1) When it comes to RWA, people often thinks of tokenization. Indeed it has advantages in determining ownership and lending business, but it’s very inefficient in trading scene. That’s why we use perpetual contract (derivative) to trade RWA (stock, bond, cmdty and forex).
Real World Assets are off-chain assets, which are tokenized and brought on-chain for use in
#DeFi
. 🔗
How does it work and why do we need it if they exist in the real world? 🧐
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2) The benefits of trading RWA via perpetual contract significantly outnumber trading via tokenized asset:
- no custodial risk
- free to short-sell
- get leverage
- cross-margin
- easy settlement
- high capital efficiency
…etc.
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3) RWA can also be traded via synthetic assets, crypto-collateralized tokens representing RWAs. This approach lacks capital efficiency as over-collateralization is required to ensure the value of synthetic asset. Eg: only 30-60 u worth of RWA can be minted by 100 u worth of…
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4) In addition, synthetic asset relies heavily on oracle price of RWAs, which makes it vulnerable to attack, and lack of price discovery capability. Also during non-trading hours of RWAs, the capability of minting more synthetic assets is limited.
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5) RWA can also traded with tokenized RWAs through (over)collateralizing the underlying RWAs by a financial institution. Stablecoins like USDT or USDC are one of the cases. In theory, other RWAs like stocks and bonds can be tokenized in this approach as well.
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6) However, this is subject to great regulatory restrictions and still lacks of strong legal backing in most jurisdictions, which constrains its adoption. Additionally, this approach needs the trustiness of centralized institutions, which could be affected by human misbehavior.
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