If you have just come across this article. It means you are interested in finance. While some see this as a boring topic, you are among the few who find it interesting to understand.
The idea is that you fully understand what the Capital Markets is all about and what Onchain Capital Markets is, sit tight let’s unpack. Our aim is simple, to give you the knowledge you need to understand what Onchain Capital Markets and its instruments is all about.
What is Capital Markets: This is a financial market where traders can buy and sell financial instruments like stocks, bonds, long-term and short-term debts (treasury bills), equity-backed securities etc.
What is Onchain Capital Markets: On-chain Capital Markets is the financial market that utilizes blockchain technology for the issuance, lending, borrowing, trading and faster settlement of financial instruments to increase transparency, security, reduced fees and efficiency.
Onchain Capital Market Instruments
Now let’s talk about the common instruments of the Onchain Capital Markets. Currently, the top most performing and widely common Onchain Capital Markets sectors / instruments are; Stablecoins, RWA; Yield Bearing Stablecoins, US Treasury Bills, Global Bonds etc, LP Tokens; Curve LP, UNI-V2, Insurance; Nexus Mutual, Indexes; DeFi Pulse Index, Governance; Aave Protocol, Compound Finance, Moonwell etc.
Stablecoins: A stablecoin in this context is an Onchain Capital Markets instrument representing 1:1 to the pegged asset or Commodity without volatility. It’s designed to maintain a stable value to the pegged asset, for example; US Dollars or Euros. Stablecoins serve as Yield, Collateral assets, settlement instruments, and liquidity tools for the Onchain Capital Markets.
Real World Assets Tokenization; Yield Bearing Stablecoins — These are stablecoins that yield interest by simply holding them in any of the supported blockchain wallets unlike other stablecoins that might require you to deposit into a protocol to earn yield. Example; USDY from Ondo Finance backed by Short-term US Treasuries and Bank Deposits, USDM from Mountain backed by US Treasuries.
RWA – Real World Assets Tokenization
One of the most common sectors of the Onchain Capital Markets instruments currently gaining wide traction is the RWA sector. This sector currently has a total of $23.62B RWA Onchain according to RWA.xyz
What is RWA Tokenization? This simply means issuing traditional financial instruments (like private credit, real estate, treasury bills, commodities, stocks) or ownership rights of physical products into digital units/tokens on the blockchain backed 1:1 to its underlying asset.
When RWA are tokenized, they become available for use in DeFi protocols. For example, the US Treasuries can be used as collateral in DeFi for borrowing, and can also be used as yield-generating instruments or stablecoin backers.
Trading Tokenized RWA
The trading of RWA assets is currently available across various decentralized financial markets as tokens. But most importantly the trading of tokenized stocks and bond issuance is what is still lacking a platform onchain.
Currently, we have platforms like Ondo Finance building a market for RWA trading known as Ondo Global Markets which is being developed for the trading of RWA tokenized instruments, majorly stocks etc.
Conclusion: RWA is a new market sector in the crypto space and decentralized financial market which can lead to a new explosive market trend for the Onchain Capital Markets.
Note: This is not a financial advice
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