State of Real World Assets on Solana — The Opportunities

Dive deep into the state of Solana RWAs Infrastructure, Need for RWA standard, ft. RWA projects like Credix, Homebase, Parcl, Maple, Baxus and more!

Yash Agarwal
18 min readOct 8, 2023

“Tokenization of illiquid assets to reach $16T by 2030” ~ BCG

In 2023, real-world tokenization gained widespread attention, earning the moniker “Killer App for TradFi” from J.P. Morgan and being hailed as the “Next Generation for Markets” by BlackRock’s CEO, Larry Fink. For those sleeping under the rock, RWA is already the 8th biggest sector in DeFi with $2.4 billion TVL, as per DeFiLlama.

Simply put, Real Word World Assets bring any off-chain financial assets on-chain. These assets can be anything from Real Estate to Credit, T-bills, Green Bonds, and even commodities like Whisky!

But why do we need to bring Real World Assets on-chain?

While the current solution might look like “lipstick on a pig,” i.e., adding unnecessary crypto rails, tokenization does help in creating:

  • Global financial infrastructure — crypto inherently is global.
  • 24/7 — always on, unlike traditional finance.
  • Programmable — once tokenized, the assets can be tracked and made programmable, automating the clauses in the financial contracts.
  • Composable — which makes DeFi powerful, the ability to interact with 10+ protocols simultaneously.

In this essay, we will delve deeper into the Solana RWA market, examine various RWA categories, identify the top Solana projects within each category, and explore the future prospects of RWAs on Solana, with a special focus on the need of a RWA standard.

Why Solana for RWAs?

Solana, like any other public blockchain, empowers transparency, automates payment calculations, enables asset self-custody, and provides a global, 24/7 settlement infrastructure for tokenized assets. However, Solana offers the following advantages in addition to public blockchains:

  1. Low Gas Fees and High Speed: For high-frequency use cases like Tokenised Forex, stocks, etc., Solana enables trading at extremely low fees, faster settlement, and high TPS — all with a single shared global state.
  2. Standards and Ecosystem: A healthy ecosystem of battle-tested DEXs, along with robust standards such as cNFTs (Compressed NFTs), pNFTs (programmable NFTs), Token 2022, and more, provides RWAs with the essential building blocks to create and launch their products. We will delve into the infrastructure available for RWA projects on Solana later in this essay.

Multi-chain future with Solana being the execution layer:

While DeFi protocols like lending/borrowing or spot DEXs benefit from being committed to a single chain like Solana due to advantages such as shared liquidity, composability, strong chain community support, and focused infrastructure development for a chain, and so on. However, it’s important to note that for an RWA to be married to a single chain may not be the most strategic choice. This approach simply limits your Total Addressable Market (TAM), given that the majority of infrastructure components are off-chain. Embracing a multi-chain strategy is a more sensible approach. Think of how most stablecoins are multi-chain with USDC currently available on 14 blockchains now.

The path forward involves accepting deposits from multiple chains while executing transactions on a single chain, as demonstrated by examples like Credix, which accepts deposits from both Ethereum and Solana, with execution taking place on Solana.

RWA Projects on Solana:

While the room for tokenizable assets is vast, Solana boasts a vibrant Real World Assets (RWA) scene, often overlooked.

Unlike other DeFi categories, adoption won’t occur suddenly and may take 5–10 years. However, it’s an exponential market with no cap on the TAM!

The path to RWA adoption and different categories

Let’s explore various Solana projects within each category:

Stablecoins:

While not typically categorized as Real World Assets, Stablecoins are the first Real World Asset with significant traction, underpinned by US Dollars and T-Bills as their foundational reserves. It can also be said that stablecoins exhibit the highest Product-Market Fit within the RWA category. Solana has the following stablecoins:

USD-denominated:

  • USDC, backed by US Dollars held in US Banks and T-Bills, custodied by BlackRock.
  • USDT, purportedly supported by US Dollars, T-Bills, and other assets.
  • UXD, partially collateralized by RWAs such as Private Credit.
  • Bridged Wormhole DAI, backed by DAI, which, in turn, is partially supported by RWAs.

