Decentralized Finance (DeFi) was built on the dream of impressive yields and groundbreaking financial services, captivating public interest and investment. At its highest point in 2021, the total value locked (TVL) across DeFi protocols was more than $174 billion. Most of the DeFi protocols that lead this first wave have imploded. They’ve had a hard time keeping up momentum and achieving long-term returns. While these protocols fight their battles against the tide of fading interest, Real-World Assets (RWAs) flood in with a shining beacon of hope. They offer a path for creating legitimate and durable yield in the crypto ecosystem. RWAs are opening the door for more investors to directly engage in more complex investments. It’s these assets that create the hotlink into reg-fn. This unusual combination of stability and innovation happens to be the secret ingredient that could power a DeFi sector comeback.
The Rise and Fall of DeFi Yield
The DeFi sector experienced dramatic growth during 2020 and 2021. Protocol DeFi Innovations At the forefront of the movement were protocols like Compound and Uniswap who first pioneered governance tokens and innovative yield-generating farming strategies. It’s no wonder then that these innovations drew a tsunami of investors looking to cash in on the excellent yields that these new platforms promised. DeFi’s meteoric rise was driven by the hope of a new decentralized, permissionless finance that could supplant or sidestep traditional financial infrastructure.
The early hype of DeFi was starting to wear off as numerous protocols were unable to maintain their exorbitant yields. Multiple reasons led to this downfall, from unsustainable tokenomics to needing impermanent loss to a lack of real-world utility. Protocols who previously touted billions in total value locked (TVL) have seen their valuations plummet. Investors are looking for steadier, less volatile earnings streams.
Sushiswap for example suffered an epic bloodbath after blasting off to an all-time high of $7.7 billion in TVL in 2021. Its TVL has since plummeted to $117.36 million, underscoring the fate that has befallen many early DeFi protocols. Such a rapid decline highlights the need for better sustainable and durable yield-generating mechanisms to exist within DeFi.
RWAs: A Bridge to Sustainable Yield
RWAs are becoming the most promising source of sustainable yield in DeFi. As RWAs, their backing assets are the most tradable, tangible things we know – real estate, commodities, U.S. Treasuries. These assets have been tokenized and flowed into blockchain networks. Tokenization allows investors to leverage these assets through DeFi protocols. This establishes a tremendously important bridge between the traditional financial world and the crypto ecosystem.
One of the biggest benefits of RWAs is their capacity to create yield from real-world economic activity. RWAs are different from most DeFi protocols. While others try to squeeze value through convoluted and usually unsustainable tokenomics, RWAs derive their worth from actual, physical assets and mature markets. This allows for larger allocations to be made for a more stable and predictable source of yield in that environment for investors.
U.S. Treasuries, in particular, have become the investor darling—offering the cleanest U.S. RWA exposure. Despite their relatively low returns, tokenized U.S. Treasuries offer a safe and reliable way to earn yield in the DeFi space. The RWA market seems to be on an uptrend. Tokenized treasuries have topped $7.3 billion in value, demonstrating the burgeoning demand for these assets.
Templeton’s BENJI, for instance, offers investors a way to get exposure to U.S. Treasuries in a tokenized form. BENJI produces yield directly from these treasuries, providing investors a simple and clear mechanism to generate a return. RWAs are currently yielding an average 4.12% yield to maturity. This combination of attributes makes them a particularly attractive option for investors seeking safer, sustainable returns. BENJI is compatible with multiple blockchain networks (such as Solana, Stellar, Polygon, Ethereum and Base), making it even more accessible.
Ecoyield: Investing in Renewable Energy Projects
Ecoyield – an innovative platform that shows the RWAs can do more than create real world yield. It opens up new opportunities for impact investing by connecting accredited investors directly to vetted, job-creating renewable energy projects. This allows them to use their capital in accredited solar and BESS projects. This model presents a powerful way to make an impact on clean energy and inclusive growth while generating a financial return.
On the revenue side, Ecoyield collects real-world revenue through these Power Purchase Agreements (PPAs). These are multi-year agreements for the sale of electric power produced by renewable energy developments. This revenue in turn gets paid out as yield (in ETH/USDC) back to investors. This direct connection between revenue generation and yield distribution creates a sustainable, transparent, and predictable return for investors.
Ecoyield’s RWA model provides several key benefits. It gives investors the chance to get involved in projects that will positively impact the environment. This investment opportunity brings invaluable diversification, without being exclusively tied to the day-to-day performance of the broader crypto market. In addition, it offers a direct, open, and transparent way to mint yield and distribute it.
The Future of DeFi with RWAs
Bringing Real-World Assets (RWAs) into the DeFi ecosystem is a huge step forward. This decision is a step towards a stronger economy and more sustainable financial system. RWAs bridge the gap between decentralized finance and physical assets along with real-world economic activities. That remarkable connection opens up new opportunities to produce stable, predictable yields. This strategy addresses the issues that have dogged the DeFi space for years. It goes a long way toward addressing concerns such as unsustainable tokenomics and lack of real-world utility.
RWAs will take us into a new era. In this new age, modest but sustainable APYs will prevail, setting the stage for years of compounded growth and stability across the DeFi ecosystem. As traditional assets continue to be tokenized, investors will find more opportunities. These tokenized assets will plug into DeFi protocols and help to broaden the investment universe. This increased diversification can help mitigate risk and enhance returns, making DeFi a more attractive option for both institutional and retail investors.
The RWA market is poised to continue expanding. More protocols and platforms can be found to facilitate the tokenization and integration of real-world assets. This trend will be the impetus for even more innovation in the DeFi space. So developers will be scrambling to find more innovative ways to use RWAs and invent new financial products and services. Properly integrating RWAs can arguably have a more profound impact on DeFi. It has the ability to make this speculative niche a new mainstream financial system.
