Tokenized Real-World Assets: Outperforming Bitcoin & Ether in 2024

Introduction

Tokenized real-world assets are outpacing popular cryptocurrencies like Bitcoin and Ether in terms of volatility-adjusted returns and market performance.

In 2024, the total value locked (TVL) of the real-world assets (RWA) market has grown to $8 billion, excluding non-yield-earning stablecoins. Real-world assets are currently tokenized on several blockchains, often for real estate, commodities, private equity, government securities, and other financial obligations. 

The tokenization of RWAs has not just become popular, it has revolutionized the decentralized finance (DeFi) space. This shift was triggered when the bond yields in traditional finance surpassed the low-risk DeFi yields in the bear market of 2022 to 2023, leading to fierce competition between DeFi stablecoin providers despite Treasury yields having a much lower risk. Till June 13, 2024, the three-month average yield offered by a one-year Treasury bill used to vary between 5% to 5.24%, whereas Aave (Most Long-lived DeFi Protocol by TVL) has been offering variable annual percentage returns of 3.72% to 7.46% on stablecoins. 

Real-World Asset Projects Have A Market Cap Of Over $8 Billion

Recently, several protocols have taken advantage of higher borrowing costs and decreased DeFi activity by introducing tokenized U.S. Treasurys and tokenized private loans in blockchain ecosystems. By early June, the average annual percentage yield for these tokenized private loans was a notable 9.57%. As the crypto market bounced back with fresh institutional interest in 2024, the total value locked (TVL) in Real World Asset (RWA) projects surged to an impressive $8 billion.

Leading the way in this burgeoning market is the asset management powerhouse, BlackRock. With its BUIDL fund, BlackRock swiftly rose to become the largest provider of tokenized U.S. Treasurys. The fund’s success was evident from the start, launching with a market cap of $180 million and quickly soaring to $462.27 million. Boasting a 30% market share, BlackRock has outpaced the long-standing frontrunner, Franklin Templeton’s Benji Investments fund, instilling confidence in the potential of tokenized real-world assets.

The growth of the RWA market is not only evident in the TVL but also in the performance of related tokens. In May alone, RWA tokens experienced a staggering 55.20% increase, culminating in a 224.57% rise year-to-date. This remarkable growth, driven by tokens from TrueFi, Ondo, Dusk, Clearpool, and TokenFi, paints an optimistic picture of the future of decentralized finance.

Research was conducted to calculate the risk-adjusted year-to-date performance of the most outperforming tokens, measuring their excess returns per unit of risk. After analyzing their daily returns from Jan 1, 2024, to May 31, 2024, the Sharpe ratio of RWA tokens is as follows: 

• Ondo: 4.70
• TokenFI: 2.66
• TrueFi: 1.88
• Dusk: 1.44
• Clearpool: 0.4

Average Returns of RWA Tokens

Let’s dive into the data on risk-adjusted returns and see how various tokens stack up against a BTC/ETH portfolio. 

Firstly, we calculated the risk-adjusted returns using a risk-free rate based on the daily annual yield of a one-year Treasury bill. Interestingly, with the exception of Clearpool, all the other tokens boasted a higher risk-adjusted return than a BTC/ETH portfolio, which maintained an average Sharpe ratio of 1.37 during the same timeframe.

What does this mean for you? 

Well, the elevated Sharpe ratios of these RWA tokens indicate they have been providing a more favorable balance between return and risk, especially for short-term trades. This higher Sharpe ratio essentially suggests you could expect better returns for the amount of risk you’re taking on.

But that’s not all. In terms of raw price performance, these tokens have also been outperforming the BTC/ETH portfolio, again with Clearpool being the only exception. This performance highlights the potential for higher gains, making these tokens a compelling consideration for your investment strategy.

Have any thoughts or questions about these findings? Feel free to share in the comments section!