Empowering Stablecoins with Real-World Assets (RWAs): Inside Angle Protocol
Real-World Assets (RWAs) — tokenized versions of physical and financial assets — bolster the transparency and stability of stablecoins by serving as collateral. RWAs such as tokenized government bonds also have the potential to generate yield. Angle Protocol utilizes a variety of RWAs to back its stablecoins and redistributes the generated yield to its users.
Since 2023, and in the ever-evolving crypto landscape of 2024, Real-World Assets (RWAs) emerge as one of the leading narrative. Despite the market's ups and downs, tokenized RWAs have demonstrated growing adoption, as evidenced by BlackRock USD Institutional Digital Liquidity Fund (BUIDL) launched in March. Therefore, as of today, the Total Value Locked (TVL) within RWAs protocols stands at $6 billion according to DefiLlama.
RWAs are now an integral part of the DeFi ecosystem by bridging the gap with Traditional Finance, and play a pivotal role in the development of stablecoins by enhancing their stability and transparency.
By leveraging RWAs as early as 2022 to develop its Euro stablecoin, EURA, Angle stands out as a pioneer in the adoption and promotion of RWAs. RWAs play an equally significant role with the launch of the Protocol’s new stablecoin, USDA.
What are Real-Word Assets (RWAs)?
In Decentralized Finance (DeFi), Real-World Assets (RWAs) involve turning physical and financial assets — real estate, precious metals, stocks, bonds, and financial derivatives — into digital and tradable formats on the blockchain through asset tokenization.
Tokenizing refers to the representation of value and ownership rights tied to a specific asset or utility as onchain tokens. This process serves as a link between traditional finance (TradFi) and DeFi, allowing physical assets to be converted into fractionalized, accessible, and tradeable tokens thereby boosting liquidity, accountability, and transparency.
With RWAs tokenization, for instance, you can swiftly exchange a token representing the value of gold within seconds on the blockchain, or fractionate real estate into thousands of tokens to enhance liquidity.
Enhancing stablecoins with RWAs
What's the deal with RWAs and stablecoins?
Stablecoins, unlike many digital currencies, strive for price stability by tying their value to a stable asset, such as Euro or the U.S. dollar. This anchoringallows stablecoins to merge the benefits of blockchain technology — fast transactions, security, and privacy — with the volatility-free nature of fiat currencies, providing users with a dependable and consistent value onchain.
Stablecoins are supported by a reserve of assets. It ensures that every issued stablecoin is backed by a pool of assets of corresponding value.
Stablecoins can be backed in various way. The reserves can include fiat currency such as U.S Dollar, cryptocurrencies such as ETH, but also RWAs such as tokenized bonds.
But why include RWAs in the backing of a stablecoin?
Transparency
RWAs are tokens on the blockchain. Their ownership can be easily verified, providing clear evidence of the backing of the stablecoin. In contrast, the ownership and management of fiat reserves that are offchain may lack transparency, making it difficult to confirm the existence and composition of reserves.
Stability
RWAs typically exhibit lower volatility compared to cryptocurrencies. By including RWAs in the backing, the stablecoin's value is less likely to experience sharp fluctuations, contributing to overall stability.
Diversification
Diversifying the stablecoin backing with RWAs reduces reliance on any single currency or assets, thereby mitigating risks associated with fluctuations or economic instability. Additionally, incorporating RWAs may appeal to investors seeking exposure to RWAs within the digital asset space.
Predictable yield
RWAs with fixed-income such as corporate and government bonds accumulate value in line with the underlying asset. For example, tokenized Treasury Bonds increase in value, such as the original government bonds. Thus, incorporating RWAs in a stablecoin backing make them an attractive yield-bearing solution.
Angle's RWA-backed stablecoins
Since its creation, Angle ensures that DeFi is a space where tokenized assets and RWAs can thrive. By utilizing RWAs to back its Euro stablecoin EURA (previously agEUR) since 2022, Angle is a pioneer in the adoption of RWAs.
Today, RWAs are at the forefront of Angle's Euro stablecoin (EURA) and newly introduced Dollar stablecoin (USDA), ensuring increased stability, transparency, and yield.
The Protocol incorporates various RWAs in the backing of its stablecoins, each with its own specifications:
bC3M: a tokenized representation of the C3M ETF by Amundi. This ETF seeks to replicate the performance of the Eurozone Government Bill 0-6 Month Capped Index.
bERNX: a tokenized representation of the ERNX ETF by Blackrock. This ETF seeks to track the performance of an index composed of Euro denominated investment grade corporate bonds.bHIGH: a tokenized representation by of the HIGH ETF by BlackRock. This ETF seeks to track the performance of an index composed of Euro denominated high yield corporate bonds.
bIB01: a tokenized representation by of the IB01 ETF by BlackRock. This ETF seeks to track the performance of an index composed of US Dollar denominated government bonds issued by the US Treasury, with remaining maturities between zero and one year. bIB01 are also collateralizing USDA, Angle’s new USD stablecoin.
All these RWAs used in Angle’s stablecoins backing are tokenized by Backed as freely transferable ERC-20 tokens on EVM-compatible blockchains.
RWAs are not the sole collaterals. BTC, ETH, and other liquid stablecoins also complement RWAs in Angle's stablecoin reserves, as evident on Angle analytics.
RWAs yielding returns for Angle users
As these RWAs replicate the performance of the underlying assets, they replicate their growth and yield over time. Thus, Angle Protocol earn a Euro and US risk-free rate from the RWAs it holds in its reserves.
Rather than keeping this yield like all major stablecoins projects, Angle automatically allocate it to its users who deposit their EURA or USDA stablecoin in Angle savings solutions.
With this, Angle enables anyone to effortlessly access the advantages of RWAs without directly managing the assets: users can benefit from the stability and the yield generated by these securities without the necessity of holding the securities themselves.RWAs are undoubtedly a hot topic in 2024. Their integration into stablecoin backing offers a promising solution, bringing more stability and transparency to the market. Moreover, the capacity of RWAs to generate additional yields highlights their potential to significantly enhance the DeFi user experience, as demonstrated by Angle's approach of automatically allocating these yields to its stablecoin users.
In an upcoming article, we will delve into Angle's vision regarding RWAs.
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