Recently, the terms 'RWA' and 'stablecoin' have been very popular in the media, with relevant regulations and guidelines introduced in the United States, Hong Kong, Singapore, Europe, and other places. The attitude of these governments towards blockchain has gradually shifted from previous resistance and suppression to acceptance and support. I feel it is necessary to clarify this hot topic and attempt to explain it simply and clearly using the Feynman technique.
Stablecoins, as the name suggests, are cryptocurrencies issued on the blockchain, with their value pegged to a specific fiat currency. For example, 1 stablecoin can be exchanged for 1 unit of fiat currency, and 1 unit of fiat currency can also be exchanged for 1 stablecoin. If this stablecoin is pegged to the US dollar, it is called a US Dollar stablecoin. If it is pegged to the Hong Kong dollar, it is called a Hong Kong Dollar stablecoin. In simple terms, a stablecoin is a token on the blockchain that is price-anchored to fiat currency.
Now let's talk about RWA. RWA stands for Real World Assets. Unlike native crypto assets like BTC and ETH, RWA refers to various real-world assets being moved onto the blockchain, allowing people to trade, pledge, and lend these assets on-chain. Real-world assets can include bonds, real estate, commodities, credit assets, shares, etc.
The relationship between stablecoins and RWA is similar to the relationship between highways and the logistics industry; highways are important infrastructure for the logistics industry, and stablecoins are similarly important infrastructure for RWA.
The reason is that real-world assets are quoted and traded in fiat currency units. If moved to the blockchain, using cryptocurrencies like BTC with volatile prices for quoting would lead to very unstable asset prices. Therefore, there is a need for a cryptocurrency whose price is relatively stable like fiat currency to provide a quoting basis for RWA.
Since stability is desired, why not directly quote and trade in fiat currency? Why go through the trouble of using a stablecoin pegged to fiat currency?
I think there are two main reasons: on the one hand, directly using fiat currency is constrained by licensing regulations, and currently, only a few exchanges offer fiat trading services; on the other hand, the types of assets on these exchanges are limited and the coverage area is small.
In addition to quoting and trading functions, stablecoins also play other roles such as settlement and collateral. In comparison, stablecoins are more convenient and flexible than fiat currency.
The term RWA started to gain popularity in 2021, but relevant explorations began earlier. For example, in 2019, there was a project called RealT that attempted to tokenize rental income from U.S. real estate, allowing users who purchased the token to receive a corresponding proportion of rental income weekly. The entire process is completed on the blockchain, publicly and transparently.
I believe that the original intention of RWA is very similar to the philosophy behind Satoshi Nakamoto's design of BTC, hoping to use the decentralized and transparent characteristics of blockchain technology to transform the world. But ideals are beautiful, while reality is harsh. In the early days, constrained by various national laws and regulations, only a few projects dared to try.
Recently, the RWA concept has become popular again, and many governments have started to respond actively and introduce relevant guidelines. I believe there are several reasons for this.
First of all, the continuous development of blockchain technology and the maturation of on-chain infrastructure have made RWA technically feasible.
Currently, the yields on real assets like U.S. Treasury bonds and stocks of star companies are relatively high, and on-chain capital hopes to achieve more stable returns through RWA.
Secondly, the crypto industry itself has a strong desire to break out of its niche and hopes to attract more participants. As more newcomers join and capital flows in, it will naturally boost market heat and prices.
Furthermore, governments around the world have found that suppression cannot eliminate this industry, and it has gradually become a trend. If you can't beat them, join them; the sooner you get in, the more advantageous it is to compete for discourse power in this field. At the same time, traditional financial capital also wants to get a piece of the pie from the development of this industry, lobbying and promoting the government to introduce compliant policies to enlarge the cake.
With the combined efforts of internal and external forces, we have recently seen many governments introducing RWA guiding policies. This greatly resolves compliance issues, and more companies and entrepreneurs will likely flood into the field seeking business opportunities. I believe that RWA may spark a new industry boom similar to NFTs in 2021, and even create new wealth legends. However, with returns come risks, and caution should be exercised when investing.
The above is a simple explanation of the RWA concept and the reasons for its emergence. In the next article, I will continue to explain the specific implementation methods of RWA.