserves backing Tether's stablecoins.
Senator Cynthia Lummis (R-Wyo.) stated that negotiations for long-awaited U.S. stablecoin legislation are intricate, with discussions occurring daily between Democrats and Republicans, as well as between the Senate and the House of Representatives. In an interview with CoinDesk, Lummis expressed optimism about the legislation's prospects for success this year, particularly the stablecoin component.
According to Economic Secretary to the Treasury Bim Afolami, it was revealed that the United Kingdom aims to enact new laws regulating stablecoins and crypto staking within six months; at a Coinbase-hosted crypto event in London, Afolami emphasized the government's determination to expedite the legislative process, although specific details regarding the regulation's content remain undisclosed.
Federal Reserve Governor Christopher Waller suggests that the dominance of U.S. dollar-denominated stablecoins in decentralized finance (DeFi) may reinforce the dollar's status as the global reserve currency. Highlighting that about 99% of the stablecoin market capitalization is tied to the dollar, Waller remarks at a conference that, despite speculations about cryptocurrencies like Bitcoin replacing the dollar, the prevalent use of dollar-linked stablecoins in DeFi trades likely ensures the continued prominence of the dollar in global finance.
Spanish fintech firm Monei has initiated trials for a euro-backed stablecoin, EURM, overseen by the Bank of Spain, as part of a regulatory sandbox project starting in Jan. 2024. The trial involves a select group of individual users conducting transactions to test the stablecoin's functionality, with each EURM being fully backed by euros held at Spanish banks like BBVA and Caixabank.

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