Non-USD denominated:

  • QCAD, A CAD stablecoin backed by the Canadian Dollar.
  • EUROE, A EURO stablecoin backed by the EURO.
  • ISC, backed by a basket of Real World Assets.

We anticipate the emergence of numerous non-USD stablecoins on Solana, accompanied by innovations in yield-bearing stablecoins, in the upcoming months.

Real Estate:

Two major real estate players on Solana are already live and performing incredibly well — Parcl and Homebase. While both may appear similar on the surface, they are quite distinct. While Homebase represents real estate on-chain, Parcl is focused on tokenizing the real estate price index:

1. Homebase: US Real Estate Tokenisation

Homebase enables anyone to invest in real estate for as little as $100 and is currently tokenizing properties in the US. It has sold two tokenized properties worth more than $400k and is still in the very early stages!

Here’s how Homebase works:

  • The Homebase SPV entity acquires the property, and NFTs represent ownership in the SPV.
  • Users purchase listed properties on Homebase using USDC as NFTs.
  • The USDC is pooled and converted into USD to purchase the property represented by the SPV.
  • The rental yield is converted from USD to USDC, and users receive the monthly rental yield automatically in their wallets.
  • Users can buy and sell Home NFTs via the Homebase marketplace.

The best part is — that Homebase is entirely compliant, with tokens registered with the SEC and established processes for token recovery in the event of a user’s wallet being hacked. However, for now, it is only available to US residents.

2. Parcl: Long/Short on Real Estate Indices

Parcl allows anyone to invest in real estate assets for as low as $1 by providing exposure to real estate markets in cities around the world through REIT-like indexes. Think of Parcl as a company that creates real estate indexes, acting as a price feed service. It has also developed a perpetual AMM platform to assist users in trading these indexes, whether they want to go long or short. It now boasts more than $1 million in total value locked (TVL). It is currently operational in major US cities such as Brooklyn, Las Vegas, and Paris, with exciting additions like London, Jakarta, and Hong Kong on the horizon.

Liquidprop is another emerging player in the real estate field on Solana, following the Homebase-type model. It enables users to invest in tokenized residential real estate properties across the United States. While it’s not live yet, it will definitely be interesting to watch when they launch.

The best part is that this market is not a winner-takes-all scenario. There can be over 100 real estate tokenization marketplaces on Solana without necessarily competing with each other, as they can serve different geographies and tap into the mammoth $330 trillion+ industry!

Private Credit:

In the TradFi world, loans that do not originate from the banking sector are classified as ‘Private Credit.’ These loans are typically short-term (30–90 days) with floating interest rates and involve direct lending between an investment fund and a corporate borrower, often a small or mid-sized company. It is already a significant industry with over $800 billion in assets under management in traditional finance.

On-chain private credit closely resembles its traditional finance (TradFi) counterpart. However, it differs because it represents loans (Real World Assets) on-chain, allowing anyone to invest using stablecoins. To illustrate the concept of on-chain private credit, let’s examine the case of Credix Finance:

Credix Finance: The Major Private Credit Player on Solana

Simply, Credix is a credit marketplace connecting investors with FinTechs in emerging markets. They are solving the core problem of access to untapped credit opportunities.

The way it works is as follows:

  1. Investors: Invest stablecoins like USDC in the liquidity pool or specific tranches of specific deals on the market.
  2. Borrowers: Credix primarily works with FinTech borrowers in emerging markets who borrow USDC and convert them into their local currencies. The local currency (for instance, the Brazilian Real) is then lent to various types of businesses. The types of credit offered through the FinTech can be quite diverse:
    - Trade receivables (via Clave).
    - Asset-backed car loans (via Atria).
    - Revenue-based financing (via Brazil & Mexico).

Credix Finance has been experiencing rapid growth, having issued more than $40 million in private credit that has generated over $4.9 million in interest. The current 90-day trailing APY is approximately 12.9%. To enhance its attractiveness for investors, some of its portfolio is also insured and reinsured.

AlloyX is another project aggregating private credit protocols for lenders looking to enter Solana.

