Analysis of the Development Prospects of Government Bond RWA

In the short term, government bond-type RWAs are most likely to experience an explosion in scale and user base. Currently, the tokenized assets of government bond-type RWAs are close to $700 million, an increase of about 240% compared to the beginning of the year. The government bond RWAs in MakerDAO have also rapidly grown to the level of several billion dollars. Overall, the growth rate of government bond RWAs is quite fast.

The Significance of Government Bonds RWA

Government bonds RWA are similar to LSD, allowing the introduction of risk-free interest rates from traditional financial markets on-chain, enabling dollar-denominated investors to adopt traditional allocation strategies. This brings the following benefits:

1. Dollar-based investors still have relatively safe and stable income-generating places during bear markets.

2. Hybrid financial products are easier to launch and be accepted by the market, promoting innovation in the DeFi asset management sector.

After MakerDAO included U.S. Treasury bonds in its investment scope, its profitability significantly improved in 2023. Other DeFi projects may follow suit by improving project profitability through diversified strategies such as RWA.

Business Model of National Debt RWA

Currently, there are five main business models for government bond RWA:

1. Agency model: does not directly participate in the packaging of underlying assets, focusing on customer acquisition and ecosystem expansion. Such as TProtocol, etc.

2. Platform model: Provides services such as on-chain, sales, KYC, etc., without encapsulating assets. For example, Desmo Labs and others.

3. Infrastructure model: Provides services such as RWA on-chain, asset purchases, etc., without direct contact with users. For example, Centrifuge.

4. Self-operated model: find assets on your own, establish a business structure, and achieve tokenization. Examples include MakerDAO, Franklin OnChain, etc.

5. Hybrid Model: A combination of the above models, such as Fortunafi.

Asset Side Analysis

Underlying Asset Type

1. US Treasury ETF: Simple, entrust asset management to the ETF issuer, such as Backed Finance.

2. U.S. Treasury Bonds: The project party needs to manage the assets independently and choose suitable partners, which is important. For example, OpenEden and others adopt this.

3. U.S. Treasury bonds, corporate bonds, and reverse repurchase agreements: require management by professional managers, such as those adopted by Franklin OnChain.

Fee Structure

• U.S. Treasury Bond ETF: Mainly for minting and redemption fees, approximately 0.05%-0.5%.
• Other two types: an additional management fee of 0.3%-0.5% and a trading fee of around 0.2%.

Asset Business Structure

The main models include trust structure, limited partnership SPV structure, lending platform + SPV structure, and on-chain fund share.

User End Requirements

The project's requirements for users mainly focus on three aspects:

1. Minimum investment threshold: Some projects have no threshold, while others set a threshold of over $100,000.

2. KYC requirements: divided into three categories: No KYC, Lightweight KYC, and Heavy KYC.

3. Regional restrictions: Some projects limit the service areas.

Profit Distribution and Composability

Profit Distribution Strategy

1. Directly allocate the returns from underlying assets, deducting a small handling fee.
2. Adjusting through deposit interest rates, such as MakerDAO's DSR mechanism.

Composability

The composability of strict KYC projects is relatively poor, while non-KYC projects have stronger composability.

Future Development Trends of Government Bond RWA Projects

1. Underlying assets: National debt ETFs are relatively convenient, directly purchasing U.S. Treasury bonds tests the project's team's capabilities.

2. Business Architecture: It needs to have scalability for easy expansion and incorporation of new assets.

3. User side: Projects without KYC and thresholds are more popular in the short term, and may shift towards lightweight KYC in the future.

4. Profit distribution: It is better to maintain a ratio consistent with the national debt yield.

5. Composability: Expand the use cases of tokens as much as possible to increase business scale.

In the long run, with regulatory intervention, lightweight KYC projects may have greater opportunities.