Why will Ethereum take up most of the RWA market?

Ethereum’s dominance in the tokenized asset (RWA) space is growing. Recently, Avalanche’s Avax Foundation announced that they will be purchasing $50 million worth of tokenized real assets on their chain. This may seem like a trivial piece of news, but I think it is actually one of the great signs of things to come. Let me try to explain why Ethereum has solidified its early dominance in this most important market for tokenized real-world assets.

First, it’s important to note that tokenization of real-world assets (RWA) is the most important growth area in crypto right now. Every asset in the world will eventually be tokenized. The sector has already begun to enter the vertical portion of its S-curve. The market cap statistic of tokenized assets may soon be as important as DeFi TVL or stablecoin market cap in evaluating the success of a particular chain, or even more important.

In terms of the tokenization platform market structure, the construction of a tokenization platform/protocol is very expensive. There are a series of reasonable, asset-related choices involved in the tokenization design process. This naturally leads to market fragmentation.

The large potential market and fragmentation will ensure that there are many players in this competitive field.

Avalanche is buying $50 million in tokenized assets to help power their tokenized platform. This subsidy could be important to them because from what I hear they are lagging behind in this extremely competitive market.

Another reason for Avalanche's $50 million investment could be the desire to stimulate a virtuous cycle of success by improving their tokenized asset metrics. I don't think they will have much success competing with Ethereum. Of course, the industry will be so large that even as a small portion of the market, they may be able to carve out a significant business.

There are several key metrics that have emerged in the tokenized asset space. Let’s explore them and see why Ethereum excels in this regard.

First, the market cap of on-chain tokenized assets will be similar to that of stablecoins. The higher the market cap, the better.

Currently, Ethereum has about $300 million in tokenized U.S. Treasury T-Bills, as well as tokenized assets from other asset classes (this part has an uncertain amount. For example, you can buy Coinbase COIN shares on Ethereum).

Stellar also has an additional ~$300 million in tokenized U.S. Treasury T-Bills. But don’t get too excited about Stellar: the most important factor in the growth of tokenized assets may be on-chain markets, where Ethereum dominates.

For example, from what I can tell, Stellar’s ​​T-Bills are tokenized through one platform (Franklin Templeton), while Ethereum’s T-Bills are tokenized through 8 different competing platforms, including Franklin Templeton.

On-chain marketplaces are critical to the growth of tokenized assets because they drive the real benefit of tokenization: providing the ability to trade and exchange with other parties.

This summer, traditional finance and governments were very excited about the inherent benefits of tokenization, including instant settlement, fractional ownership, and globality. These are very good signs. But this is only the first stage.

In the next few quarters or years, traditional finance will also be excited about as many parties, mature money building blocks, and as much other liquidity as possible enjoying the benefits of tokenization to minimize risk.

This is where Ethereum’s most powerful advantage lies in this crucial market:

You can tokenize any asset on any chain, but only on Ethereum do these assets have:

1) The strongest property rights (derived from our focus on maximum credible neutrality);

2) The one with the most users and liquidity to trade with.

Compared to other L1s, Ethereum’s ecosystem, users, integrations, tokens, chains, etc. are 10x to 1000x larger; 3) The best currency Lego blocks available. Compared to other L1s, Ethereum’s applications and DeFi protocols are 10x to 100x more mature, with more in number, richer in variety, better managed, etc.

I mentioned earlier a few key metrics emerging in this space. The first is market cap .

The second metric is the percentage of market cap that is used for DeFi , which is the subset of market cap that is used for DeFi. Ethereum has been very successful in this regard and will continue to be so.

The third metric I want to highlight is the percentage of tokenized assets market cap that are financed on-chain . There is a world of difference between a company or on-chain foundation investing $50 million to tokenize an asset for itself and a customer paying you $50 million in USDC on-chain to tokenize an asset on their behalf. One is inventory, the other is a business.

The public chain is a big market. Ethereum’s credible neutrality is like a market security team.

ETH’s vast network of users, operators, and liquidity is like a thriving bazaar filled with goods. And first-rate money legos and infrastructure are designed to minimize friction, making purchases cheap and enjoyable.

As RWAs gain global adoption, we can expect Ethereum and our layer 2 extensions to capture the vast majority of growth. Not only because we are a great choice for tokenization, but also because ETH is the best market in the world.