Institutional Fusion: Tokenized Real-World Assets Bridge TradFi and Crypto

Institutional interest in tokenized real-world assets (RWAs) is surging, as these assets offer new investment and liquidity opportunities. Amidst this growing affinity, Fathom, a DeFi liquidity management protocol on XinFin's XDC Network, is addressing challenges related to liquidity management for RWAs within DeFi ecosystems. Through its innovative approach, Fathom enables institutions to leverage tokenized RWAs as collateral for lending, trading, and other financial activities, unlocking enhanced accessibility and liquidity for these assets.

Tokenized Real-World Assets: Unveiling the Potential for Institutional Adoption in the Crypto Space

Amidst the myriad narratives shaping the crypto landscape, tokenized real-world assets (RWAs) have emerged as a beacon of innovation, attracting the attention of institutional players from the traditional finance (TradFi) realm. These institutional-friendly assets hold immense promise for unlocking novel avenues for investment and liquidity while introducing unique challenges.

Exploring the Institutional Affinity for Tokenized RWAs

To gain insights into this burgeoning trend, TheNewsCrypto engaged in a comprehensive discussion with Manuel Rensink, co-founder of Fathom, a DeFi liquidity management protocol operating on XinFin's XDC Network.

The Genesis of Fathom: Bridging the Gap between RWAs and DeFi

Manuel Rensink (MR) embarked on his DeFi journey following an extensive career in TradFi. Having worked at renowned financial institutions such as Chase Manhattan Bank, Deutsche Bank, and a JP Morgan spin-off, he made a pivotal transition into the crypto space in 2016. His subsequent role at a Swiss crypto exchange, one of the early pioneers in security tokens, paved the way for his involvement with Securrency, an innovative company dedicated to compliantly integrating assets onto the blockchain.

During his tenure at Securrency, Rensink encountered a significant challenge: determining the optimal utilization of tokenized assets once they had been brought onto the blockchain. Regulatory hurdles and the absence of secondary trading platforms hindered the potential of these assets.

Recognizing this gap, Rensink and his co-founders envisioned the use of DeFi as a distribution channel for tokenized RWAs. They explored collateralization methods that enabled these assets to be deployed on the blockchain, allowing users to borrow or lend stablecoins against them. They also investigated the creation of trading platforms on decentralized exchanges (DEXs) and the integration of RWAs into automated asset managers, vaults, and lending protocols.

Addressing Liquidity Challenges for RWAs in DeFi Ecosystems

Rensink acknowledges the complexities involved in managing liquidity for RWAs within DeFi ecosystems. While asset managers have been actively exploring tokenization, the current challenge lies in achieving broader distribution across multiple platforms and DeFi protocols. This would allow tokenized RWAs to serve as collateral for a wide range of financial activities, including lending smart contracts, liquidity pools, vaults, lending protocols, and automated market makers (AMMs) such as Uniswap.

Such enhanced accessibility would foster liquidity, ultimately increasing the utility of these assets.

FXD: A Stablecoin Differentiated by Mechanism and Use Cases

Institutions have embraced the stablecoin market, with the dollar-pegged market reaching a milestone of $160 billion. Among the array of stablecoins, FXD stands out with its unique mechanism and use cases.

Unlike traditional stablecoins that tokenize bank deposits, FXD functions as both a mechanism and a liquidity protocol. It enables holders of RWAs to borrow FXD stablecoins, which are over-collateralized by their assets. This opens up a range of financial opportunities, including payments, cross-border transfers, trading pairs, and participation in lending protocols.

Furthermore, FXD's regulatory advantage stems from its classification as a non-systemic and crypto-friendly stablecoin, potentially mitigating the scrutiny faced by deposit-backed stablecoins such as USDT and USDC.

Expanding Asset Portfolio and Enhancing Protocol Scalability

Having surpassed $7 million in total value locked (TVL), Fathom has outlined its plans to expand its asset portfolio and enhance protocol scalability. Diversifying the assets backing FXD is a key priority, with gold emerging as the second asset type following XDC's protocol token. The integration of tokenized money market funds and credit-like assets is also being considered.

Institutional Involvement: A Growing Trend

The recent launch of spot Bitcoin ETFs in the U.S. and Hong Kong, coupled with Australia's anticipated entry by 2024, underscores the growing institutional involvement in crypto. Rensink anticipates continued expansion as more traditional players recognize the financialization potential of crypto, particularly Ethereum and DeFi.

Notably, major institutions such as BlackRock, Hamilton Lane, WisdomTree, Ark, and Franklin Templeton are embracing blockchain and DeFi as viable distribution channels, highlighting the transformative potential of these technologies. These developments stand in stark contrast to the setbacks experienced by FTX and other CeFi and DeFi players in recent years.

Valuation and Future Outlook for the RWA Ecosystem

When asked about the potential valuation of the RWA ecosystem in the coming years, Rensink acknowledges the challenges involved in estimating crypto's market size. Nevertheless, industry experts project that crypto could reach $30-35 trillion in the next five years, with a near-term target of a few trillion dollars.

Fathom's immediate focus, however, is on scaling its TVL, with a goal of reaching $100 million by year-end, primarily through the integration of RWAs.

Disclaimer: This article is provided solely for informational purposes and does not constitute financial, legal, tax, or investment advice.