Challenges and Opportunities of Private Credit:

While tokenizing private credit is a huge untapped opportunity and solves the much-needed problem of inaccessibility and reduces operational & currency costs, they face their own share of challenges:

  1. Challenges of Bad Debt: For instance, recently, Goldfinch, a platform similar to Credix on Ethereum, had a pool from a FinTech company called ‘Tugende,’ which provides loans to motorcycle taxi operators in Kenya. They borrowed funds in the name of ‘Tugende Kenya’ and transferred the money to their subsidiary, ‘Tugende Uganda,’ to address business issues. This breach of the loan agreement was discovered through quarterly reporting, highlighting ongoing challenges in private credit that are yet to be resolved by RWAs. Further, legal enforcement in emerging market jurisdictions, such as Kenya, is challenging, making bad debt recovery difficult.
  2. Tracking off-chain data: In emerging markets, a lack of robust credit underwriting infrastructure forces RWA protocols to rely solely on borrower-provided data due to the absence of on-chain credit risk data or means to verify off-chain data, which can be easily manipulated. After loan disbursement, tracking the loan and borrower financials becomes impossible since it’s entirely off-chain, potentially leading to mishandling (as in the Tugende-Goldfinch case).

Solving these challenges requires innovative credit structuring, including:

  1. More active risk tracking & mitigation frameworks like more decentralized underwriting involving multiple professional parties (with skin in the game) in the risk assessment. Coordination can also be made on-chain.
  2. Active post-loan disbursement tracking via integrations like open banking APIs. Insurance/Reinsurance (like Credix does).

US Treasury Bills:

US T-Bills are the most sought-after RWAs on-chain, with over $660 million issued across all chains and numerous players still in active development. This is primarily due to the high-interest rate environment, as T-bills offer dollar-denominated risk-free yields of 4–5%.

Solana is still in the early stages of Tokenised T-Bills, with only one player, i.e. Maple, being live.

Maple Finance: The First Tokenised T-Bill on Solana

Maple Finance, one of the biggest institutional capital marketplaces in crypto, announced it is returning to Solana with its cash management product. In just a few days of the launch of the Cash Management product on Solana, it has attracted more than $4.2 million and is expected to continue to grow.

Here’s how Maple’s Cash Management product works:

  1. Lenders supply USDC-SPL into the Pool and receive LP tokens in exchange.
  2. The Pool issues a USDC-SPL loan to Room40 Capital’s Solana wallet, where the USDC gets converted via Circle to USD. The USD is wired to a prime brokerage.
  3. Room40, which is the borrower, manages the T-bills.

So, Maple Finance acts as a marketplace between lenders on Solana and borrowers like Room40 Capital.

With tokenized treasury players like Ondo, Open Eden, and MatrixDock exploding in Ethereum, we should see many players expanding to Solana in the coming months.

Physical Goods:

Any physical goods, ranging from art, trading cards, and sneakers, can be tokenized and brought onto the blockchain. The process of tokenizing physical goods works as follows:

  1. Vaults: The physical goods are authenticated, securely stored in vaults, and represented on-chain as NFTs or fungible tokens.
  2. Marketplaces: Users can buy, sell, and transfer tokens on the marketplace.
  3. DeFi: These on-chain assets can also be used as collateral for loans.

Furthermore, similar to stablecoins, you can deposit your physical goods to have them tokenized or redeem your tokenized physical goods for actual physical items. However, unlike stablecoins, where dollars are tokenized, physical goods are involved here, requiring physical delivery.

There are two fascinating players on Solana:

  1. BAXUS — Founded by a whisky trader and a software engineer, BAXUS is a secure marketplace for authenticating, storing, buying, and selling wine and spirits. The bottles are tokenized while being securely stored in US vaults.
  2. CollectorCrypt — Collector is a unique tokenization service that brings real-world collectibles onto Solana. It’s like Courtyard, but for Solana. One can also deposit their physical cards and get them tokenized.

