Wall Street’s securities blockchain game: hidden capital competition in the RWA track

Creator: YBB Capital Researcher Ac-Core

1. Introduction: Can RWA turn out to be the subsequent watershed in the market?

With the launch of Bitcoin spot ETF, the crypto area is ushering in a brand new turning level in improvement. The coverage tendencies throughout the Trump administration laid the basis for this area, and now the entry of conventional monetary giants similar to BlackRock has additional promoted the improvement of the RWA (actual world asset) track. Increasingly more monetary establishments are starting to discover the right way to obtain on-chain transactions and administration of conventional belongings similar to shares and bonds by means of blockchain know-how. This development is reshaping the monetary market panorama.

The current launch of Ondo Finance, Ondo International Markets and Ondo Chain, and different initiatives, point out that the RWA track is progressively shifting in the direction of the mainstream. This modification has additionally triggered a brand new spherical of gaming on Wall Road, quietly altering the guidelines of the recreation in the crypto market and conventional finance.

2. Variations and commonalities of RWA track initiatives

 Picture supply: Ondo official web site

2.1 Counting on BlackRock’s consultant challenge Ondo Finance

Ondo Finance has been making frequent strikes lately. On February 5, they launched the Ondo International Markets platform, which primarily gives blockchain entry companies for shares, bonds and ETFs. Instantly afterwards, Ondo Finance introduced their new Layer 1 public chain Ondo Chain, with the objective of constructing a extra highly effective monetary infrastructure and selling the tokenization of RWA.

Ondo Chain is the infrastructure of Ondo International Markets (Ondo GM), specializing in the integration of RWA tokenization and blockchain. Ondo Chain helps world buyers to acquire on-chain entry to US listed securities (similar to shares, bonds, ETFs) by means of the blockchain platform, breaking geographical restrictions and offering 24/7 uninterrupted buying and selling companies.

Ondo Chain has launched an answer to embed institutional compliance into the public chain structure, trying to beat the technical and institutional ache factors of the current RWA on-chain by means of progressive means similar to the licensed verification node mechanism and native cross-chain protocol. Ondo Chain makes use of conventional monetary belongings as collateral to make sure community safety and interoperate with conventional clearing programs, additional opening up on-chain and off-chain liquidity.

2.2 Ondo Finance’s competitiveness and limitations amongst initiatives in the identical area

That is associated to its distinctive architectural design and highly effective institutional assets, and likewise displays the energy and curiosity recreation between blockchain and conventional finance.

By collaborating with prime monetary establishments similar to BlackRock, we have now constructed a blockchain monetary infrastructure that may assist the large-scale tokenization of real-world belongings, making certain a steadiness between compliance and decentralization.

1. Tokenization and free switch of RWA: By pairing belongings similar to shares, bonds, ETFs with tokens 1:1, buyers can freely switch these tokenized belongings exterior the United States and combine them with DeFi to take part in monetary actions similar to lending and incomes.

2. Mixture of openness and compliance: Ondo Chain combines the openness of public blockchains with the compliance of permissioned chains. Validators are audited by permission to make sure compliance, whereas any developer and person can concern tokens and develop purposes on the chain to make sure innovation vitality.

3. Institutional participation and ecosystem building: Ondo Chain’s design advisory crew consists of monetary establishments similar to Franklin Templeton, Wellington Administration, and WisdomTree, which has promoted its institutional-level purposes in the fields of TradFi and DeFi.

4. Oracle mechanism and information safety: The built-in oracle system ensures the accuracy and real-time efficiency of on-chain information and reduces the danger of knowledge manipulation. This design enhances the credibility of key information similar to asset costs, rates of interest, and market indices.

5. Cross-chain performance and safety: Cross-chain asset transfers are achieved by means of Ondo Bridge, offering safety for the Decentralized Verification Community (DVN), supporting institutional asset and liquidity administration, and adapting to massive transactions.

It’s extremely depending on establishments, which limits the participation of abnormal customers and decentralized communities. It additionally has a excessive diploma of centralization, with main energy nonetheless in the fingers of some establishments.

