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

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

Staying true to the trend, October (or "Uptober" as some were calling it) proved to be a bullish month for crypto... ESPECIALLY for RWA & stablecoins.

November 02, 2023

Crypto Overview: What Happened Last Month?

Lo and behold, October 2023 stayed true to the trend of historically being one of crypto’s best-performing months. Last October, or as some have been calling it, “Uptober,” was yet another promising month for the industry as a whole. A handful of notable bullish industry-wide developments emerged that further support the notion that the bears have lost control and long-term bullish tailwinds are starting to materialize. Such is particularly evident when looking at the monthly performance of the top 10 largest cryptoassets by market cap; the average and median return amongst the bunch was a whopping +22.1% and +12.5%, respectively. Although bitcoin (BTC) largely led the pack, Solana (SOL) and Chainlink (LINK) were the outliers, with a whopping +83% and +39% return for the month, respectively.

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

While October initially looked as though it was destined to fail to its promise of historically being one of the industry’s best-performing months, the second half of the month ended up being a complete and utter about-face. The rip higher can largely be explained by a relatively illiquid market environment that was pushed higher after CoinTelegraph incorrectly reported that the SEC had approved a BTC spot ETF, a general “flight to quality” (as stated by BlackRock CEO Larry Fink), and several signs suggesting that a spot BTC ETF approval from the SEC is right around the corner, such as market participants discovering that Blackrock spot BTC ETF was listed on the Depository Trust and Clearing Corporation’s (DTCC) website - which subsequently drove inflows of capital into BTC, ETH, and the broader market. When all was said and done, the broader market ended October up a staggering +19.3%, the best monthly performance since January 2023, and more than $1.3B in shorts liquidated.

Market Moving Events:

October 16, 2023: CoinTelegraph falsely reports that the SEC approved Blackrock’s spot BTC ETF.
October 17, 2023: Blackrock’s CEO Larry Fink says BTC’s latest rally is “about a flight to quality, with all the issues around the Israeli war now, global terrorism.”
October 23, 2023: Market participants discover that Blackrock’s iShares Spot BTC ETF is listed on the DTCC’s website.
October 24, 2023: News breaks that iShares BTC ETF has been listed on DTCC website since August 2023.
October 24, 2023: Blackrock’s iShares BTC ETF is no longer listed on DTCC’s website.
October 24, 2023: After disappearing, Blackrock’s iShares BTC ETF is listed back on DTCC’s website.
October 25, 2023: Ark’s spot BTC ETF is listed on DTCC’s website.
October 25, 2023: Insider claims that the DTCC’s brief delisting of Blackrock's iShares BTC Trust from its so-called eligibility list was intentional "to perform additional research because it was receiving so much attention."

Although the broader cryptoasset market performed relatively well last month, not all industry segments experienced the same bullish developments as others. Said differently, October 2023 was an especially head-turning month (yet again) for the broader real world assets (RWA)/tokenization sector, as evidenced by a number of new institutional players coming to market, key data points, and our RWA Index’s monthly performance. Similarly, the stablecoin sector saw key industry developments that further prove that stablecoins remain in their early innings of changing the cryptoasset landscape and largely disrupting the world. That said, next, we will cover the most significant milestones and the most notable developments of October 2023 for RWA and stablecoins.

RWA: October 2023 Milestones & Developments

Fig. 2: RWA TVL

In what remains RWA’s biggest year, the sector’s total value locked (TVL) persisted to a new high of $2.2B, marking a +2% increase since September 2023 and a near +80% jump since the start of the year. The increase in RWA TVL coincided with the number of tokenized products on Ethereum, Avalanche, Base, Optimism, Arbitrum, Polygon, and Gnosis increasing +2% month-over-month to yet another all-time high of 82, or a +100% increase year-to-date.

Fig. 3: RWA TVL by Category

The increase in RWA TVL in October can largely be attributed to a +7.3% (+$67M) and +3.3% (+$12M) increase in RWA falling under the Commodities and Asset-Based Finance verticals, respectively. The aforementioned increases more than offset a -12% (-$15M) decline in tokenized Real Estate TVL, which can be attributed to an outflow of assets from the Tangible platform due to their real estate-backed USDR stablecoin depegging.