Another intriguing player on Solana, Blockride, is in the process of tokenizing bus fleets and is still in the very early stages. It allows users to buy a fraction of revenue-generating bus fleets for as little as $50 and receive a percentage share of daily revenue directly in their wallet.

RWA Infrastructure on Solana:

While most of the DeFi infrastructure might not be geared towards RWA tokenization, one could argue that the infrastructure currently being built is undergoing rigorous testing for the financial systems of tomorrow!

We can categorize the infrastructure as follows:

  1. RWA Specific like Bridgesplit: Bridgesplit is an infrastructure platform on Solana that allows asset custodians and marketplaces to provide financing products to businesses and individuals. It initially began as a platform for tokenizing off-chain assets as NFTs and later shifted its focus towards RWAs. However, there have been no significant updates or releases from the Bridgesplit team in recent times.
    Another critical Infra piece related to the treasury management of RWAs is multi-sigs like Squads, which help secure their on-chain collateral assets, and Streamflow for streaming payments like bond yields.
  2. DEXs (AMMs and Orderbooks): While it may not be immediately evident, the ultimate goal for RWAs is to be traded on DEXs. DEXs are not only designed for the trading of meme coins; they are being rigorously tested to facilitate the trading of tokenized assets in the near future.
    AMMs — The primary obstacle preventing the free trading of RWAs is the absence of ‘Permissioned Pools.’ For instance, individuals should be able to exchange their tokenized credit positions for stablecoins through AMM pools.
    Orderbooks — Orderbooks are particularly well-suited for highly traded RWAs, such as tokenized stocks and forex markets, as these assets already exist in traditional finance systems that use order books. Furthermore, order books can result in much narrower spreads in markets with greater liquidity. Order books are the preferred choice for most market makers because they provide flexibility to liquidity providers (LPs) and offer more precise control over the prices at which traders buy and sell.
    And who is better than Solana for order books? Solana is the only blockchain processing $2 million+ in daily volumes powered by Openbook and Phoenix.
  3. Oracles: Oracles are an important source of truth for off-chain asset data and ensuring Proof of Reserves for real-world assets. Solana has two major oracles — Pyth (permissioned) and Switchboard (permissionless), which can be used for streaming off-chain data onto the Solana blockchain.
  4. On/Off-ramps: Conversion between Fiat <> Crypto, especially a specific Fiat and their stablecoin pairs (like USD <> USDC), is crucial for reducing payment costs associated with RWA operations. Most major on/off-ramp providers support Solana; you can find the complete list of Solana on/off-ramps here.
  5. Bridges: Moving forward, Bridges will play a critical role in RWAs, as most RWAs will be multi-chain (with native execution on multiple chains), and some might even be cross-chain (with deposits on multiple chains while execution happens on a single chain). While Solana has a wide range of bridges powered by Wormhole and DeBridge, having more bridges and cross-chain token standards will be essential. I have also written about taking RWAs cross-chain using Wormhole — have a deeper look at the cross-chain RWA thesis here.

One of the examples of bridged Real World Asset was Wormhole bridged CHAI (Tokenised version of DAI savings rate), allowing investors on Solana to get yields of DAI.

Token Standards:

The token standards play a critical role as they enable “tokenization” in a secure and standard way:

  1. SPL Token: The primary token standard on Solana, representing fungible tokens. Just like any stablecoin, any RWA player can launch their asset as an SPL token and have features like dynamic supply, minting, freezing, burning, and so on.
  2. Token 2022: Extending the original standard, Token 2022 enables additional features relevant to RWAs:
    - Confidential Transfers: Allows for private transfer of tokens; relevant for institutions looking to hide their transactions.
    - Transfer Fees: Issuers can configure transfer fees or taxes on which transactions.
    - Interest-bearing Tokens: Tokens that accumulate interest over time, like Bonds.
    - Non-Transferable Tokens: Tokens cannot be transferred once issued
  3. Metaplex Standards for NFTs: Metaplex has a set of NFT standards like Compressed NFTs and Programmable NFTs, which also can allow RWA players to represent unique assets.

While the current standards cover broad cases, the lack of an RWA standard hinders the adoption of RWAs on Solana.

