DeFi interest rates lagging behind traditional finance? Analyzing how RWA brings new opportunities to DeFi

An analyst from the quantitative hedge fund Alphabeth Capital pointed out in a recent article that DeFi interest rates are not competitive with traditional finance, but expressed optimism towards RWA assets, believing that RWA will become one of the largest categories in DeFi in the future.

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Why the Sudden Drop in DeFi TVL and Stablecoin Market Cap?

Analyst DeFi Made Here, referred to as DMH, points out that the total TVL of DeFi and the market cap of stablecoins have dropped sharply because DeFi interest rates are significantly outperforming traditional finance, with nearly double the "risk-free" U.S. Treasury yield on Aave.

Real-World Assets (RWA) as the Savior of DeFi?

DMH believes that introducing RWA to the blockchain can help sustain DeFi.

According to DefiLlama, the current market value of RWA is approximately $2.4 billion, and U.S. banks have predicted that RWA will reach $16 trillion within 5 to 15 years,

However, just the RWA product "stUSDT" on TRON alone accounts for $1.8 billion, and Binance's RWA report also highlights the significant TVL contribution of stUSDT in RWA.

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Why are RWAs Beneficial to DeFi?

Flux Finance

DMH explains that RWAs bring off-chain revenue onto the chain and allow other projects to leverage the composability of DeFi to create additional products on RWAs for higher returns.

For example, users can collateralize tokenized U.S. Treasury bonds on Flux Finance or leverage them.

Pendle Finance provides users with fixed income and trading opportunities.

Users can ensure the final returns of bonds at maturity through sDAI and fUSDC.

If users prefer fixed income over speculative yields, they can also provide liquidity on Pendle to earn one of the highest yields in the stablecoin market.

Moreover, RWAs already account for 13.6% of Pendle's total TVL, with $150 million out of $200 million, and as more RWAs integrate with the chain, the author believes that RWA's TVL will significantly increase.

In the future, the RWA market may become one of the largest categories in DeFi, and projects building infrastructure for RWAs may greatly benefit from this development.