July 2023: RWA & Stablecoin Recap

If July reminded the market of anything, it's that sentiment can flip at the drop of a hat...

August 01, 2023

Crypto Overview: What Happened Last Month?

If July 2023 reminded market participants of anything, it's that sentiment can flip at the drop of a hat. That is to say, while July started on a rather uneventful and quiet note, sentiment flipped overwhelmingly bullish mid-month and coincided with the broader cryptoasset market hitting a year-to-date high. The surge in bullish optimism followed news that a U.S. judge ruled 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.

Said differently, the crypto industry celebrated in joy over XRP not being deemed as a security, contrary to what the SEC had claimed. But while many market participants turned to the news to abruptly proclaim that cryptoassets as a whole are not financial securities in the U.S., it should be noted that Ripple Lab's sale of XRP on digital asset exchanges did not constitute an unregistered offer and sale of investment contracts primarily because an initial unregistered offering and sale to institutional investors had already occurred.

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

Notwithstanding the nuances of the XRP ruling, the news was undoubtedly bullish for the industry, as it marks the start of what many hope to be more fair treatment and guidance for digital assets. Accordingly, many of the losses that the largest digital assets experienced in June 2023 were reclaimed in July following the judge's ruling. Of the top 10 largest cryptoassets by market capitalization, the month's top performers were XRP (+48.7%), SOL (+26.9%), DOGE (+17.7%), ADA (+7.3%), and MATIC (+4.3%). Excluding DOGE, the outperformance of XRP, SOL, ADA, and MATIC came as no surprise - as the XRP ruling was inherently bullish for XRP, but especially for SOL, ADA, and MATIC since all of which were cited by the SEC in their lawsuits against Coinbase and Binance in June 2023 for being securities.

But while crypto markets saw a big bounce in mid-July, signs that the crypto market is still slowly, but surely, transitioning to a bull market in the dog days of summer became evident as the second half of the month brought about a decline in trading volume and volatility. Except for a specific group of large-cap altcoins, pockets of DeFi & Real World Assets (RWA), and other emerging cryptoasset sectors (such as Telegram bots), the back half of July ended with most cryptoassets slumping and backtesting prior levels of resistance. Nonetheless, that hadn't stopped many of crypto's most promising sectors from innovating and pushing ahead.

RWA: July 2023 Milestones & Developments

To little surprise, July was a continuation of last June; for much of the month, all eyes were concentrated on the RWA sector, as evidenced by several key developments, indicators hitting head-turning levels, and murmurs amongst market participants stating that RWA could very well be one of, if not the only sector that helps catapult the cryptoasset industry back into a bull market. The championing of RWA is due to many of the industry’s smartest minds publicly supporting the sector’s usefulness, appeal, and product market fit. Some of the more notable developments include the following:

Fig. 2: RWA TVL vs. Tokenized Treasuries TVL

RWA total value locked (TVL) climbed to a near 1-year high of $1.2B amid a surge in tokenized treasuries TVL, which hit an all-time high of $626M and comprised nearly 53% of all RWA TVL as of month-end. Franklin Templeton made up the lion’s share of tokenized treasuries TVL with $295M worth of tokenized securities across the Ethereum and Stellar blockchain.

Fig. 3: RWA Protocol TVL Change (MoM)

Matrixdock, Centrifuge, and Ondo Finance led the rise in RWA TVL, gaining +$21.3M, $16.2M, and +$10.7M, respectively, in July 2023. TrueFi, Clearpool, and Maple Finance were the underperformers, with their TVL declining -$1M, -$911K, and -$633K, respectively, month-over-month.