Fig. 4: RWA by Blockchain

When breaking down tokenized assets by blockchain, one will find that October 2023 brought no change in rankings - as Ethereum remains the unequivocal go-to blockchain with more than $1.7B in assets tokenized on-chain. However, there were some notable changes in absolute and relative dollar terms; Ethereum’s TVL rose by +$71M, Solana’s TVL jumped +300% MoM, and the launch of Hashnote put Canto on the board with more than $11M in TVL.

Fig. 5: RWA Protocol TVL Change (MoM)

At an individual protocol level, Maple Finance (+$30M), Centrifuge (+$10M), and Franklin Templeton (+$6M) were the month’s outperformers in terms of month-over-month TVL change. Nearly +40% of Maple Finance’s change in TVL was fueled by an influx of capital into their Solana-based product offering, which Maple Finance announced a return to in late August 2023 after leaving the Layer-1 blockchain in December 2022. The month’s underperformers were Ondo Finance and Tangible, which experienced a net outflow of -$11M and -$18M, respectively.

Fig. 6: RWA-to-DeFi TVL Ratio vs. Crypto-TradFi Risk-Free Yield Spread

Despite several positive developments taking place last month and RWA TVL rising +2% month-over-month, a rebound in DeFi TVL caused the Fortunafi RWA-to-DeFi TVL Ratio to close October lower for the second consecutive month; the ratio fell from a reading of 0.0312x to 0.0305x. Similarly, a renewed taste of risk drove USDC lending rates on the largest DeFi protocols to a multi-month high. Accordingly, Fortunafi’s Crypto-TradFi Risk-Free Yield Spread, or the difference between the U.S. 10-Year Treasury and the average USDC supply rate on Aave and Compound, jumped to 0.12% as lending rates surpassed that of the 10-Year U.S. treasury.

Fig. 7: Number of RWA Token Holders

The number of RWA token holders of BST, CFG, FACTr, GFI, MPL, ONDO, RIO, TRADE, TRU, and wCFG (a proxy for the broader RWA sector) surpassed 93,000 last month, representing a +4% increase from September 2023 and the largest month-over-month change in 6 months. Assuming RWA token adoption continues to persist at the current pace, the number of RWA token holders will surpass 100,000, yet another soon-to-be milestone for the industry and further proof that RWA adoption is off to the races.