1. Extremely depending on establishments and lack of group drive

   Ondo Finance’s structure strongly depends on the participation of conventional monetary establishments, and the credibility and liquidity of its tokenized belongings primarily come from the endorsement of those establishments. Though this mannequin ensures the high quality and compliance of tokenized belongings, it additionally brings a core downside: its ecosystem is principally designed for establishments, and the participation of abnormal customers is low. In contrast with the absolutely decentralized RWA challenge, Ondo is extra like an extension of the conventional monetary world. The circulation and buying and selling of its tokenized belongings are extra carried out between establishments, and the affect of abnormal buyers and decentralized communities is weakened.

2. The issue of energy distribution beneath centralized management

   Though Ondo Chain retains some openness, its validators are permissioned, which implies that core energy is concentrated in the fingers of some establishments. That is in stark distinction to some absolutely decentralized RWA initiatives, which emphasize that any participant can turn out to be a key node of the community. Ondo’s design, to some extent, displays the energy construction of conventional finance, the place most of the management continues to be in the fingers of some massive monetary establishments. This focus of energy might trigger conflicts in future governance and useful resource allocation, particularly when token holders battle with institutional pursuits.

3. The pace of innovation could also be restricted by compliance and legacy establishments

   Since Ondo Finance’s core pillars are compliance and institutional participation, this may occasionally additionally restrict its pace of innovation. In contrast with absolutely decentralized initiatives, Ondo might have to undergo advanced compliance processes and institutional approvals when introducing new monetary merchandise or applied sciences. This places it susceptible to being sluggish to reply in the quickly altering crypto house, particularly when competing with extra versatile DeFi initiatives, the place its compliance and institutional-oriented structure might turn out to be a burden.

III. Actual obstacles confronted by RWA initiatives

Though blockchain know-how gives a technical basis for the on-chain of RWA, the present public chain nonetheless can not meet the wants of conventional finance in phrases of high-frequency buying and selling and real-time settlement. At the identical time, the fragmentation of the cross-chain ecosystem and safety points have additional exacerbated the issue of institutional deployment of RWA. The applying of RWA in decentralized finance (DeFi) faces a number of sensible obstacles:

Initially, the belief and consistency points between belongings and on-chain information have turn out to be the core challenges of RWA on-chain. The important thing to RWA on-chain is to make sure the consistency between belongings in the actual world and on-chain information. For instance, after the actual property is tokenized, the possession, worth and different info recorded on the chain should be fully matched with the authorized paperwork and asset standing in actuality. Nonetheless, this entails two key points: one is the authenticity of the on-chain information, that’s, how to make sure that the supply of the on-chain information is credible and can’t be tampered with; the different is the synchronization of knowledge updates, that’s, how to make sure that the on-chain info can replicate the standing adjustments of actual belongings in actual time. Fixing these issues often requires the introduction of a trusted third social gathering or authoritative company (similar to a authorities or certification company), however this conflicts with the decentralized nature of the blockchain, and the belief concern stays an unavoidable core problem for RWA on-chain.

Inadequate community safety can be an essential concern. The safety of blockchain networks often depends on the financial incentive mechanism of native tokens, however the volatility of RWA is often decrease than that of cryptocurrencies, particularly in market downturns, which can result in a decline in community safety. As well as, the complexity of RWA requires greater safety requirements, and current blockchain programs might not have the ability to absolutely meet these necessities.

The compatibility concern between RWA and DeFi structure has not been resolved. DeFi was initially designed to serve crypto-native belongings, not conventional securities belongings. RWA on-chain entails advanced monetary behaviors (similar to inventory splits and dividend distributions), that are tough to successfully handle by means of the current DeFi system. Extra importantly, the oracle system additionally has apparent deficiencies in the real-time and safety of processing large-scale conventional monetary information.

The cross-chain liquidity dispersion and safety points additional improve the issue of RWA on-chain. The cross-chain issuance of RWA results in liquidity dispersion and will increase the complexity of asset administration. Though the cross-chain bridging mechanism gives an answer, it additionally introduces new safety dangers, similar to double-spending assaults and protocol vulnerabilities.