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

Fortunafi’s RWA-to-DeFi TVL ratio, which measures RWA TVL relative to DeFi TVL, roared to a near 1-year high of 0.0167x towards month-end as newfound interest in RWA outpaced DeFi. Meanwhile, the Crypto-TradFi Risk-Free Yield Spread was effectively unchanged for the bulk of the month as the 10-year U.S. Treasury yield continued to outpace the yields offered on USDC on prominent lending markets (such as Compound and Aave) following the U.S. Federal Reserve hiking interest rates by +25 bps. Be that as it may, on July 30, 2023, Curve Finance, a stablecoin-focused decentralized exchange, fell victim to an exploit that resulted in tens of millions of dollars worth of cryptoassets drained, $100M worth of cryptoassets at risk, and Curve’s founder Michael Egorov at risk of a massive liquidation on Aave V2 that could send shockwaves across all of DeFi. As a result, borrowing and lending rates on Aave V2 exploded - including USDC supply rates as high as 50% at one point on July 31, 2023. Accordingly, the yield spread surging into month-end reflects the ripple effect of a sector-wide blackswan event more than a fundamental change in cryptoasset yields.

Fig. 5: RWA Token Holders

The number of RWA token holders climbed to an all-time high of 87,957, a +3.2% increase month-over-month and a +45% increase year-to-date.

.@_Fortunafi to bring RWAs to Canto
— Canto Public (@CantoPublic)
2:29 PM • Jul 18, 2023

Canto, an emerging Layer-1 blockchain on the Cosmos hub, announced that Fortunafi will deploy native Treasury Bills on Canto. Using Canto’s Free Public Infrastructure (FPI), Fortunafi will bring Real World Assets (RWAs) onchain, enabling Canto's over-collateralized $NOTE stablecoin to be backed by native U.S. Treasuries.
Ondo Finance announced the expansion of its offerings on Layer-2 blockchain Polygon. Ondo Finance’s new token represents a tokenized version of BlackRock's short-term U.S. government bond exchange-traded fund (ETF). The move comes as part of a "strategic alliance" between Ondo Finance and Polygon, aiming to enhance accessibility and efficiency for investors.

Today, the Avalanche Foundation introduces Avalanche Vista, a $50M initiative to pioneer tokenization on #Avalanche
Tokenization is poised to be one of the most impactful blockchain innovations of the next decade, and Avalanche is uniquely equipped to power these systems.
— Avalanche 🔺 (@avax)
2:15 PM • Jul 25, 2023

To showcase tokenization's value and bring tokenized investment products onchain, the Avalanche Foundation launched a $50M fund to acquire RWA minted on Avalanche.
Matrixdock integrated Chainlink's Proof of Reserve (PoR) to enhance the transparency of its Tokenized Treasury Bill offering. This integration allows the platform's flagship Short-Term Treasury Bill token (STBT) to expose stablecoin holders to U.S. Treasury securities and reverse repurchase agreements while enabling stakeholders to verify that U.S. Treasury securities sufficiently back its tokenized offerings.
The TRON ecosystem introduced its first Real World Asset product, stUSDT, via the decentralized platform JustLend. TRON founder and Huobi global advisory board member Justin Sun said he envisions it becoming the crypto equivalent of Alibaba's money market fund product, Yu'e Bao, serving as a bridge between traditional markets and blockchain ecosystems and providing additional options for crypto users.
Although hesitant to directly list cryptoassets on its exchange, the CIO of the Australian Securities Exchange (ASX) said in July that the exchange is exploring the possibility of listing tokenized real-world assets backed by tangible items, like gold. As of July 2023, ASX is the 16th largest stock exchange in the world by market capitalization.
The Bank of Italy's Milano Hub innovation center said it’s endorsing a Cetif Advisory-led project, in collaboration with Polygon Labs, Fireblocks, and others, to foster a secure environment for institutional DeFi via a security token ecosystem. The initiative, which will extend the analysis of security tokens on secondary markets, underscores the importance of transparency and safety in DeFi operations for supervised entities, albeit without any "commercialization purpose," according to Cetif Advisory's General Manager, Imanuel Baharier.
Chile's Central Securities Depository (DCV) said that it plans to pioneer asset tokenization by upgrading its systems, integrating Nasdaq's digital assets capability into its already implemented Nasdaq's CSD platform. The upgrade will leverage smart contracts to automate lifecycle events, like interest payments on bonds issued as digital securities, and will facilitate the issuance, registration, and settlement of digital tokenized securities.