Need for an RWA Standard for Solana:

The Solana Ecosystem lacks a unified, widely accepted standard for tokenizing RWAs. Just as standards like JPEG and PDF formats standardized files across different devices and facilitated the sharing of content on the internet, a standardized RWA standard can help boost RWAs for Solana. Think of it this way: Just as Metaplex made it easy to create NFTs, a standardized RWA token can simplify the process of creating tokenized RWAs.

Dom, the founder of Homebase, started this much-needed discussion on the Solana forum, and coincidentally, I also had this idea and had prepared a flowchart for “persmissioned RWA tokens.” Here’s what I envisioned:

The flowchart created by me (which was also shared on the Solana Developer call)

A few considerations for creating an RWA standard:

  1. Tokenization at the asset level instead of the pool level: For instance, each loan to a merchant in Argentina would be tokenized as an individual asset rather than tokenizing a pool of loans disbursed by fintechs, each token representing a share of that fund. Tokenizing at the asset level enables a more transparent representation of ownership, allowing for real-time tracking of the performance of all assets on-chain. For example, Circle’s exposure to SVB Bank could have been tracked in real-time if all their deposit balances with different banks were available on-chain at the asset level rather than simply as a ‘$8.4 Billion pool of capital exposure to multiple banks’ at a pooled level.
  2. RWA Standards on other chains: It’s also important to take note of existing standards like ERC-3643 (by Tokeny), ERC-1400 (used by Matrixport), ERC-6065 (for Real Estate), and ERC-4626 (used by TrueFi) and have the best practices incorporated from them.
  3. BD Push: It’s important to note that the RWA token standard would require an initial BD push and re-iterating as per institutional needs to get initial adoption. The initial standards adopters can be from FinTechs to RWA projects to Traditional Finance giants. This would also require building custom solutions and giving “hooks”-type functionality for anyone to build on top.
  4. Flexible and Upgradeable: All contracts must be inherently upgradable to accommodate changing compliance needs for asset issuers. Any asset issuer should easily implement additional smart contracts for investor rights (e.g., voting, dividends, announcements). It should also enable token recovery in cases of lost wallet private keys and maintain a transparent history of recovered tokens on the blockchain. The standard’s components should be as modular as possible to enable easy plug-and-play for any player.

The best part is the Solana Foundation has an RFP (Request For Proposal) to apply for a grant (up to $250K) to build an RWA standard program! This could serve as a reference implementation for anyone building on RWA and as a foundation for a consortium of leading ecosystem RWA projects, ensuring adoption, maintenance, and long-term sustainability.

What Solana lacks as compared to other Ecosystems?

While Solana has a booming RWA sector, it still lacks compared to other ecosystems. Here’s a comparison with other ecosystems:

  1. Ethereum: Keeping tech aside, RWA protocols crave one thing: Capital. Ethereum has by far the largest capital leverage, which is why almost every RWA protocol has Ethereum as one of its primary chains. Attracting capital from Ethereum while keeping Solana as the execution layer can be a viable option for Solana RWAs.
  2. Avalanche: Ava Labs, the company behind Avalanche blockchain, has a core mission of “Digitize all the World’s Assets,” and rightly, they are focussing on RWAs with initiatives like a $50 million Vista fund for purchasing tokenized assets, bringing giants like KKR and so on. Having an RWA fund by the Solana Foundation (just like a $10 million AI fund) can play a big role in attracting RWAs to Solana.

The Opportunities and Trends Prediction for Solana RWAs:

  1. The Explosion of Tokenised Treasuries: While Solana lags behind in the tokenized treasuries trend, we will likely witness a substantial amount of Solana capital being locked into treasuries due to the high yield they offer. If a genuine explosion of tokenized treasuries occurs, it could also result in an increase in DeFi interest rates, given the relatively shallow lending and borrowing markets available on Solana, which I believe would be a healthy sign — the convergence of TradFi and DeFi.
    Projects from other ecosystems to watch out for as they ‘might’ expand to Solana in the near future: Ondo, Matrixport, Backed.Fi, OpenEden, and more.
  2. Stablecoins backed by Tokenised treasuries: Despite stablecoins boasting a combined market capitalization of $125 billion across all chains and with over $1.6 billion of stablecoins within the Solana ecosystem alone, they currently yield 0% returns in this high-yield environment.
    One promising avenue for enhancing stablecoins to serve users better is to integrate RWAs as a means of generating yield for stable-value tokens, thereby offering a return to their holders. An emerging hot player on Ethereum in this category is Mountain Protocol, building yield-bearing stablecoin.