Institutional supervision and compliance points are the greatest non-technical limitations to RWA on-chain. Many regulated monetary establishments are unable to commerce on public blockchains, primarily resulting from anonymity, lack of compliance frameworks, and variations in world regulatory requirements. Compliance necessities similar to KYC and anti-money laundering additional improve the complexity of RWA on-chain, which in flip limits the influx of capital to a sure extent.

The liquidity and institutional participation restrictions on the market additionally limit the improvement of RWA. At current, the general market worth of RWA is principally concentrated in low-risk belongings (similar to authorities bonds and funds), whereas the progress of main asset lessons similar to shares and actual property on the chain is sluggish. The liquidity of RWA nonetheless will depend on the crypto-native protocol, and the general market continues to be in the early levels of improvement.

Lastly, the battle between DeFi and conventional monetary belief mechanisms can be an issue that RWA should remedy with regards to on-chain. DeFi depends on code and cryptography to construct belief, whereas conventional finance depends on authorized contracts and centralized establishments. This distinction in belief mechanisms has led conventional monetary establishments to be cautious about blockchain know-how, particularly in key areas similar to custody and danger management.

Though blockchain know-how gives the chance for RWA to be placed on the chain, it nonetheless faces many challenges in sensible purposes. Nonetheless, from information consistency, community safety, compatibility, liquidity, compliance to the matching of know-how and financial fashions, and the battle of belief mechanisms, these issues have to be progressively solved in the improvement course of to advertise the widespread software of RWA in DeFi.

4. If RWA is profitable, Ondo Chain might turn out to be the redistribution of energy between the previous and new monetary programs in the “Wall Road Sport”

 Picture supply: Occupy Wall Road

When analyzing the core Wall Road pursuits behind Ondo Chain in this chapter, I personally suppose that it’s vital to leap out of the phenomenon of blockchain and actual asset tokenization and observe the driving elements behind the monetary operation logic and curiosity competition. As talked about above, the core issue of RWA at the non-technical degree is the right way to obtain compliance, and compliance requires the recognition of a powerful centralized authority group.

BlackRock, the world’s largest asset administration firm, participated in the funding and building of RWA after finishing the promotion of Bitcoin ETF. That is basically taking the lead in striving for the redistribution of energy between the conventional monetary system and the rising decentralized know-how based mostly on blockchain. This battle isn’t solely a competition for technological change or monetary innovation, but additionally a competition for world monetary rule-making energy, capital management and future wealth distribution mechanisms.

Though blockchain know-how brings hope for decentralization, in the face of the actuality of extremely concentrated capital and energy, Wall Road is making an attempt to carry this technological revolution beneath its personal management and proceed its dominant place in the world monetary system by means of new types of market manipulation and asset securitization.

4.1 Rebalancing of energy in the world monetary system

Wall Road has all the time dominated the world monetary system, controlling key nodes in capital flows, asset administration, and monetary companies. Conventional monetary establishments management world capital by monopolizing monetary infrastructure (banks, inventory exchanges, clearing programs, and so forth.). Nonetheless, the rise of blockchain know-how has damaged this example:

Decentralized finance (DeFi) weakens the conventional monetary infrastructure that Wall Road has lengthy managed by means of disintermediation. DeFi permits key features similar to capital move and asset administration to be run on decentralized platforms. For instance, customers can straight handle belongings, borrow, and commerce on the blockchain with out intermediaries similar to banks and funding banks. However this implies an enormous menace to Wall Road. This switch of energy implies that Wall Road might lose its dominance over the world monetary system.

4.2 Asset Tokenization: Who Controls the New Monetary Infrastructure?

Though the RWA tokenization promoted by Ondo Chain and different platforms goals to reinforce the liquidity of belongings, it hides the battle for management over the new monetary infrastructure. The blockchain community is a candidate platform for the new era of worldwide monetary infrastructure. Whoever can dominate this infrastructure will have the ability to dominate the future blockchain-linked real-world belongings.

Wall Street’s pursuits are mirrored in its intention to manage these decentralized networks. They might indirectly deny blockchain, however management these rising blockchain platforms by means of funding, mergers and acquisitions, or cooperation, permitting the centralization of capital to reappear. Though blockchain goals to be decentralized, a considerable amount of capital and liquidity are nonetheless simply concentrated in the fingers of some massive monetary establishments or hedge funds. Finally, the key assets (liquidity, protocol governance, and so forth.) on the blockchain platform will nonetheless return to the fingers of some gamers, ensuing in the decentralized asset market fully requiring the big centralized forces to drive it.

