Investment Thesis: RWA & DePIN

The digital assets industry encompasses diverse sectors, each presenting unique strengths and investment potential. The strategic allocation of capital across these sectors can define the difference between a well-diversified portfolio generating positive returns and a concentrated one overly reliant on specific sectors. In this series, we aim to highlight interesting sectors and explain why the Hodl Funds chose to invest in them. Among these sectors lies Real-World Assets (RWA) and Decentralized Pyshical Networks (DePIN), interesting stand-alone industries, however, the two are also slowly integrating.
 

What are RWA & DePIN?

RWA has been a long-lasting theme within the digital assets market but in the past two years, it gained significant traction. In essence, developers tokenize assets such as bonds, stocks, or real estate and implement this onto the blockchain, allowing it to be traded and stored on the blockchain. This allows the asset to leverage the blockchain’s unique features such as transparency, low transaction costs, and immutability.

Source: https://apollocrypto.com/exploring-the-real-world-assets-rwa/

DePIN is a relatively new theme within the digital assets industry and its sector is quite broad. DePIN projects are decentralized applications (dApps) that use tokens to incentivize users to crowdsource and build connected real-world physical infrastructure. Physical infrastructure networks include computing, storage, energy, and agriculture networks.

As RWA and DePIN aim to integrate assets or networks with decentralized ledger technology and digital assets, we see the two sectors slowly intertwine as there is some overlap as physical networks are theoretically real-world assets.
 

Why are RWA & DePIN important?

The two sectors are becoming increasingly important as they integrate the digital assets industry with our traditional markets. If the industry wishes to continue its upward trajectory, it shouldn’t depend on value creation within the digital ecosystem. Furthermore, these sectors provide unique advantages over our traditional market. These features include lower operational and transaction costs, transparency, and operate 24/7.

The first traditional financial institutions are experimenting with tokenization such as the world’s largest asset manager BlackRock. The financial titan has recently launched its first tokenized investment fund on Ethereum, allowing professional investors to invest in US bonds through blockchain technology. Furthermore, the industry has witnessed decentralized finance protocols offer tokenized bonds or loans, allowing investors to earn yield generated outside the digital assets industry. So, both industries can improve by integrating as the operations of traditional firms become more efficient while the digital assets industry attracts more value to its ecosystem.

Currently, it costs businesses significant upfront capital to build and scale physical infrastructures, usually resulting in centralized networks. But with DePIN, users can aid in decentralizing these networks while being rewarded. For example, blockchain project Helium uses blockchain technology to create a decentralized wireless network that allows anyone to get paid for providing coverage and connection through their personal devices. As a result, it allows users to own a piece of the network while not being dependent on big companies. Furthermore, it creates a cheaper network as there is no company behind it with eyes for profit.
 

Why should RWA & DePIN be a part of a portfolio?

We believe that RWA & DePIN should be part of a diversified portfolio as these sectors represent the wider integration of digital assets and traditional markets. For years the digital assets industry has been screaming that digital assets and blockchain will be integrated with financial markets and other sectors, and now, we slowly witness this trend accelerate. Blockchain and digital assets technology offer something unique compared to the systems these firms use. As aforementioned, it is cost-efficient, operates 24/7, is transparent, and allows firms to operate in a single environment instead of siloed ecosystems. Furthermore, big institutions see the potential of tokenization as global consulting firm McKinsey forecasts $2 trillion in tokenized real-world assets by 2030 in its base case.

https://x.com/dr_andrewlaw/status/1649067731268894720

While DePIN is a relatively young sector, market participants and venture capitalists such as Multicoin Capital see massive potential. This is attributed to the fact that these DePIN protocols leverage the power of open-source networks. Traditional firms have problems with scaling their networks as this requires upfront investments, data, or other assets depending on the sector. Through DePIN networks, users can easily enter the network and try to improve it with their data or other resources through which they are rewarded. This allows these open networks to achieve incredible scalability, therefore, it offers a unique investment opportunity
 

Interesting RWA & DePIN Projects

Ondo Finance

Ondo Finance is an RWA project that allows professional investors and institutions to invest in short-term US Treasuries, allowing users to earn traditional yield through digital assets. The main goal of the platform is creating risk-isolated, fixed-yield loans backed by yield-generating crypto assets, in return for this service, Ondo charges a small fee. Its services have taken the industry by storm as its total value locked surpassed $400M.

Dimo

Dimo is a DePIN protocol aiming to connect every car to create a smart and programmable transportation industry by leveraging vehicle data, connectivity, and commerce. The protocol has developed an app that users connect to their cars. Users can monitor their car’s health with the app, including tire pressure, battery life, location, and more. Users can also book maintenance, track their car’s value, and earn rewards.
 

Hodl’s takeaways

Although there are numerous interesting sectors within the digital assets industry, RWA & DePIN can become the main drivers of growth in this cycle. We believe that wider integration with traditional markets is needed to push forward further and RWA & DePIN offer this possibility. So as more institutions start experimenting with tokenization and the integration of blockchain technology, more attention will be put on these sectors.

As these sectors represent the integration of two industries, we believe they are a crucial component of a diversified digital assets portfolio. We think that they can be major contributors to the growth of this market cycle. However, it is important not to concentrate on these sectors, as this would create an unbalanced portfolio. Additionally, investors need to decide whether to invest in one or multiple projects within these sectors, each option has advantages and disadvantages.

At Hodl, we believe that every modern investor should have an allocation to digital assets, and through regulated investment funds, we aim to aid professional investors in achieving this. Curious to know what digital assets can bring to your portfolio? Book an appointment to discuss the possibilities

For further reading

• Investment Thesis: Lending & Borrowing
• Investment Thesis: Interoperability