3. Tokenized US stocks and Synthetics: While tokenized US stocks can be legally challenging, projects like Swarm are tokenizing stocks on Polygon. While fully-backed assets are sounder, one can also create perpetual markets for Real World Assets like Parcl — Solana Labs also has a reference implementation for the same.

4. DEXs specifically for RWAs: Given the need for permissioned DEXs, DEXs specifically catered for RWAs can enable the interaction of permissioned assets in a compliant way. For instance, EVM-based DEX, Muave is a fork of uniswap v3 and requires KYC via VioletID to use the DEX. One of the Solana DEX, Meteora, is also launching DLMM, which is focused on use cases like Forex and RWA.

5. DeFi Composability: The next step for RWAs would involve making them composable with DeFi, which would enhance the productivity of the underlying assets. For instance, holders may have the opportunity to earn a higher yield on their U.S. Treasuries by tokenizing them, offering them as collateral in a DeFi lending market, borrowing stablecoins, purchasing more Treasuries, and repeating this cycle. This is just one simple example: integrating RWAs into the Solana DeFi ecosystem unlocks the creation of valuable new products, some of which can only exist in the crypto space through crypto-native mechanisms.

6. Convergence between DePIN and RWAs: Solana is unquestionably the leading chain for DePIN, thanks to projects like Helium and Hivemapper. These DePIN networks possess assets such as sensors, drones, and wearables that will provide real-time, highly reliable data as RWAs address financing for them. We are witnessing the creation of an entirely new supply chain, encompassing the physical, financial, and legal aspects, all driven by DePIN and RWAs. An interesting project, Entheos, has taken the first step in DePIN x RWA, enabling investors to finance the decentralized network of physical infra (smart battery assets), which might also leverage Solana in the near future.

7. Credit Protocol: Circle Research recently released Perimeter Protocol to allow developers and builders access to an audited, open-source protocol that they can freely use to build unique credit applications using USDC — suited for RWAs. However, this is only for EVM; building this for Solana is a huge opportunity akin to the RWA token Standard.

8. More Assets and More Markets: Goes without saying we need more and more assets on-chain, like Solar Fields (like Plural Energy), Precious Metals (like xMetals), Carbon Credits, Corporate Bonds, or maybe even Uranium (Uranium308), etc. Further, identifying tokenization-friendly jurisdictions like Switzerland, UAE, Singapore, Germany, and Hong Kong can be a key advantage for RWA players.

Closing Thoughts: Tokenization is the Endgame

We all know tokenization of all assets will happen eventually; the question is, what is the catalyzing event, and when? Market shifts tend to be slower than sudden, but if you ignore the signs, you suddenly leave behind. The standards and infrastructure of tomorrow are being built today.

We also need a better term for “RWA,” as TradFi refers to “RWA” as ‘Risk-Weighted Assets’ and can be confusing if we expect TradFi to enter the Tokenisation landscape. There’s a dam of institutional interest waiting to break. Tokenization will be that catalyst!

Feel free to contact me at Yash (@yashhsm on Twitter) for any suggestions or if you have any opinions. If you find this even slightly insightful, please share it — justifies my weeks of effort and gets more eyeballs :)

Special thanks to Anna Y. (Solana Foundation), Whisky Titan (BAXUS), Domingo (Homebase), Odai (Liquidprop), Erwin (Hawksight), Kash Dhanda (Superteam), Mike (EmpireDAO), Sitesh (Superteam) who reviewed and provided insights at different stages of the draft.

--

--

Yash Agarwal

Building & Writing in FinTech & Web3 | @yashhsm on Twitter