Real World Assets & Oracles: DeFi’s Next Frontier

While on-chain finance is inevitable, what’s unclear is where the next wave of growth will come from. Over the last 3 years, we have seen Defi face a cambrian explosion with over 200 major dApps and $45B+ in total value locked. However, this growth has primarily been a result of primitives created for true cryptocurrencies (e.g ETH, WBTC etc). While cryptocurrencies alone provided a fertile ground for DeFi’s experimental phase, we believe that the growth phase over the next 5–10 years will be led by the intersection of real world assets (RWA) and blockchain middle-ware primitives such as oracles. Put another way, trading has been the primary use-case of the blockchain, and what better market to trade on-chain than off-chain assets with intrinsic value?

Blockchains x Real World Assets: Why does it matter?

The tokenization and trading of RWA on-chain brings the best of DeFi’s use-cases to various tangible global assets with intrinsic value, unlocking global access to these markets

1. Global Access and Financial Inclusion: Tokenization democratizes access to global markets, breaking down geographic or regulatory barriers. It allows fractional ownership of high-value assets, enabling investment opportunities for a wider audience.

2. Liquidity and Efficiency:Tokenizing RWA enhances liquidity of traditionally illiquid assets worth trillions, unlocking capital and providing flexible investment options. Automated processes via smart contracts speed up transactions, reducing costs and increasing efficiency.

3. Transparency and Interoperability: The immutable nature of blockchain ensures auditability and trust. Tokenized assets can interact across the DeFi ecosystem, facilitating innovative financial applications.

4. Risk Management and Financial Innovation: Diversification through RWA tokenization enables robust risk management. It also catalyzes the creation of novel financial products like yield farming based on real-world income streams.

The Real-World Juggernaut: Unpacking RWA and its Market Potential

RWA or Real World Assets form a crucial part of on-chain asset tokenization. This process involves representing physical assets digitally on a blockchain, making them accessible and trade-able in the decentralized finance space — and it’s only set to grow. A large part of the growth in real world assets has been led by the hunt for on-chain yield, as U.S denominated treasury yield has been on the rise (and DeFi native yield, driven mostly by speculation, has dried up). Prominent DeFi protocols are integrating RWAs as a part of their balance sheets, or even as a part of their products (e.g MakerDAO now has $1.5B of RWAs to collateralize its well known stablecoin, DAI). RWAs also represent the largest revenue segment for Maker

Other use-cases such as RWA as collateral, lending / borrowing and trading are also catalysts that have led consulting firms like BCG to conclude that tokenization of real world assets will be a $16 Trillion dollar opportunity by 2030

Efficient price oracles and the maturity of decentralized finance are catalysts for RWA adoption on-chain, and this sector is extremely nascent. While crypto derivatives are already a massive sector averaging ~$3 trillion / month of volumes, this figure dulls in comparison to trading volumes for foreign exchange assets (e.g trading JPY / USD futures), which stand at >50x higher monthly volumes. While crypto will take its time to catch up to other asset classes, high performance (low latency) price oracles and synthetic leverage can enable trading infrastructure for the forex and commodities market on-chain. That’s what we’re doing at Veranta

Leveraging the Future: Where Real World Meets Synthetic Assets

While the 1:1 tokenization of real world assets has been the primary source of on-chain activity in the sector, we believe it only represents the tip of the iceberg. Oracles, entities that relay off-chain data to blockchain networks, play a crucial role in the DeFi space, especially when it comes to price information. They make it possible for various forms of crypto, including stablecoins, to be used as collateral in financial activities such as speculation, hedging, and investing. The potential of oracle-based trading as a mechanism to hedge both on and off-chain RWA exposure is vast, because it enables derivatives for assets that are not yet tokenized via a flexible array of price feeds. We’re firm believers in the potential of this market, which is why we’re bringing forex and commodities trading on-chain, with up to 100x leverage, powered by low latency oracles from the Pyth Network.

As an Veranta liquidity provider, we make it simple to earn yield on your stable assets via our stablecoin market making vault — powered by Circle’s dollar, USDC. The USDC can be reserved by a trader to mark entries and exits into any asset of their choice that is supported by an on-chain oracle like Pyth or Chainlink. Not only does this make leveraged trading accessible to a variety of traders (and not just crypto-native traders), but also makes leverage trading extremely capital efficient.

To enhance access to RWA leveraged trading, we need to enable any individual to be a sophisticated on-chain market maker, and make access to perps fun, safe and friendly — that’s the mission we’ve set ourselves at Veranta. With fine-grained risk management for LPs, embedded wallets, trading gamification and a focus on the Superchain (Base, Optimism), something cool is brewing under the hood — join our journey and follow Veranta to stay updated.