4.3 Regulatory arbitrage and extralegal energy

In accordance with Cointelegraph on February 6, JPMorgan Chase’s newest digital buying and selling survey of institutional merchants confirmed that 29% of institutional merchants will or are at present buying and selling cryptocurrencies this yr, a rise of seven proportion factors from final yr.

Arbitrage has all the time been a buying and selling technique that Wall Road elites are good at utilizing. Confronted with the unsure regulatory setting of the decentralized nature of blockchain, in the future Wall Road establishments might benefit from regulatory variations between completely different nations and areas and arrange working entities in jurisdictions with looser rules to avoid stricter rules. For instance:

In initiatives similar to Ondo Chain, the tokenization of sure RWAs might bypass conventional securities rules or monetary market rules. Manipulating asset flows and capital constructions in completely different regulatory environments additional strengthens management over rising markets. It’s not dominated out that this “grey space” operation is one among the means for Wall Road to acquire greater returns by means of blockchain.

4.4 Market Liquidity and Value Manipulation: The Wrestle for Hidden Dominance

Liquidity is the core of market manipulation, and implicit value manipulation is achieved in seemingly “decentralized” markets. Ondo Chain gives new funding alternatives for world buyers by means of the tokenization of RWA, however its liquidity and buying and selling depth are nonetheless extremely depending on the injection of enormous capital, and liquidity management will proceed to be the core weapon of Wall Road gamers. Even in the decentralized setting of blockchain, establishments with extra capital, buying and selling know-how and market insights can nonetheless dominate market tendencies.

4.5 RWA Hedge Fund: Reconstructing the Asset Securitization Sport

Wall Road has traditionally achieved big beneficial properties by means of asset securitization (similar to subprime mortgage securitization). The RWA tokenization on the blockchain gives a possibility for a brand new era of asset securitization. For instance, Wall Road can concern new monetary merchandise by means of a mix of tokenized belongings to draw world buyers. These merchandise may be generated based mostly on RWA, similar to actual property belief tokens and company bond tokens, offering extra choices for the market.

At the identical time, the derivatives market may be expanded by means of blockchain. Wall Road can repackage dangers and promote them to world buyers by designing advanced monetary derivatives (similar to choices, futures, and swaps). The sport of danger switch and revenue acquisition will proceed in the RWA tokenization period.

5. The development of the crypto world has pressured the trade to speed up its improvement

We analyze the ETF buying and selling of crypto belongings led by Bitcoin, Trump-related occasions, and future RWA as examples. They’re all accelerating the improvement of the trade to various levels, which has the direct influence of accelerating the issue of trade profitability. These elements have an effect on the crypto trade by means of advanced market dynamics, regulatory strain, and the gradual penetration of the conventional monetary ecosystem.

5.1 Market maturity led to by the introduction of ETFs

The launch of ETFs marks that the crypto trade is progressively being accepted by mainstream monetary establishments and buyers, however it isn’t essentially useful to the general progress of the crypto trade. For instance, gold has seen a long-term improve after the introduction of ETFs:

Decreased market liquidity and volatility

The introduction of ETFs implies that crypto belongings have entered the conventional monetary market, attracting establishments with extra conservative funding types. At the identical time, the addition of extra monetary derivatives has additionally led to a lower in the volatility of crypto belongings. For merchants who depend on excessive volatility (similar to retail buyers and crypto hedge funds), this implies fewer alternatives for arbitrage and high-frequency buying and selling, which in flip reduces revenue margins.

Concentrated capital flows

ETFs make the capital move in the crypto market extra concentrated, primarily in a couple of massive belongings similar to Bitcoin. This may occasionally result in the danger of liquidity depletion and value decline of small and medium-sized crypto belongings, affecting the improvement alternatives of extra small initiatives. Because of this, the revenue alternatives of extra rising initiatives are lowered, and the general profitability of the trade is tougher.

