Leading Cryptocurrency Exchange Says Links Between DeFi and TradFi Assets Will Be a Major Trend in 2023
The push to marry DeFi with real-world assets just got a big boost.
Coinbase, the #1 crypto exchange in the United States with a market capitalization of $7.5 billion, predicts that institutional entities will seek to use permissioned DeFi platforms and drive innovation in cryptocurrency tokenization. real world assets (RWA).
The forecast echoes DeFi stalwarts MakerDAO and Aave’s push to embrace the burgeoning on-chain market for bonds, real estate and other traditional assets.
In his Crypto Market Outlook for 2023 report released Tuesday, Coinbase said it expects to see more dApps adapt their platforms for “permissioned DeFi activity as regulated institutional entities seek to become more involved in this sector.”
“This could have compelling use cases for cross-border settlement and payments as well as innovations in real-world asset (RWA) tokenization,” the company said. “Permissioned DeFi would likely target different use cases and solve different problems (like undercollateralized credit) compared to permissionless DeFi.”
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Coinbase highlighted significant RWA projects already underway, including a partnership between MakerDAO and Societe Generalea major French bank, which issues AAA-rated French real estate loans as collateral to borrow up to 30 million DAI.
He also highlighted the project in which JPMorgan Chase, DBS Bank and SBI Digital Asset Holdings exchanged tokenized currencies and sovereign bonds on the Polygon network last month.
The Coinbase boards that established DeFi protocols may soon launch permissioned liquidity pools compliant with anti-money laundering or AML/KYC regulations, separate from permissionless liquidity pools used by non-institutional participants.
Aave, the leading DeFi money market by TVL, has launched its permissioned platform, Bow, in January, with 30 institutions initially whitelisted for the platform. It was launched on Ethereum’s major layer 2 networks Referee and optimism later the same month.
Colin Cunningham, head of business development at Centrifuge, a DeFi platform for financing real-world assets, told The Defiant Coinbase that he was “spot on” in his assessment that tokenizing RWA and other assets Off-chain is the next frontier for DeFi.
“The digitalization of real-world assets (RWA) will be a dynamic-changing theme for institutional crypto in the coming year, with stablecoin technology at its heart.”
“Given market conditions, it is important to recognize the need for cryptocurrencies to provide real value and RWAs represent this,” Cunningham said. “I hope RWAs finally get their due in 2023: crypto liquidity is hungry for yield.
Timo Lehes, co-founder of Swarm, a regulated platform for access to decentralized finance, agrees that tokenized RWAs will be a major narrative in 2023.
“The digitalization of real-world assets (RWA) will be a dynamic-changing theme for institutional crypto in the coming year, with stablecoin technology at its core,” Lehes told The Defiant. “Digital assets exhibit low correlation with other traditional financial assets like commodities and bonds. Regulated DeFi projects are actively pursuing the introduction of tokenized collateral classes of TradFi, as the lack of correlation is a feature and not a bug.
Lehes suggested that RWAs could be put on-chain using the same structure used for fully fiat-backed stablecoins. “Given that stablecoins are already a category of tokenized RWA with a market capitalization of over $100 billion, it is only natural to extend the same tokenized structure to public stocks, bonds, ETFs and other assets” , did he declare.
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Making a surprising connection, Coinbase also expects RWAs to be a testing ground for non-fungible tokens.
The company said NFTs are increasingly being used to certify and authenticate real-world assets on-chain, including real estate, physical assets and financial instruments. Coinbase added that RWAs present an opportunity for non-fungible tokens to expand beyond largely speculative use cases.
“Themes such as digital identity, digital footprint mapping, soul-bound tokens, and tokenization of real-world assets have the ability to remove the speculative nature of art/collectibles and to highlight the fundamental benefits of non-fungible tokenization,” the report said. .
Despite Coinbase’s optimistic outlook for RWAs, the company warned that new forms of real-world assets would take time to come on-chain due to regulation. “While issuers are addressing the financial and legal hurdles of tokenizing other less liquid real-world assets like real estate, the market for these is still underdeveloped.”
The total value locked in RWAs on Ethereum is $612 million, down from the all-time high of $1.75 billion in the second quarter, according to Fortunafi.