ABCDE: From a VC Perspective, Discuss the Recent Changes in the RWA Space

Original Title: "Discussing Recent Changes in the RWA Track from a VC Perspective"

Original Author: ABCDE, PANews

Having covered the perspectives of the East and the West on the market last time, today, coinciding with YZi Labs' announcement of investing in the Plume Network RWA platform, I want to discuss the recent changes I have observed in the RWA track.

This matter needs to be broken down into four parts:

1. Whether RWA truly has an application scenario, or in other words, Product-Market Fit (PMF)

2. Which RWA assets are suitable for on-chain implementation and which are not

3. What were the past solutions, and what are the current solutions

4. The direction of the RWA track in recent months—have you noticed any changes?

Let's start with 1 - Whether RWA Truly Has an Application Scenario

Or PMF - (Here, first, let's exclude the stablecoin track of on-chain U.S. bonds; projects like Usual, MKR, etc., are considered to have already found PMF). Taking U.S. stocks on-chain as an example, this is one of the most contentious topics on Twitter. Many people think that putting U.S. stocks on-chain is unnecessary. Those who really want to trade U.S. stocks have their own channels, and any asset on-chain is more volatile than U.S. stocks, so there's no need to play stocks on-chain.

I have a different opinion on this. Personally, I believe there is significance in putting U.S. stocks on-chain.

1. In terms of channels—indeed, most big players above A8 and A9 use platforms like Futu, FirstTrade for securities, diversified investments in coins, stocks, gold, etc. However, I believe that most retail investors in the crypto community do not have U.S. stock accounts. On-chain U.S. stock trading can at least provide them with an easy way to access their purchases.

From another perspective, as the total market cap of stablecoins like USDT/USDC continues to grow, this is another way for the U.S. dollar to expand its dominance compared to traditional finance. If Crypto, through stablecoins, Payfi, and smart wallets with an experience similar to Alipay, really moves towards Mass Adoption one day, do you think Americans would be willing to have the whole world come in to buy U.S. stocks? Would people from most other countries prefer to go through various banks and brokerages for days to buy their own struggling stocks, or simply place orders like shopping on Taobao to invest in the seven sisters of the world's largest economy?

2. In terms of application scenarios, imagine this scenario: as a junior P, you recently made a quick $100k trading Mubarak, you know Tesla has recently taken a hit, presenting a good opportunity for a bargain purchase, and now you want to convert that $100k into Tesla stock.

Even if you have a US stock account, you need to first convert these 100,000 U tokens to fiat currency, send the fiat currency to the broker's account via bank transfer, and then start buying on the broker's platform. This whole process usually takes 3-5 business days. (In 2017, before I got into Bitcoin, I bought US stocks in Australia through FirstTrade. Just the Swift transfer took 4 to 5 days and incurred a hefty fee of several tens of dollars). If one day your Telstra stock goes up and you want to sell it to convert to BTC or U, you'll have to go through this process all over again. Imagine if stocks were on the chain, and you could instantly convert the U you earned from a meme to Tesla. The reduction in friction costs is not just a little bit, but a 10x or even 100x level of experience improvement.

Now, let's talk about 2 - Which RWA Assets are Suitable for On-chain

Similarly, assets like T-Bills that have already proven themselves are not up for discussion. As for other RWA assets, it actually depends on the specific target audience.

For the To C side, stocks are undoubtedly the most suitable. Most retail investors have probably never dealt with primary private equity. Even if you tokenize equity of a non-public company, few people would be able to understand, buy, and hold it. Similarly, assets like private credit collateral on platforms like Centrifuge, such as bridge loans in the real estate market and corporate accounts receivable financing, are not suitable for To C. For the vast majority of To C users, the only familiar asset would be stocks. In more To C scenarios, it should be a process of bringing an asset to users who previously had no channel to purchase it, a 0 to 1 process.

On the other hand, for the To B side, there are many more assets that can be tokenized. However, compared to the 0 to 1 progression for To C, To B is more of a 1 to 100 process of reducing friction. Just as primary private equity is already circulated among some institutions and high-net-worth individuals, bridge loan collaterals on Centrifuge could likely be borrowed from traditional banks. It's just that the current flow process is relatively cumbersome with higher friction. Placing these assets on the chain, like Payfi compared to Swift, can significantly enhance user experience and transaction speed.

Thinking back to last year, I discussed an RWA project where the parent company is a prominent US-based asset management firm. They plan to tokenize primary equity of clients on their asset management platform, such as Musk's SpaceX, and issue it in token form on their own trading platform. This way, the token can easily circulate and change hands, and settle all at once when SpaceX goes public. So, for To B, apart from the trading users limited to institutions and enterprises, the issuing entity is also relatively limited. Just like the example above, unless you already hold a significant amount of SpaceX's equity in your hands through asset management, you're simply an STO or RWA platform. If you want to attract SpaceX equity holders to issue tokens representing SpaceX equity on your platform, it involves various frictions such as resource collaboration, legal terms, and more.

