Real World Assets on MELD
For MELD, the value of RWAs is to unlock the liquidity of TradFi into the jungle of innovation in crypto.
Let’s begin this by clearing the air about RWAs. First of all, if you speak to someone in TradFi they will not understand what we mean in DeFi by RWAs. In the TradFi world, an RWA is a risk weighted assets used in calculating risk and, more specifically, Basel III regulations. RWAs or Real World Assets are a product of the crypto space. It means any financial instrument grounded in the traditional financial space and tokenized so it can be represented in the crypto space.
These include stocks and bonds but also more broadly anything in the real world such as gold bars, Louis Vuitton bags, or real estate. While the concept of RWAs has been around for a while, they have only recently gained considerable momentum in the world of crypto
Most RWAs are pointless
In most cases when you speak about RWAs it has to do with things such as Apple stocks (AAPL) or US treasury bonds (US10Y). Companies have worked hard to build legal and technical infrastructure to bring these assets onto blockchains. But, the US government’s lack of clarity has caused these assets to only be offered to accredited investors ie; rich people or corporations. The problem with this is that they already have access to all of these products outside of the crypto ecosystem. So, most RWAs bring the worst of the TradFi (slow and difficult to work with) and crypto (technical risk) into a single asset that no one can buy (except for people that can already buy them).
Secondly most of the RWAs you run across are among the least exciting; Tesla (TSLA), Nvidia (NVDA), CoinBase (COIN), Apple (AAPL), etc.
Currently 99.5% of the $1.5 trillion (BCG report 2023) can’t be used in DeFi as they are all locked behind private networks. Issuing stocks or bonds as tokens is useful, but if the new access and uses are limited to people that already have access, then any small efficiency increases or minor benefits are pointless.
If no one can trade them, they are not a market. Also you have the traditional approach to TradFi where each key player, JP Morgan, Goldman, Santander, etc are each building their own propriety blockchain systems, duplicating effort and infrastructure over and over, fragmenting it even more.
So why RWAs then?
The real value of RWAs are twofold. First, you gain access to an instrument tied to the traditional economy previously unavailable in crypto and, secondly, you can trade this asset in real-time 24 hours a day globally without limitations. This means you can use them in DEXs, build DeFi protocols around them, and lend and borrow them.
For MELD, the value of RWAs is to unlock the liquidity of TradFi into the jungle of innovation in crypto. If you think ETH to staked ETH is great, what would happen when you have a 20% yield on short-term Egyptian bonds (EG3M) or high-yield dividend ETFs (FDVV) used in DeFi strategies? This marriage of exciting new products coming out of DeFi, but using real work liquidity and yield, is something that could supercharge the crypto market and bring even greater capital efficiency to TradFi.
Today the crazy kids in DeFi only have access to a very limited set of liquidity sources, imagine what they could do if they had access to much bigger and more diverse sources. The sky’s the limit.
The MELD RWA Vision
While RWAs in crypto are currently quite dull, they still bring a great deal of potential to the space that can bring new life into DeFi products and protocols. RWAs have two unique characteristics for crypto; one, they are more stable than crypto with much larger market caps (Apple’s mCap is bigger than all of crypto) and two, most of an RWA’s yield comes from an external economic activity such as dividends to debt RWAs paying a yield.
MELD wants to bring RWAs to the crypto space and look at them based on these two characteristics. They can be used in similar ways to stETH or a stablecoin, both of which are critical to the current structure of DeFi. Yield and debt are the core drivers of any contemporary economic system. RWAs can be used to fire up new protocols and strategies, to add to existing yield farming models, to build more resilience into crazy volatility of the crypto market.
As always, we want to meld crypto and fiat together to bring more investor-centric products to market. In the same way, you have ETFs and funds that group multiple assets under one instrument, MELD will be bringing themes, called Thematics on the MELD blockchain. These are baskets of assets that are grouped based on a theme, for example, AI or Gaming.
One of the key things MELD is doing with Thematics, is to bundle both RWAs and crypto together. So when you invest in the “AI Thematics”, it will include leading AI projects and companies in both crypto and the TradFi world. This gives us the ability to include crypto with its very high price action, alongside traditional equities or ETFs that will help to protect against potential dramatic price swings in crypto.
RWAs going forward
When you get access to the TradFi world of stocks, bonds, funds and ETFs then the interesting investments are not with Apple or Nvidia. They are with more exotic instruments with high yields like emerging market sovereign debt (EDL) or municipal bonds (AMHIX) These instruments have a reasonable risk but have higher-than-average yields.
When you bring these two worlds together and blend them into a single well-structured Thematic, MELD users will be able to get exposure to the very best of both crypto and TradFi, on a single blockchain, which will benefit them in both the bear and the bull markets.
