Opinion: Why Ethereum Will Be the Best Market for RWA
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Opinion: Why Ethereum Will Be the Best Market for RWA
As RWA gains global adoption, we can expect Ethereum and our Layer 2 scaling solutions to capture the majority of the growth.
Navigating Web3 tides with focused insightsAuthor: Ryan Berckmans
Compilation: TechFlow
Ethereum's dominance in the tokenized real-world assets (RWA) space is growing stronger. Recently, Avalanche’s Avax Foundation announced they would purchase $50 million worth of tokenized real-world assets on their chain. This may seem like minor news, but I believe it is actually one of the most important signals about the future. Let me explain why Ethereum has already secured an early dominant position in this crucial market for tokenizing real-world assets.
First, note that real-world asset tokenization (RWA) is currently the most important growth area in cryptocurrency. Every asset in the world will eventually be tokenized. This sector is now entering the steep part of its S-curve. When evaluating a blockchain’s success, the market cap of tokenized assets may soon become as important—or even more important—than DeFi TVL or stablecoin market cap.
In terms of market structure for tokenization platforms, building such platforms/protocols is expensive. The tokenization design process involves many rational, asset-specific decisions, which naturally leads to market fragmentation.
The massive potential market combined with fragmentation ensures there will be many players competing in this space.
Avalanche is purchasing $50 million in tokenized assets to help bootstrap their tokenization platform. This subsidy might be critical for them, as far as I can tell, because they are already behind in this extremely competitive market.
Another reason Avalanche might invest $50 million is to trigger a virtuous cycle of success by boosting their tokenized asset metrics. However, I don’t think they’ll fare well in competition with Ethereum. Of course, the industry will be so large that even capturing a small portion of the market could allow them to build meaningful business.
Several key metrics have emerged in the tokenized assets space. Let’s explore them and see why Ethereum excels in this area.
First, the market cap of on-chain tokenized assets will be similar to stablecoin market caps—the higher, the better.
Currently, Ethereum hosts around $300 million in tokenized U.S. Treasury bills (T-Bills), along with tokenized assets across other asset classes (the size of which is less certain—for example, you can buy tokenized Coinbase COIN stock on Ethereum).
Stellar also has an additional ~$300 million in tokenized T-Bills. But don’t get too excited about Stellar: the most important factor in tokenized asset growth is likely on-chain markets, where Ethereum dominates.
For instance, as far as I know, Stellar’s T-Bills are tokenized through a single platform (Franklin Templeton), whereas Ethereum’s T-Bills are tokenized via eight different competing platforms, including Franklin Templeton.
On-chain markets are crucial for tokenized asset growth because they enable the core benefits of tokenization: the ability to trade and exchange with other participants.
This summer, traditional finance and governments became very excited about the inherent benefits of tokenization, including instant settlement, fractional ownership, and global accessibility. That’s a great sign—but it’s only stage one.
In the coming quarters or years, traditional finance will also become excited about having as many participants as possible, mature monetary legos, and maximum liquidity—all reducing risk.
This is precisely where Ethereum holds its strongest advantage in this critical market:
You can tokenize any asset on any chain, but only on Ethereum do these assets enjoy: 1) The strongest property rights (due to our focus on maximum credible neutrality); 2) The largest number of users and liquidity to transact with. Compared to other L1s, Ethereum’s ecosystem, users, integrations, tokens, and chains are 10x to 1000x larger; 3) The best available money legos. Ethereum’s applications and DeFi protocols are 10x to 100x more mature, numerous, diverse, and well-governed than those on other L1s.
I previously mentioned several emerging key metrics in this space. The first is market cap.
The second metric is the proportion of market cap used in DeFi, i.e., the subset of market cap deployed in DeFi. Ethereum has already achieved significant success here and will continue to do so.
The third metric I want to emphasize is the proportion of tokenized asset market cap financed on-chain. There is a world of difference between a company or on-chain foundation investing $50 million to tokenize assets for themselves, versus customers paying you $50 million in USDC on-chain to tokenize assets on their behalf. One is inventory; the other is business.
Public blockchains are big markets. Ethereum’s credible neutrality acts like a market security team.
ETH’s vast network of users, operators, and liquidity is like a thriving marketplace full of goods. And top-tier money legos and infrastructure minimize friction, making transactions cheap and pleasant.
As RWA goes global, we can expect Ethereum—and our Layer 2 solutions—to capture the vast majority of this growth. Not just because we’re an excellent choice for tokenization, but because ETH is the world’s best market.
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