Multicoin Capital Says RWAs Could Drive DeFi 2.0 Market Structure

The growing movement of real-world assets ( RWAs) onto blockchains could significantly expand the structure and economic opportunity of decentralized finance, according to a new essay from Multicoin Capital. As assets such as government bonds, equities, corporate credit, commodities and foreign exchange move on chain, the firm argues that DeFI will need to evolve beyond the primitives that were primarily designed around native crypto assets.

This cloud creates greater demand for more sophisticated financial infrastructure ,including order books, fixed- rate lending, options, interest-rate derivatives, repos, dark pools and portfolio margining. Multicoin also sees potential value capture spreading across the blockchain stack, from general-purpose networks and core protocols for aggregators, onchain prime brokers and applications controlling order flow.

How Could RWA’s Reshape DeFi Market Structure?

Multicoin distinguishes between the native crypto assets that molded early DeFi and RWA is originating outside the crypto ecosystem: BTC, ETH, SOL, and HYPE helped drive the growth of early DeFi products, such as automated market makers, perpetual contracts, collateralized debt positions, synthetic assets, and open-term variable rate lending.

These products were suited to assets characterized by high instability, speculative trading, long tail token supply, and poor liquidity access. AMMs made it possible to quickly create markets for newly launched tokens, where the primary challenge was establishing liquidity and price discovery.

So RWA arrival changes those needs. Treasuries, equities, corporate credit, commodities, and foreign exchange generally have lower instability, tighter spreads, defined maturities, and predictable cash flows. They can also serve as a better collateral and involve identifiable borrowers and large institutional participants. Multicoin networks to the financial infrastructure should be traded as DeFi 2.0 primitives. These include central limit order books, 

CLOBs, request for quote, RFQ systems, proprietary algorithms, fixed rates, fixed-term borrowing and lending, bonds, interest rate derivatives, repos, dark pools, portfolio margining, options, and dated futures. Many of these products already exist within DeFi, but Multicoin argues they were offered before the underlying assets they’re best suited for supporting had moved on-chain. Execution quality is only one niche where the difference could become important.

For highly speculative crypto assets, traders may tolerate significant slippage when the asset can experience large price movements over short tenors. For a treasury or foreign exchange transaction, even a small difference in execution can affect the economics. Lower volatility could also create more demand for options and structured products.

Multicoin points to covered callers, downside protection, instability trading, and structured yield as potential applications as equities, indices, commodities, currencies move on-chain. The firm also sees a chance for fixed-rate, fixed-term lending.

Open-term variable-rate lending has become ineffective for crypto traders who may not know how long they will hold a position. But borrowers financing businesses or asset purchases often need accountability around their funding costs.

Where Could Value Accrue as More Assets Move Onchain? 

The expansion of RWAs could also widen the range of yields and financial exposures available through DeFi. Yield-splitting platforms such as Pendle and Exponent could move beyond crypto-native sources of yield toward treasury rates, credit spreads, dividends, and other contractual cash flows.

Interest rate derivatives could evolve beyond crypto-native funding rates. Multi-coin points to the possibility of markets built around treasury rates, corporate borrowing costs, and other real-time benchmarks.

 Dated futures and forwards could also become crucial for an organization hedging an FX payment six months later, a producer locking in a commodity price, or a bond investor managing duration exposure.

They need derivatives with settlement dates rather than perpetual contracts. The firm also expects forwards to become more useful as the range of on-chain assets and strategies expands. 

Instead of automating crypto-native strategies such as yield farming, liquidity provision, and options selling, vaults could package treasury ladders, equity covered calls, diversified credit portfolios, basis trades, and a combination of fixed and floating rate exposure.

Credit markets could change as well. RWAs can provide lenders with more predictable collateral and identifiable borrowers. Identifiable companies and funds can also be assessed through balance sheet, cash flows, management team, contracts and liabilities.

This creates the probability of lending models that consider both borrowers and collateral instead of depending almost entirely on over-collateralization. Institutional trading introduces another requirement, which is privacy, while blockchain transparency can be useful for smaller transactions. 

Institutions executing large orders may not want their trading intentions visible while positions are being established. As portfolios become vast across equities, rates, commodities, currencies, credit and crypto, portfolio margining will also become increasingly necessary.

Instead of treating every play separately and on-chain, prime brokers could recognize offsetting exposures and allow collateral to be managed across multiple venues. The potential value capture, therefore, could extend to the DeFi stack. 

General-purpose blockchains could benefit from increased transaction demand as market makers update quotes, traders place orders, credit positions are financed and refinanced, derivatives settle, collateral moves between venues, and portfolios rebalance. Multicoin describes this as a wider opportunity than simply tokenizing assets. The firm argues that each RWA can support more financial activity around it than a typical native crypto asset. 

The first phase of RWAs largely focused on bringing conventional assets on-chain. Multicoin states that the next phase will involve making those assets useful through a broader set of financial primitives.

In that view, DeFi 2.0 is not necessarily about replacing existing DeFi infrastructure, AMMs, perpetuals and over-collateralized lending can continue serving native crypto assets, while the arrival of RWAs creates demand for a better financial system designed around different asset trades.