Fig. 8: October 2023 Performance

The growing optimism surrounding RWA can be exemplified by Fortunafi’s RWA Index performance last month, which posted a head-turning +20.4% return. Although the index outperformed the Fortunafi DeFi Index (+0.5%) and ETH (+8.7%) by a long shot, it underperformed BTC’s jaw-dropping +28.6% gain.
Crypto custody tech firm Fireblocks announced a $10M acquisition of tokenization company BlockFold to cater to major financial institutions. Per a press release, the acquisition will enhance Fireblocks' tokenization abilities, enabling conventional assets to be transacted on the blockchain.
The decentralized autonomous organization (DAO) behind memecoin Floki Inu announced "TokenFi," a platform anchored by its native digital asset, TOKEN, that empowers users to launch cryptoassets without writing coding. Users can subsequently secure funding from the Floki community, link up with exchanges and liquidity providers, and issue tokens associated with real world assets that aren't classified as securities. The protocol will launch initially on five leading Ethereum, BNB Chain, Base, and Arbitrum networks but will expand to others in the coming months.
U.S.-centric clearing firm Depository Trust & Clearing Corp. (DTCC) acquired institutional blockchain solutions provider Securrency. Frank La Salla, President, CEO and Director, DTCC, said, "Securrency is an important strategic acquisition that will give us the technology to drive market-wide transformation by enabling end-to-end digital lifecycle processing for tokenized assets, digital currencies and other financial instruments."
Jenny Johnson, the CEO of Franklin Templeton, said in a CNBC interview that tokenization is akin to “securitization done on steroids” when discussing the potential of blockchain technology.
Following an August 2023 deep dive report on tokenization (the biggest takeaways can be found here), McKinsey published a tokenization primer on tokenization on October 6, 2023, to help readers better understand the use of tokenization and its future potential. The report also reassures readers that the industry is here for good despite crypto’s meltdown in 2022.
European clearinghouse Euroclear launched its tokenized securities issuance service on October 24, 2023, by first facilitating the World Bank's digital bond issuance of €100M ($106M). The service, Digital Securities Issuance (D-SI), will support the issuance, distribution, and settlement of digital assets on distributed ledgers. The bond, listed on the Luxembourg Stock Exchange, will be used by the World Bank Group's International Bank for Reconstruction and Development (IBRD) to finance sustainable development initiatives.
Bitfinex Securities, a platform launched by Bitfinex crypto exchange focused on listing real-world tokenized securities, announced that it plans to launch its inaugural tokenized bond, ALT2611, in November 2023. Denominated in Tether and issued by microfinance leader Mikro Kapital, the 36-month bond with a 10% coupon will encompass risks from microfinance entities, small financial firms, and banks across Italy, Romania, Moldova, and other Silk Road-associated developing countries.
At the start of the month, Swiss bank UBS's asset management division introduced a tokenized Variable Capital Company (VCC) fund on Ethereum. Launched using UBS's own tokenization service, "UBS Tokenized,” the fund enables UBS Asset Management to handle tasks like fund subscriptions and redemptions and is structured as an Ethereum smart contract.
The United States Office of the Comptroller of the Currency (OCC) said it plans to host a symposium on tokenization in February 2024. In what was a shift in tone on tokenization, acting Comptroller Michael Hsu said he sees tokenization as a solution to real-world settlement issues, "Crypto remains driven by the promise of speculative gains, continues to be marked by rampant scams, fraud, and hacks, and struggles to comply with anti-money laundering rules. By contrast, tokenization is driven by solving real-world settlement problems and can easily be developed in a safe and sound manner and fully compliant with anti-money laundering rules.”
Fortunafi’s CEO and founder was interviewed in Luxembourg For Finance’s livestream on RWA tokenization, where he discussed alongside Tokeny CEO Luc Falempin why the industry is here for good, why tokenization is finally gaining traction, and how the U.S. is keeping up with the industry’s adoption despite no new regulatory frameworks introduced by lawmakers and regulators.

Stablecoins: October 2023 Milestones & Developments

Fig. 9: Stablecoin Total Market Capitalization

For the first time in 14 months, the total stablecoin market capitalization finished the month higher at $134.2B, a +0.4% increase from $133.7B at the start of the month. The gain for the month is further supportive of the notion that capital is now flowing back into the industry after having exited for the better part of a year. The month’s gain comes in the face of further BUSD redemptions, which began in 1Q2023 after Paxos and Binance announced plans to no longer support the stablecoin after the SEC issued a wells notice to Paxos, alleging that BUSD is unregistered security.

Fig. 10: Stablecoin Market Capitalizations

When looking at the largest stablecoins by market cap, one will find that the rankings amongst the seven largest stablecoins were unchanged in October. However, on an individual level, there were a few notable changes month-over-month. Most notably, Tether’s USDT stablecoin rose by more than $1.3B last month, while Circle’s USDC, Tether’s largest rival, saw more than -$100M in redemptions. As large of redemption as USDC might have experienced, its 9-figure outflow paled in comparison to BUSD’s -$200M in redemptions. Other notable declines month-over-month included DAI and TUSD, which saw their market cap fall by -$54M and -$92M, respectively.

Fig. 11: Cumulative Stablecoin Transaction Volume

Cumulative stablecoin transaction volume surpassed $19T in October, a major milestone and yet further indication that stablecoins remain a highly useful vehicle in transferring value both inside and outside of the cryptoasset ecosystem. As of month-end, stablecoins have been used to transfer more than $4T in value since the start of the year and are on track to surpass $20T by January 2024.