Aggressive strain from conventional finance

The launch of ETFs implies that crypto belongings are being productized by conventional finance, bringing greater market transparency and competition. This additionally implies that the crypto trade should compete extra fiercely with conventional monetary devices similar to shares, bonds and commodities, diverting funds and buyers’ consideration.

5.2 Market uncertainty attributable to the Trump impact

The actions of politicians similar to Trump might have an effect on the crypto market by means of their insurance policies, regulatory attitudes, and worldwide relations, including uncertainty and complexity to the trade:

Elevated coverage uncertainty

Trump’s coverage stance and governing type are sometimes stuffed with uncertainty, particularly with regards to financial and monetary regulation. The regulatory insurance policies that he and his authorities might implement throughout their tenure (similar to suppressing or stress-free rules on digital currencies) will straight have an effect on market sentiment and improve the instability of the crypto market. This uncertainty will expose the crypto trade to larger coverage dangers and have an effect on the stability of long-term profitability.

Strengthening of Anti-Cash Laundering and KYC Necessities

As politicians similar to Trump might push for stricter anti-money laundering and KYC rules in the future, exchanges and crypto initiatives will face greater compliance prices. It will considerably improve working prices and squeeze revenue margins, particularly for crypto corporations that lack compliance expertise.

Presidential idea foreign money “TRUMP” causes a “siphon impact” in the market

Excessive volatility attracts extra speculative funds. “TRUMP” has a pure advertising and marketing impact, which may entice a considerable amount of funds to assemble in this single asset. The restricted liquidity and capital in the market are simply “siphoned” by Meme cash in the quick time period, forming a “capital focus impact”, however with the subsequent value drop, liquidity is tough to disperse to its unique place.

5.3 The event of RWA will result in the penetration of conventional finance

The event of RWA in the crypto house represents the development of the crypto market progressively integrating with conventional monetary belongings, however this integration additionally brings about a rise in the issue of creating income:

Value construction of conventional finance and introduction of competition

When the RWA challenge is placed on the chain on a big scale, conventional monetary belongings similar to bonds, shares, actual property, and so forth. will compete with crypto belongings in the identical ecosystem. The maturity, value effectivity and low-risk traits of conventional monetary merchandise will entice a lot of institutional buyers, which implies that crypto belongings have to compete with these mature monetary merchandise.

The battle between decentralization and compliance

The on-chain implementation of RWA entails advanced regulatory necessities, particularly in phrases of compliance and authorized legal responsibility. In contrast with the present decentralized crypto belongings, the introduction of RWA might drive extra crypto initiatives to adjust to rules, inflicting extra initiatives to exit the market resulting from failure to fulfill regulatory necessities, thereby decreasing revenue alternatives.

Funds are inclined to move into low-risk belongings

The on-chaining of real-world belongings, similar to low-risk belongings similar to authorities bonds and company bonds, will entice a lot of conservative buyers to enter the on-chain market. As extra funds move into low-risk RWAs, high-risk, high-return initiatives in the crypto market (similar to DeFi protocols or rising tokens) might lose a few of their monetary assist. This phenomenon of funds shifting to low-risk belongings will additional compress the revenue margins of the crypto market.

VI. Conclusion: Is RWA a story bubble or a market change?

In abstract, the rise of ETFs, the Trump impact, and future RWAs will improve the issue of profitability in the crypto trade in other ways and intensities. The market maturity and institutionalization introduced by ETFs scale back market volatility and high-profit alternatives; Trump’s insurance policies might improve market uncertainty and produce coverage dangers to the trade; and the introduction of RWAs implies that the crypto market will compete with conventional monetary markets. On this more and more advanced evolution, the extra “typical” crypto belongings turn out to be, the extra “liable to bottlenecks” the market will turn out to be, and the future crypto market will carry extra extreme new challenges.

So whether or not RWA is a “narrative bubble” or a “market change” will depend on the maturity of its technical basis, market demand and implementation path. If we solely take a look at the progress and challenges in the early levels, RWA has a sure “narrative bubble” element, however counting on the participation of well-known establishments, RWA is predicted to turn out to be a brand new catalyst for adjustments in the crypto market.