TOKEN2049 Insights: Is DeFi Dead Without RWA?

Author: Jade's RWA Notes

This week at TOKEN2049 in Singapore, I heard this statement: Without RWA, DeFi is a dead end.

I was relieved that someone finally said it.

The speaker was Jim Hiltner, founder of Superstate. He himself noted that this is a spicy idea.

However, if DeFi's next phase is truly to move towards larger financial markets, this issue may be more worth discussing seriously than we think.

Why DeFi Might Die

The total locked value (TVL) of DeFi is almost a shadow of the price of native token assets. The TVL follows the price of coins, which means that the scale of DeFi does not depend on how many people need it, but rather on whether its own assets appreciate. This is akin to a bank's deposit size depending on its own stock price, which is unreasonable.

The yield side presents the same issue. Yannick, head of special projects at Bitwise, stated more directly in an interview on October 6 titled "Institutional DeFi on Solana": Ordinary DeFi is somewhat dead because interest rates are gone. Therefore, Bitwise has been doing one thing: bringing real interest rates on-chain and underwriting different assets.

In the past, on-chain yields mostly came from the leverage demand for crypto assets. During a bull market, everyone borrows money to leverage, and interest rates are naturally high; once the market cools down and the risk-free interest rates in traditional markets are high, deposits will flow back to traditional markets.

During the panel discussion "DeFi: The Race to Power Global Finance" at TOKEN2049 on October 7, the host posed this question: The ten-year U.S. Treasury bond is currently at 5.3%, very attractive, safe, and large in scale. When the market turns bearish and on-chain yields are similar to the safest assets in the world, how can DeFi retain deposits?

In response, Cheryl Chan, Director of Strategic Development at Kamino, answered frankly: It won't happen that you can get 5% like U.S. Treasuries without taking on obvious risks. Her answer was not higher yields but more diverse assets: When various assets are on-chain, on-chain finance itself is a form of diversified allocation; many products that previously could only be accessed through private banks or U.S. brokerages can now be directly accessed by ordinary users. In her view, the core is access and diversification.

However, the premise of diversification is that there are truly allocatable assets on-chain, which is precisely what DeFi has been lacking in the past. The founder of the Phoenix team, a perpetual contract product on Solana, recalled that when he entered DeFi in 2020 and 2021, the chain was full of financial experiments, but only three or four assets could be taken seriously, while the rest were assumed to go to zero, with many experiments ultimately failing in bad ways. In his view, there are now higher quality assets on-chain, and those experiments are worth running again.

Spencer Applebaum from Multicoin Capital mentioned the same thing from another angle during the VC panel "The Great Rebuild": Lending, spot trading, and perpetual contracts have long been usable in DeFi, but crypto assets themselves are highly volatile, lack duration, and have no cash flow, with all protocol users being anonymous. The efficiency that can be mined from such assets has already been largely exhausted.

In other words, relying solely on crypto-native assets, DeFi has a ceiling.

Incremental Growth Comes from Real Assets

At TOKEN2049, during a discussion involving Jeff, founder of Hyperliquid, the host presented a set of numbers: BTC and ETH prices are down 30-40% compared to a year ago, yet the platform's monthly trading volume remains roughly the same as last year. The reason is that the trading structure has changed: The HIP-3 market, deployed by third parties, mainly consists of perpetual contracts related to real-world assets, which have accounted for 30-50% of total trading volume, reaching 51% at one point in July. Trading crude oil and perpetual contracts for unlisted companies, which were merely concepts a year ago, is now a reality.

Jeff's interpretation is that the transformation of HIP-3 from an idea into reality is the most important thing to look back on this year; such a high proportion indicates that users are willing to leave existing financial products to try new things.

The same is true on Solana. According to data from rwa.xyz, as of October 6, the value of RWA on the Solana chain is approximately $4.37 billion, with the number of holding addresses doubling in 30 days; the number of holders of tokenized stocks in the entire market has exceeded 4.28 million.