Fig. 6: RWA Yields vs. U.S. 10-Year Treasury

Unlike June, there were several notable changes in RWA-related yields in July. Into quarter-end, the 30-day moving average of Goldfinch’s yield soared to an all-time high of nearly 21% amid a jump in protocol gains (interest less writedowns). Meanwhile, the average lending yield on DAI and USDC on key DeFi platforms, such as Compound and Aave, rose +150 bps and an underwhelming +5 bps, respectively, before exploding into month-end following the previously mentioned Curve Finance exploit that took place on July 30, 2023. Prior to said exploit, the jump in DAI’s yield was driven by the Maker community unanimously voting to increase the Dai Stability Rate (DSR) from 1% to 3.49% in June 2023, while the menial gain in USDC yield was attributed to crypto lending markets slowly catching up with the risk-free rate (10 Year U.S. Treasury), which climbed close to +20 bps.

TradFi and crypto institutions produced the following RWA-related research reports in July 2023:

Bank of America: Beyond Crypto: Tokenization, a 100-page report detailing the future and potential of tokenization. Check out our recap thread to learn about the 15 biggest takeaways.
Binance Research: Real World Assets: State of the Market, a 25-page report that dives into the rise of RWA, the latest surge in tokenized treasuries, and the tokenization market opportunity.
OKX Ventures: “Embrace All Markets: How Does Real-World Assets (RWA) Help DeFi Swallow the World?,” a 30-page report discussing the convergence and advancement of DeFi and TradFi, emphasizing the obstacles and prospects associated with incorporating RWA into DeFi, and an in-depth analysis of various RWA projects, including Fortunafi.
RWA.xyz: ”An Allocator's Guide to Tokenized Treasuries,” a 66-page report diving into 11 tokenized treasury products offered by companies ranging from $1T+ asset managers like Franklin Templeton, to young upstarts like OpenEden.

Fig. 7: RWA, DeFi, BTC, & ETH Monthly Performance

Fortunafi’s RWA Index (+5.6%) outperformed ETH (-3.7%) and BTC (-3.8%) last month but failed to outperform Fortunafi’s DeFi Index (+6.3%). While the RWA Index’s outperform relative to ETH and BTC can largely be explained by market participants developing an increasingly greater taste for RWA-related tokens amid growing interest in the sector and modest regulatory clarity after the U.S. District Court of the Southern District of New York deemed that XRP is not a security in mid-July, its underperformance relative to Fortunafi’s DeFi Index can be explained by a select number of DeFi tokens outperforming handsomely last month. For instance, Maker (MKR), Compound (COMP), and Uniswap (UNI) surged +46%, +27%, and +16%, respectively, in what was an unexpected rebound in DeFi 1.0 tokens.

Stablecoins: July 2023 Milestones & Developments

Last July ended up being yet another quiet month for the stablecoin industry. Although the level of attention seen earlier in the year following a series of bank runs and enforcement actions that led to several depeggings has yet to be surpassed, innovation in the stablecoin sector remains alive. July proved that the U.S. is starting to head in the right direction of stablecoin regulation, which many believe will ultimately be a massive tailwind for the crypto industry. But don’t just take our word for it; here’s what went down last month and what you should know:

Fig. 8: Stablecoin Total Market Capitalization

The stablecoin total market capitalization continued trending lower in what has been a 14-month-long downtrend since hitting an all-time high of $168B in May 2022. The drop can largely be attributed to further expected BUSD redemptions and unexpected USDC redemptions; collectively, the two stablecoins shed more than $1.3B in market capitalization and can explain 80% of the drop in stablecoin total market capitalization month-over-month.

