Government Bonds RWA: Key Areas for Implementation in the Short Term

In the cryptocurrency market, real-world assets of the government bond type (RWA) are becoming a rapidly growing niche. Currently, the tokenized asset scale of government bond RWA projects is approaching $700 million, an increase of about 240% since the beginning of the year. Furthermore, government bond RWA in a certain DAO has also rapidly grown to the level of several billion dollars. Overall, government bond RWA is showing a fast growth trend.

1. The Significance of Government Bonds RWA

Government bonds RWA and pledged derivatives ( LSD ) are similar, capable of introducing a risk-free interest rate from traditional financial markets into the on-chain world, allowing investors based on stablecoins to adopt traditional allocation strategies. This brings several benefits:

1. In a bear market, stablecoin investors still have relatively safe and stable income channels;

2. Mixed equity and debt financial products are easier to launch and be accepted by the market, promoting innovation in the DeFi asset management field.

A typical case is a certain DAO. After the bear market and the rise in US Treasury yields, the project incorporated US Treasuries into its investment scope, significantly improving its profitability since 2023. This serves as a model for other DeFi projects, likely encouraging more projects to improve profitability through diversified strategies such as RWA, especially providing a stable income source for projects to maintain stable operations during bear markets.

2. Commercial Model of Sovereign Debt RWA

Currently, there are mainly 5 business models for government bond RWA:

1. Consignment model: does not directly participate in the packaging of underlying assets and user KYC, mainly acquires customers through native encryption methods.

2. Platform Model: Provides services such as on-chain, sales, KYC, etc., but does not personally package assets.

3. Infrastructure Model: Provides services such as RWA on-chain, asset purchasing, management, etc., but does not directly interact with end users.

4. Self-operated model: The project party independently seeks assets, establishes a business structure, and achieves asset tokenization.

5. Hybrid Model: A combination of the above models, providing services while also seeking asset matching users on its own.

In addition, there are pure trading infrastructure such as DEXs serving RWA.

3. Asset Side: Underlying Assets and Architecture

Underlying Assets 3.1

There are mainly three categories:

1. US Treasury Bond ETF

2. US Treasury Bonds

3. A combination of U.S. Treasury bonds, government agency bonds, and cash/reverse repos

3.2 Fee Structure

Different underlying assets lead to variations in the fee structure:

• US Treasury bond ETFs mainly have creation and redemption fees, approximately 0.05%-0.5%.
• The other two categories also added a management fee of 0.3%-0.5% and an approximate transaction fee of 0.2%.

3.3 Asset Business Structure

There are mainly the following types:

1. Trust Structure

2. Limited Partnership SPV Structure

3. Lending Platform + SPV Structure

4. On-chain Fund Shares

As the industry develops, the scalability of the architecture will become increasingly important.

4. User End: KYC and Other Requirements

The project's requirements for users mainly have three aspects of difference:

1. Minimum investment threshold: some have no threshold, while others set a threshold of over 100,000 USD.

2. KYC requirements: ranging from no KYC to heavy KYC.

3. Regional Restrictions: Some projects have limited service areas.

5. Profit Distribution Strategy and Composability

5.1 Revenue Distribution Strategy

There are mainly two types:

1. Direct allocation through creditor relationships, users receive the majority of the profits.

2. The project team has greater flexibility through the deposit interest rate method.

5.2 Composability

Projects with strict KYC have limited compatibility, while projects without KYC do not have this issue.

6. Summary

The bond RWA project model that may succeed in the medium to short term:

• Using government bond ETFs as underlying assets is rather opportunistic.
• The business architecture must have scalability.
• The user side has advantages with no KYC and no capital threshold.
• It is better to align profit distribution with government bond yields.
• The higher the combinability, the more advantageous it is for expanding business scale.

In the long run, projects with lightweight KYC may have more advantages.