The types of assets are also broadening: from U.S. Treasuries and money market funds to private credit and reinsurance, and this week a Swiss private asset management firm announced the launch of a royalty fund on-chain, with underlying assets in music, life sciences, and energy transition.

These types of assets have low correlation with the crypto market, precisely filling the gap that DeFi has been missing.

Conversely: RWA Without DeFi is Just a Shell

RWA is important for DeFi, but vice versa: RWA also needs DeFi.

Adam Bilko, who manages the RockawayX flagship market neutral fund, stated during the SCF panel discussion "Tokenized. Now What?" that many issuers treat tokenization as a layer of legal shell, thinking that once on-chain, buyers will naturally come, but this is not the case. In his words, pre-qualification is just the first step; the real work comes afterward.

In another panel, TN Lee from Pendle stated more bluntly: Tokenized assets that sit there unused have little significance.

According to a snapshot from RWA Markets on September 29, tokenized stocks have about $2.27 billion in measurable circulation, but only about 9.9% have been deployed into DeFi; tokenized funds have issued $12.4 billion, but only $728 million have been used as collateral.

Most RWA have gone on-chain and then just sit in wallets.

Not all RWA are usable. U.S. Treasuries are the safest assets, but using them for circular borrowing on-chain requires someone to be willing to lend you money at a rate lower than that of U.S. Treasuries, which does not make economic sense. Assets with highly volatile returns are also unsuitable, as a drop in net value can trigger liquidation, and it may not even be possible to find someone to liquidate.

The most suitable assets for entering DeFi are those with stable returns that ordinary people usually do not have access to.

Real use cases often emerge at the boundaries of traditional rules. Moomoo's perspective is similar. They have surveyed their clients: If it’s just trading another version of stocks on-chain, it’s merely replicating existing business; the real change is that stocks held in traditional brokerage accounts are isolated, cannot settle with other assets, and are not easily used for financing; once on-chain, this layer of isolation is lifted.

Why Haven't Both Sides Connected Yet?

If DeFi needs RWA, and RWA also needs DeFi, why haven't the two sides truly connected yet? This week, the most discussed points were three.

• The first is liquidity. RWA typically cannot be redeemed immediately after sale, with T+1 or T+2, and private credit is even slower. If assets cannot flow on-chain, the lending market will find it difficult to accept them as collateral with confidence.
• The second is the interest rate structure. Institutional borrowers want predictable funding costs, which means fixed rates and fixed terms. This direction is widely agreed upon, but the capacity and depth of the fixed-rate market are still insufficient.
• The third is the way institutions enter the market. Many have been waiting for Wall Street to deposit money into DeFi, but a judgment made during the same panel that I agree with is that Wall Street will not enter as depositors but as borrowers, issuers, and managers, and they want permissioned, KYC, and legally enforceable arrangements.

Many large pension funds and insurance companies do not even have wallets yet.

The Same Answer

How can on-chain yields retain deposits? After tokenization, who will actually use them?

These two questions were repeatedly raised during the two events. The people on stage had different roles—those managing tokenized funds, on-chain index funds, interest rate protocols, and market-neutral funds—but the answers pointed in the same direction: RWA is not an option for DeFi; it is a mandatory question. The phase of "DeFi only serving crypto assets" is indeed coming to an end.

The next phase of DeFi will not be measured by TVL and yield rates, but by three things: which real assets can be accepted as collateral, whether the fixed-rate market can achieve depth, and whether institutions can enter in their accustomed ways. The same applies to the RWA side; the competition for issuance is nearly over, and what follows is not who issues more, but who is truly used.

Tracking the progress of these matters, the proportion of tokenized stocks entering DeFi, the scale of RWA as collateral, and the growth rate of on-chain RWA holding addresses are all numbers worth paying attention to.

The views expressed by the guests in this article are based on public discussions at TOKEN2049 and the Solana Capital Forum and do not represent the positions of their respective institutions or this platform, nor do they constitute investment advice.

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