Fig. 9: Stablecoin Market Capitalizations

After surpassing BUSD in June 2023 and becoming the 3rd largest stablecoin by market capitalization, DAI further distanced itself from BUSD despite facing redemptions of its own. As of month-end, the spread between DAI and BUSD widened to more than $500M, yet narrowed to $1.2B with TUSD from $1.3B at the start of the month. The relentless rebound in TUSD since January 1, 2023, can be explained by support from Binance, the world’s largest crypto exchange, after the issuer behind the exchange’s BUSD stablecoin, Paxos, was forced by regulators to cease issuance and support for the digital asset.

1/🗣️#TrueUSD Announcement:
In December 2020, TrueCoin, LLC (a subsidiary of Archblock, Inc.) transferred the business ownership of TrueUSD (“TUSD”) to Techteryx, an Asia-based consortium.
— TrueUSD (@tusdio)
4:42 AM • Jul 14, 2023

TrueUSD took to Twitter to announce that Techteryx, an Asian consortium, will fully manage all offshore operations and services linked to TrueUSD. The shift in TrueUSD's ownership and management started in December 2020 when TrueCoin, LLC, a branch of Archblock, Inc., handed over the business rights to Techteryx. Despite acquiring the rights to TrueUSD from stablecoin operator Archblock, the British Virgin Islands-based firm continued to rely on Archblock for project management. The move comes a few weeks after TrustToken decided to temporarily halt mints and redemptions of TUSD after its banking partner, Prime Trust, received a cease-and-desist order from the Financial Institutions Division of the Nevada Department of Business and Industry.
The MakerDAO community successfully passed a proposal to introduce the Enhanced DAI Savings Rate (EDSR), which may temporarily increase the interest rate DAI holders can earn to as high as 8%, to drive protocol growth. In a governance post, Rune Christenson, the founder of Maker, said, “We have not yet managed to generate sustainable growth in new demand and capital inflows… The EDSR helps fix this by ensuring that Dai holders that are pioneering the adoption of DSR get a more fair amount of value from the increased returns generated by the protocol.”

Fig. 10: GHO Holders vs. Supply

Aave, a leading DeFi lending protocol, launched its GHO stablecoin on Ethereum, allowing users to mint the stablecoin against assets deposited into the protocol and offering a fixed interest rate of 1.5%. The move, backed by a near-unanimous governance proposal, aims to make borrowing more competitive, provide additional options for stablecoin users, and generate revenue for the Aave DAO, with all fees from GHO going to the DAO's treasury. As of month-end, there were nearly 300 GHO holders and close to 10M GHO in circulation.

Fig. 11: Stablecoin Daily Active Addresses

Stablecoin active addresses slipped lower in the first week of July following a rebound of activity in late June. Except for USDC, the number of active addresses for USDT, DAI, and BUSD trended lower as the month progressed, and market-wide volatility drifted lower. Much like June, the lack of activity in stablecoins, and across the market for that matter, is emblematic of the broader cryptoasset industry being in an “accumulation phase” where market participants are slowly, but surely, preparing for the next bull market.
Timothy Massad, the former chairman of the CFTC, said on CNBC that governments need to pay attention to the stablecoin ecosystem, stating that stablecoins serve as a vital link between the crypto and real-world economies. He expressed concern that regulators are overlooking the risks associated with stablecoins, dismissing them as a passing trend.
The U.S. House Financial Services Committee advanced a bill to create federal regulations for stablecoins. The bill, Clarity for Payment Stablecoins Act, seeks to have the U.S. Federal Reserve establish stablecoin issuance requirements while keeping state regulators' authority intact but faced opposition from some Democrats, including Representative Maxine Waters, who raised concerns about potential loopholes and commercial companies issuing their own money. However, after a 7-hour debate, select Democrats and all committee Republicans voted to advance the bill, passing in a 34-16 vote on Thursday, July 27, 2023.

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