According to DeFiLlama, the Total Value Locked (TVL) in the DeFi market has decreased from $180 billion in 2021 to $48 billion in 2023, indicating a significant downturn and the urgent need for methods to revitalize and stabilize the DeFi market. The integration of Real-World Assets (RWA) and Decentralized Autonomous Organizations (DAO) might be an effective approach, as this innovative method aims to bridge the gap between Traditional Finance (TradFi) and DeFi, unlocking new opportunities and value.
The Emergence of RWA in the DeFi Market
RWA involves transforming real-world assets into digital tokens through blockchain technology, enabling them to become a source of income within the DeFi ecosystem. RWA encompasses various traditional assets such as commercial real estate, bonds, art, and nearly any asset that can be tokenized and assigned a value.
Market participants have been actively seeking ways to integrate real-world assets into blockchain. Some well-known traditional institutions, including Goldman Sachs and Siemens, have announced plans to tokenize their physical assets. At the same time, DeFi protocols like MakerDAO and Ondo Finance are actively developing platforms that accommodate RWAs.
The Potential Impact of RWA
RWA have a transformative impact on DeFi by providing a sustainable and reliable source of income based on traditional assets. Additionally, RWA has the potential to bridge the gap between decentralized financial systems and traditional financial systems. According to the "Financial Services Global Market Report 2023," the global financial market in 2023 is approximately $28.115 trillion, while the DeFi market is around $0.04971 trillion. This implies that by bringing RWA onto the blockchain, DeFi can start capturing liquidity, opportunities, and value that exist beyond the realm of digital assets.
If DeFi wants to make a significant impact on the functioning of the financial system, the successful implementation of RWA appears to be crucial. Combining RWA with DAO can build the necessary bridges between DeFi and TradFi, unleashing new sources of value and fostering innovation.
Feasible Steps for Combining RWA and DAO:
**Transform real-world assets into blockchain-based multi-fractional tokenized assets. Tokenizing assets makes them more accessible and manageable within the DAO structure. By issuing multi-fractional tokens, asset ownership can be fragmented, allowing DeFi investors to easily acquire partial ownership and gain exposure to a broader range of asset classes such as real estate, bonds, art, and more. This democratizes access to exclusive traditional investment opportunities and creates a more inclusive financial ecosystem.
**Creating RWA-backed DAOs
**Once assets are tokenized, they can be incorporated into DAOs specifically designed to manage and govern these RWA. These RWA-backed DAOs can utilize smart contracts to automate decision-making processes, manage investments, and distribute rewards to stakeholders. The governance model of DAO ensures that decisions related to RWA management are collectively made by the community, creating a decentralized and transparent system.
**Integrating RWA-backed DAOs into DeFi platforms
**RWA-backed DAOs can be integrated with existing DeFi platforms like MakerDAO, enabling the use of tokenized RWA as collateral for providing liquidity or other DeFi services. These platforms can then offer new financial products and services backed by RWA, providing users with more diverse investment opportunities within the DeFi ecosystem.
Specific Combinations of RWA and DAO:
Embed rules into smart contracts to constrain DAO actions. These rules can be customized to manage the integration of RWA, such as determining how tokenized assets are used as collateral, setting voting mechanisms for
Develop solutions that enable cross-chain interoperability between various blockchain platforms, allowing for governance and management of RWA and DAO across different blockchains or protocols. This can facilitate greater liquidity and flexibility for RWAs in the DeFi ecosystem and expand investment opportunities. The cross-chain governance feature of Clique can also support this, enabling seamless and ultra-low-cost operations.
Encourage collaboration between DAOs focusing on different asset classes or sectors, creating synergies and facilitating the exchange of knowledge and best practices. This can foster greater innovation and the development of new financial products and services in the DeFi ecosystem. The V3 version of Clique can provide tools to support this, promoting better collaboration among DAOs.
Imagining the future, we can also explore additional entry points for the integration of RWA and DAO:
To facilitate the trading and management of tokenized RWAs within DAOs, dedicated RWA-DAO trading markets could be created. These markets would provide investors with a wide range of investment opportunities supported by RWAs and enable seamless transactions across different asset classes. The decentralized nature of these markets ensures transparent and efficient operation without intermediaries.
DAOs can create stablecoins backed by a basket of tokenized RWAs, offering a more stable source of value compared to purely cryptocurrency-backed stablecoins. These asset-backed stablecoins can be used for lending and trading in the DeFi ecosystem, reducing volatility and systemic risks associated with cryptocurrencies.
DAOs can create index funds that track a basket of tokenized RWAs from various industries such as real estate, bonds, etc. This would provide investors with diversified and cost-effective investment options within the DeFi ecosystem.
In conclusion, the integration of RWA and DAO brings obvious benefits:
The transparency of DAOs helps establish trust in the tokenization and management of RWAs, ensuring proper governance of underlying assets and decentralized decision-making.
DAOs democratize access to RWAs, allowing a wider range of investors to participate in investment opportunities provided by these traditional assets.
By including integrated RWA-DAO in DeFi investment portfolios, investors can access better and diversified investment options.
With the inclusion of RWAs and DAOs, the DeFi sector may reduce its reliance on cryptocurrency market cycles, achieving more sustainable and stable returns.
The combination of RWA and DAO provides a promising solution to the challenges faced by the DeFi ecosystem. By bringing the stability and diversity of traditional assets onto the blockchain and leveraging the decentralization and transparency of DAOs, DeFi can derive significant value and liquidity from the traditional financial system. This will not only strengthen the DeFi ecosystem but also pave the way for a more inclusive, efficient, and innovative financial future.
STP is an ecosystem optimized for DAOs. Users can access a full suite of native tools and infrastructures across multiple blockchains that facilitate efficient decentralized decision-making for users, communities, and organizations.