Fig. 12: PYUSD Total Supply vs. Cumulative Transactions

More than 2-months after launching, PayPal’s PYUSD stablecoin started to show signs of demand in October. The total supply of PYUSD and cumulative PYUSD transactions rose by +57% and +90%, respectively, in October. Notwithstanding the abrupt acceleration in PYUSD supply and transaction activity, both metrics paled in comparison to the largest stablecoins by market cap. Furthermore, PYUSD remains relatively concentrated, with the top 100 holders owning 99.95% of its current supply. PYUSD's largest holders include:
- #1: Crypto.com - 98.21M PYUSD
- #2: Paxos - 28.8M PYUSD
- #3: Paxos - 4.83M PYUSD
- #4: Kraken - 1.5M PYUSD
- #5: Curve Finance - 998,658 PYUSD
- #6: Uniswap - 966,936 PYUSD

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

The 30-day moving average of daily active addresses for stablecoins began to trend higher in mid-October following a false report from CoinTelegraph that the SEC approved the first spot BTC ETF. Further bullish momentum in the second half of the month coincided with stablecoin activity for USDT, USDC, and DAI trending higher and hitting levels not seen in months.
On October 24, 2023, SC Ventures of Standard Chartered Bank and Deutsche Bank completed the first stablecoin swap on the Universal Digital Payments Network (UDPN), a blockchain platform for government-regulated digital currencies. The proof-of-concept involved a real-time on-chain swap of USDC and EURS stablecoins to Deutsche Bank wallets. Thorsten Neumann, CTO of SC Ventures, stated in a press release, “This initiative brings the industry together to identify opportunities to unlock economic value in newly emerging digital currencies… Financial service providers and fintechs are well-positioned to experiment with stablecoins and CBDC use-cases that benefit from the finality of on-chain transactions.”
In early October, real estate-backed stablecoin USDR dropped to $0.53 amid a surge in DAI redemptions, leaving the stablecoin 60% backed by real estate; USDR is issued by the Tangible protocol, a decentralized finance project focused on tokenizing real-world assets. Despite USDR's potentially fatal depegging, the project's developers are committed to addressing the issue, emphasizing it's a temporary liquidity problem and noting that USDR's underlying assets exceed the stablecoin's entire market cap. The depegging marks yet another stablecoin this year to lose its peg and epitomizes the challenges in maintaining a $1 peg with illiquid investments (like real estate), the importance of preserving user confidence, and the drawbacks of promising holders' relatively lucrative yields.
In a report published by Chainalaysis on October 23, 2023, the blockchain analytics firm noted that despite the U.S. and Canada driving 24.4% of global transaction activity over the past year, stablecoin usage fell from 70.3% to 48.8% of the region's on-chain transaction volume over the same period of time. Furthermore, the report noted an ongoing shift in stablecoin activity from U.S.-licensed services, with over half of all traded stablecoins now directed towards non-U.S. licensed exchanges. Chainalaysis explained that while regulators have a vested interest in proper regulation, stablecoin activity continues to further flow through non-U.S. entities, "U.S. regulators have a strong interest in exercising some regulatory authority over stablecoins, given the central role of USD-denominated reserves to these assets… Stablecoin regulation also gives regulators a chance to help ensure that the U.S. is home to the cryptocurrency businesses that will play a big role in expanding how the U.S. dollar is used globally as the digital economy continues to grow. However, data suggests that more and more stablecoin activity is occurring through entities that aren’t licensed in the United States."
Circle announced that it will implement its cross-chain transfer protocol (CCTP) with Noble, a Cosmos-based token, marking the first integration of CCTP with a non-Ethereum Virtual Machine chain. The move allows simpler USDC transfers, demonstrated by moving funds from Avalanche to Noble. It will allow users with USDC on EVM chains to transfer tokens to IBC-integrated Cosmos chains without a bridge. Later in the month, Circle announced that CCTP is available on devnet for Solana, and “once CCTP lands on Solana mainnet later this year, developers & users can permissionlessly move USDC to Solana from Ethereum and many other networks.”
In what appears to be a bid to bring greater transparency to the stablecoin market and gain further market share, Tether's incoming CEO, Paolo Ardoino, revealed plans to publish real-time reserves reports by next year. While Tether already offers daily reserves reports, there's no set deadline for real-time reporting. Ardoino's future objectives for Tether involve enhancing tech investments, engaging with regulators, and delving into renewable energy.

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_{Disclaimer: The information contained herein is general information, intended for educational purposes only, and is not intended to constitute legal, tax, accounting, or investment advice. Information, opinions, and views are solely of Fortunafi and none of the information contained should be used as the basis for investment decisions. To ensure suitability, contact a licensed investment professional when making any investment decisions and do your own research.}