There are still many in-between states that can be To C or To B, such as IP on-chain solutions like Story Protocol, or tokenizing things like royalties for a novel, box office revenue for a movie, or sales of a game. It feels like we are still in the early exploration stage where we need to try out one thing at a time to prove its viability. For example, tokenizing influence had FT fail while Kaito relatively succeeded. Tokenizing celebrity time, such as Time.Fun, gained popularity for a few days before disappearing... These things need to be approached gradually.

Next is 3 - What were the past solutions, and what are the current solutions?

Let's use the example of the US stock market - the past solutions were mainly focused on synthetic assets, represented by SNX, Terra's Mirror, and GNS.

From the current perspective, this path has been mostly debunked, as the three platforms mentioned above had already delisted synthetic US stock assets previously available. There are two main reasons for this. First, the community did not show much interest in holding stablecoins or native tokens (like SNX) that synthetically represent "fake assets." You can see the contrast in volume between BTC, WBTC, and SBTC on SNX to understand this mismatch. Synthetic assets, to be frank, don't provide as much peace of mind as WBTC-like "mapped assets." Second, in the past, the SEC was quick to investigate without needing a solid reason. While synthetic assets may be fake, the SEC's scrutiny is something platforms prefer to avoid. Thus, these platforms swiftly delisted the synthetic US stocks.

Now, with Trump in office and a new SEC chairman, regulatory oversight seems much better than in the previous years. For the new on-chain US stock market, two approaches have been observed.

One follows the traditional compliant Broker Dealer route - when users buy tokenized stocks on-chain, it triggers off-chain compliant brokers to perform equivalent operations in the US stock market. Fundamentally, it's similar to the order flow from Robinhood, where Citadel essentially "buys on behalf" in the stock market. The advantage is that the stocks you buy are "real" stocks, or at least backed 1:1 by this broker, somewhat like WBTC to BTC. However, the drawback is that trading times align with the stock market, so it cannot operate 24x7 like crypto. Additionally, trust in the broker or platform is essential, and selling triggers a Taxation Event, requiring US citizens to submit tax-related forms, while non-US citizens need to undergo KYC procedures, making it somewhat cumbersome.

The second approach is by Ondo Global Market, which, after reviewing their documentation, initially intended to follow the Broker Dealer route but later shifted to a stablecoin-like method. This approach permits their authorized issuers to directly issue tokenized stocks (similar to Tether issuing USDT or Circle issuing USDC). The advantage is greater flexibility, potentially overcoming the restrictions of US stock trading hours, settling through the issuer at a specific time. However, the downside is that it will likely cater mainly to non-US users, excluding US residents. Furthermore, there might be concerns about different issuers issuing the same stock with different CAs (similar to how USDC on different chains is not interoperable), but these specific details were not outlined in the documentation, as the product is slated for next year.

Finally, platforms like Plume that are RWA-based feel more like a Framework, encompassing KYC/AML, data storage/execution, consensus, ZKTLS verification, and more. In theory, this could allow partner institutions to issue various Tokenized RWA assets on this side, which brings us back to the previous topic of "which assets are suitable for on-chain," without going into further detail.

Lastly, let's talk about the trend of RWA in these past few months, have you noticed anything?

If you have been observant, you would realize that the RWA trend has actually picked up pace in the past two months. Here are a few "news" items I casually observed:

1. As mentioned above, the Ondo project plans to launch the Ondo Global Market by the end of this year or next year, an on-chain stock market. Additionally, Ondo has recently been closely associated with Trump's WLFI and has plans for collaboration.

2. Sui has recently been cozying up to WLFI.

3. Frax has actively embraced Cedefi and recently launched frxUSD in collaboration with BlackRock and Superstate.

4. Ethena today released a new product, Converge, which focuses on what they consider to be one of the two most important scenarios on the blockchain - Storage and settlement for stablecoins and tokenized assets.

5. AAVE plans to launch a new coin, Horizen, causing a stir in the community. Stani personally clarified, stating, "The Horizen plan aims to complement Aave's current missing RWA business sector, and this plan is expected to surpass Aave's current business line revenue in 5 years."

6. In February 2025, the Financial Services Commission of Korea released a statement planning to gradually allow corporate entities to engage in virtual asset transactions.

From my circle of friends in Korea, I was informed that Korea may be planning to restart the STO (formerly known as RWA in the last cycle) program. Consider this, allowing "corporate entities to transact virtual assets," this is definitely not for your company to speculate on coins; it is certainly aimed at tokenizing some real-world financial assets into "virtual assets" designed for circulation between companies.

7. YZi Labs officially announced today that they have invested in the recently trending Plume Network RWA platform.

This Momentum formed by these messages cannot be ignored. Therefore, my current personal viewpoint on the main track of the next Circle is PayFI+RWA+Web2.5-like Consumer APP. As for AI+Crypto, all I can say is that there is hope, and I am still discussing and observing. After I finish the next article "Some Notable Things on ETH and Solana," I will write a separate article on my recent thoughts on AI+Crypto as the fourth part to conclude this collection

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