The Real-World Asset revolution in DeFi: Understanding the Current State & Potential of RWAs
Protocols, yields, fees, active loan values, risks, token price performance etc.
Did you come here from my thread on Twitter? Skip to the Token Performance and Token On-Chain Data section.
Post at a glance:
Real-World Asset (RWA) revolution in DeFi presents new opportunities for high-yield returns and diversification.
Active loan value in 9 protocols stands at $361M, Maple, Goldfinch, Centrifuge, Credix and TrueFi are the top 5 protocols by active loans.
RWA lending has risks and default rate is an important metric to watch.
RWA tokens are lower market cap than crypto-to-crypto lending protocol tokens, and price failed to rebound.
The RWA protocol tokens have under-performed ETH and crypto-to-crypto tokens.
Volumes are low, but 80%+ of the total token supply is circulating for all tokens (except for GFI).
RWA Lending Protocols: Unlocking the Potential of DeFi
One of the most exciting developments in the DeFi space is the emergence of RWA lending protocols.
These protocols enable lending outside of the circular crypto world and open up the potential for DeFi lending to grow from tens of billions to a $1.6T TradFi private credit loan market.
Unlike traditional crypto lending protocols, such as Aave and Compound, which depend mostly on leverage, RWA protocols offer undercollateralized lending. This opens up new opportunities for investors looking for higher yield and diversification of their portfolio.
Currently, the top 10 lending protocols based on 180-day cumulative interest fees paid by users include four RWA lending protocols: TrueFi, Maple Finance, Goldfinch, and Centrifuge.
Additionally, MakerDAO is generating 57% of its total revenue from RWAs.
RWA Token Market Cap: A Comparative Analysis
RWA protocol tokens are all below $100M circulating market cap. Centrifuge (CFG) has a $90M market cap, Maple (MPL) at $46M, TrueFi (TRU) at $34M, and Goldfinch (GFI) has a $20M market cap.
To put this in perspective, Aave’s market cap is $1.2B.
When comparing the price-to-sales ratio based on 180 days cumulative interest fees, RWA lending protocols are cheaper than pure crypto lending protocols, with the exception of CFG and Maker.
Active Loans Value and Yields
When it comes to the current state of Real World Asset (RWA) lending in DeFi, one key metric to consider is the active loan value. This metric gives us an idea of the amount of capital currently being lent and borrowed on various RWA protocols.
According to data from rwa.xyz, the current active loans value in 9 protocols stands at $361M. Of these 9 protocols, the top 5 protocols by active loans are Maple, Goldfinch, Centrifuge, Credix and TrueFi.
Maple leads the pack with an active loan value of $127M, followed by Goldfinch with $103M, Centrifuge with $77M, Credix with $30M, and TrueFi with $19M.
It's worth noting that this data does not include most of Maker's RWAs, which are currently standing at around $620M.
This suggests that MakerDAO, one of the most well-known and established DeFi protocols, is already generating significant revenue from RWAs.
The base yield varies from 3.5% to 16%, and gets even higher when token rewards are included. This is much higher than the current stablecoin yields on crypto-to-crypto lending protocols like Aave or Compound.
Real-World Impact: Investing in Private Credit Loans to Businesses
The yield is generated by investing in private credit loans to real-world businesses. The top 3 sectors are Fintech, Real estate, and Carbon projects.
Goldfinch, for example, offers carbon projects yielding up to 27% APY. These projects include Almavest Basket, a credit fund that deploys capital for sustainable development into high-growth, impact-oriented companies in emerging markets. This includes cook-stove suppliers or clean water solutions.
Almost all Goldfinch's end-borrowers are located in emerging and developing markets, with Mexico, Kenya, Nigeria, and the Philippines being the largest recipients. Since launching in late 2020, Goldfinch hasn't had a single default.
The Risk and Reward of RWA Lending
However, it's important to note that RWA lending is not without risk. There have been defaults on Maple, TrueFi, and Centrifuge, totaling $68M, $4.4M, and $2.5M respectively.
Creditors on Maple defaulted after the FTX collapse, when Orthogonal and Auros market makers had their funds stuck in FTX.
Maple recently announced Maple 2.0, which removes MPL from First Loss Capital and aims to handle defaults more quickly by loan managers (known as "pool delegates"), who will suffer first in the event of a default.
The tokenomics of each protocol are slightly different, but some have staking for revenue sharing rewards. As of writing, token staking APYs are 22.94% for TRU and 9.37% for GFI. Maple staking used to generate yield, but defaults hit the protocol hard.
Token Performance and Token On-Chain Data
RWA lending protocols’ tokens have failed to rally and have under-performed ETH and crypto-to-crypto lending protocol tokens. (Goldfinch is the exception).
The reason why is clear: top 3 under-performers are the ones that had had the defaults: Maple, TrueFi and Centrifuge.
Defaults will always be the major risk for RWA undercollateralized protocols. Maple has already removed its token from ‘First Loss Capital’, Goldfinch has Junior Tranches that absorb the risks first.
TrueFi token holders can stake in stkTRU holders ("stakers") vote to approve/reject loan applications, and are at risk of losing a portion of their TRU staked in the event of default on loans in TrueFi DAO pools.
TrueFi allows Portfolio Managers ("PMs") to run their own funds. PMs decide who to lend to, and set loan terms with borrowers. To become a PM, the TrueFi governance needs to approve the submission.
Yet these protocols suffered from FTX collapse with a potential to receive part of the funds years later after the bankruptcy process is complete.
On-Chain Data: Subdued Volumes and Unlocks
Maple price and on-chain trading volume have been trending downwards.
Similar situation for TRU, yet it is less liquid on DEXes than MPL.
Goldfinch (GFI) has only $59k USD liquidity on chain and almost all price discovery is happening on Coinbase, MEXC and Gate.io
The good news for MPL holders is that 80% of the supply is already unlocked, with 36% staked for xMPL.
Check for more data here and here on Dune.
Same for TrueFi’s TRU: 80% of the token supply is unlocked. 15.5% of TRU are also locked in the staking smart contract, which is lower than for MPL.
Goldfinch’s GFI token supply will expand a lot more as only 31.5% of the total supply is unlocked. For Clearpool’s CPOOL 33.8% of the supply is unlocked.
while 80% of the Centrifuge’s CFG are already unlocked and circulating.
All look promising, but for the while being TRU looks slightly stronger:
Lowest Price-to-Sales ratio
2nd by total loans issued on chain
80% of tokens circulating with 15% staked
22% staking real yield
Listed on Binance (others on Coinbase or Kraken/KuCoin)
But situation is dynamic and can change quickly.
Conclusion (Not financial advice!)
I believe RWA narrative will pick up as more protocols enter the space and RWA higher interest rates start to trickle down by increasing DeFi lending yields accross all DeFi.
The token prices and volumes are down bad, but with the exception of GFI, 80% of the total supply are in circulation.
Real-World Asset protocols in DeFi have the potential to revolutionize the lending and borrowing market and offer investors new opportunities for higher yield and diversification.
The industry is still in its early days, and while the potential is significant, we should be aware that there is still risk involved. However, it's worth keeping an eye on the industry and the players, as it will be exciting to see how this industry develops and how it will shape the future of DeFi.
I will surely do so, thus make sure to follow me on Twitter and subscribe to my Substack blog.