Highlights from ETHMilan: RWA Panel
November 7 2024
by Victoria Calmon
Highlights from the ETHMilan panel with Mountain Protocol and Backed, featuring Markus Franke, CEO of Mento Labs
Nick (Moderator): I'm Nick from Cointelegraph, the biggest and oldest media outlet in the crypto space. Today, we have an amazing lineup of speakers who are bridging Real World Assets (RWAs) with blockchain technology, making it more accessible.
Markus Franke (Mento Labs): I'm Markus, and I work on Mento. Mento is a stablecoin platform for local currency stablecoins. We're focusing on long-tail currencies.
We recently launched cKES, a Kenya Shilling decentralized stablecoin for micro-lending projects in Kenya, as well as a Philippine peso (PUSO) on the Mento Platform. We also have euro (cEUR), dollar (cUSD), Brazilian real (cREAL), and West African franc (eXOF) decentralized stablecoins on Mento.
The RWA space is interesting for us because users need diverse collateral they can use to earn yield for these exotic local currencies on-chain.
Emanuele Rossi (Mountain Protocol): I'm Emanuele, and I lead sales at Mountain Protocol. We're the issuer of regulated, permissionless yield-bearing stablecoins. We've enhanced the model of traditional stablecoins by adding a rewards component, paying rewards to holders without requiring staking or claiming.
Giorgio Giuliani (BackedFi): I'm Giorgio from Backed Finance. We're a Swiss-based company that allows everyone to buy bonds and stocks on-chain, on Ethereum and layer-2 solutions. We launched two years ago and have reached around 70 million TVL and 100 million in total volume. Our first product was T-Bills, and we've recently released several stocks.
Nick: Let's dive into the topic of RWAs. How has this concept evolved in the blockchain space, and what current developments have shaped its current state?
Emanuele: RWAs are essentially a rebranding of tokenization. Tokenization has been around for years, coinciding with the advent of smart contracts and programmable blockchains. Initially, the goals and success of these projects weren't clear.
There was always a promise of liquidity for illiquid assets, but the infrastructure and market participants weren't ready. In recent years, we've seen renewed interest due to sophisticated institutional investors and partners joining the space, understanding the technology and its potential for traditional financial markets.
Markus: I agree that infrastructure has improved significantly, especially on the custody side and throughout the tokenization process stack. It's also interesting that regulation is finally catching up. For example, in Europe, the Markets in Crypto Assets (MiCAR) regulation provides a framework for institutions to engage in the space.
Giorgio: I think what really changed is the interest rate environment. Pre-2023, global interest rates were too low to make on-chain bonds attractive. With rising interest rates, there's been a growing appetite for T-Bills and other on-chain products, even among crypto investors.
Nick: Let's talk about regulation. How is it progressing, particularly with MiCAR in Europe?
Giorgio: Outside the U.S., there isn't a big regulatory issue. We have a framework to operate within. The problem is that the U.S., the world's biggest capital market, has an uncertain regulatory environment. This uncertainty is holding back investment and adoption.
Emanuele: The U.S. is indeed key for global adoption. We still can't definitively say whether Ethereum is a commodity or security, which should have been figured out long ago. However, there are clear regulatory frameworks in many parts of the world. The challenge is harmonizing these different regimes and ensuring regulation keeps pace with blockchain technology.
Markus: From our perspective, when launching decentralized local currency stablecoins in emerging markets like Brazil, Kenya, and the Philippines, regulation is still catching up. These countries are watching what the U.S. and Europe do. We need tokenized real-world assets in these markets too. For example, tokenized government bonds in Brazil would be good collateral for a Brazilian stablecoin, reducing FX risk.
Nick: How are RWAs benefiting emerging markets?
Markus: Yield-bearing stablecoins in U.S. dollars are great for users in countries with high inflation and weakening local currencies. They give users access to a stable currency and potentially even U.S. Treasury yields. We're also seeing interesting use cases in credit and loans.
For example, in Kenya, we visited local lending circles where users often can't access traditional bank loans. They form trusted community groups to lend each other money. Local currency stablecoins can facilitate micro-credit in these situations, allowing users to borrow on-chain without taking on FX risk.
Emanuele: Stablecoins themselves are a powerful RWA use case. They're essentially tokenized dollars accessible to anyone with internet access. This is why there's so much interest from both crypto-native and traditional companies. Beyond stablecoins, tokenization can act as a financing layer for long-tail and emerging markets, filling the credit gap left by overregulation in traditional banking.
Giorgio: We firmly believe in stablecoins. There are already almost 150 billion in stablecoin circulation, and we think this could grow exponentially. We're positioning ourselves to provide a constellation of services around stablecoins, which is why we've released stocks that you can buy with stablecoins.
Nick: What are your thoughts on the future of RWAs?
Markus: Mento aims to be the infrastructure to support the launch of a stablecoin for every country in the world, helping to close the credit gap globally. In the future, I think we'll see more end-user-facing use cases, like on-chain loans and FX. We have the infrastructure and the demand; now we need to work on distribution.
Emanuele: For us, it's about bringing the safest, most useful dollar to the market. We see Mountain Protocol and USDM as falling under the banking and insurance product category, similar to high-yield savings accounts.
We're putting this on blockchain rails so people can access not just a dollar, but also high-yield savings and checking accounts through that same dollar.
Giorgio: For Backed, stocks are definitely the next step. In the broader market, I think we'll see an explosion of stablecoins, potentially reaching one trillion in circulation.
At that point, stablecoins will be significant players at a governmental level, and crypto would become ubiquitous - people wouldn't even know they're using crypto technology, much like they don't think about relational databases when using Amazon.
Nick: How would you describe the future of RWAs in one word?
Markus: Big
Emanuele: Exciting
Giorgio: Institutional (in the short term at least)
Watch the recording of the panel here.
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