From T-Bills to Tokens: OpenEden and Bake Discuss the Future of RWAs

OpenEden has made significant strides in the tokenized US Treasury space. What inspired you to focus on bringing real-world assets (RWAs) on-chain?

The inspiration behind OpenEden was really two things. The first motivation was to diversify sources of yield on DeFi.

Let’s take a step back, and think about where yields come from in DeFi. I like to think about yields like coffee. You can either have a single-origin brew, or a blend of yields from different sources. In DeFi there are two big sources of yield:

The first source is “native” yields from on-chain sources like staking rewards, lending, or derivatives like structured products. 

The second source is yields from traditional asset classes like equities, bonds, etc. that we bring on-chain by tokenizing them.

We think that blending yields from RWA, and on-chain sources leads to a more sustainable, less volatile yield. For example, you can imagine that if a project like Ethena allocates 50% of the yield to ETH staking, and another 50% to our TBILLs, you can be sure that the base yield is the risk-free rate, even if ETH goes to $1 (touch wood).

The other inspiration beyond diversifying the sources of yield on DeFi, was stablecoins. If you think about it, stablecoins are the most successful tokenized RWA. You give them USD in fiat, they take that and buy a bunch of T-Bills and other stuff in the real world.

The only difference is that we can give that yield back to you, instead of keeping it for ourselves.

You've mentioned the importance of a "compliant-first" approach. How does OpenEden ensure regulatory compliance while maintaining the benefits of blockchain technology?

We have a bankruptcy-remote structure that ensure token holders can recover the value of their deposits regardless of what happens to us. 

The investment manager that manages the fund backing the TBILL tokens holds a Capital Markets Services (CMS) License by the Monetary Authority of Singapore. That means regular audits, disclosures, etc.

We ensure that only qualified purchasers can hold the TBILL tokens after passing KYC/AML, and ensue that they meet the requirements to be an accredited investor.

And all of this while enabling investors to mint/redeem TBILLs with USDC 24/7 via a smart contract vault.

It’s truly the best of DeFi and Tradfi. If it sounds like a massive headache - you’re absolutely right, and the team has done an amazing job.

In your view, what are the key factors that differentiate a truly viable RWA token from the "smoke and mirrors" you've observed in the sector?

A few things:

1)What do you tokenize?

You can tokenize horsehit and it’ll still be horseshit - but on the blockchain. I’ve seen people tokenize shockingly absurd assets ranging from copper powder (that you can buy off Alibaba for $250 in a plastic sack), to rolexes that might be completely fake. Then there are also the high-risk assets within private credit - like unsecured loans to motorcycle companies in Africa (it sounds funny now, but it was a thing).

2) How do you tokenize something?

How you tokenize something, matters almost as much as what you tokenize. This can impact both investor protection, as well as cost. 

There were some T-Bill tokens in the past that were structured as a loan agreement, which is a fancy way of saying “a pinky promise”. 

Then there are some structures which are like feeder funds which basically stack layers of middlemen (and their fees). Which is why OpenEden’s TBILLs were the best performing product in terms of net yield to token holders over 180 days, in some cases by 20-30 basis points! 

3) Generating demand

This is perhaps the most underrated aspect of all. Gold is less scarce, and less useful than other precious metals like platinum. But it commands twice the price. USDT may not be the most transparent stablecoin, but it is by far the most dominant and widely used. 

Just because you tokenize something, doesn’t mean there will be automatically a thriving market of buyers and sellers. Improving accessibility through fractional ownership is not a magic bullet. Look at crowdfunding projects in Web2, they fail all the time despite being able to invest as little as a $10.

Can you elaborate on your vision of "RWA summer"? What milestones or developments do you anticipate in this space?

I have a short-term view, and a long-term view of the milestones in the RWA space. 

In the short run, we could see about $3-4b in TVL for tokenized US T-Bills alone by the end of 2024. According to RWA.xyz, the total value of tokenized US Treasury securities is already estimated to be at $1.92 billion at present. Other public dashboards by 21.co, and Steakhouse Financial have roughly similar numbers. 

Given a 30-day compounded growth rate of 16%, and about 5 months left to go until the end of the year, we can expect nearly $4 billion in TVL!

But nobody builds a business around chasing short-term narratives. Our longer view is to be even bigger than Tether or Circle. Even as far back as 2016, the Eurodollar market size was estimated at around $13.8 trillion. As of December 2023, there was $26.2 trillion of US Treasury securities outstanding, of which, foreign holdings accounted for approximately $8.1 trillion - roughly 30%.So even if we hit $8 billion in TVL by the end of this year - double the best-case scenario - we will have collectively only touched 0.1% of the total addressable market! However you want to slice and dice these projections, we have an awfully long way to go as an industry.

You've critiqued the multi-layered approach of some RWA projects. How does OpenEden streamline the process of bringing US Treasuries on-chain?

You can stack layers of middlemen, and their fees. You will simply end up with a product that delivers less returns to the end user. We do nearly everything in-house. We do not outsource the tokenization engine, or the investment manager, or the fund.

As the co-founder of OpenEden, what excites you most about partnering with platforms like Bake to build on top of TBILLs?

We are just the factory. Platforms like Bake are our distribution partners. Sure, we have some D2C distribution channels, but platforms like Bake are the key to driving mass adoption. Apps are what make tech useful. You don’t care that there exists a Singapore company with a special nanotechnology coating process. All you care about is that Apple Watches can go for a swim with you. And that’s why we care so much about partnering with apps like Bake.

Looking ahead, how do you see the relationship between traditional finance and DeFi evolving, particularly in the context of RWAs?

My co-founder Jeremy has a saying: “DeFi is the horse that pulls the RWA cart”. Without the burgeoning on-chain economy, the demand for tokenizing RWA would be precisely zero. We should be clear about that.

Traditional financial institutions are looking to the new kids on the DeFi block, seeing how they will disrupt the distribution of RWA. All asset managers today struggle with this. How do you get more people to buy your funds, and do interesting things that generate more demand beyond buying and holding? DeFi seems to have cracked that with money legos.

Composable, tokenized assets are the future of finance, and they know it. Anyone that tells you otherwise is either a fool or a liar.

Looking ahead, are there any other RWA products or services that OpenEden is considering that might be a good fit for Bake's platform and user base?

Yes. That’s all I can say for now. I wish you could see what we have in store. You’d be just as excited as I am if you did!

OpenEden has achieved significant milestones recently. What's next on your roadmap, and how do you plan to continue innovating in the RWA space?

Yeah, in a short few months we’ve become Asia’s largest issuer, and also the first and only one in history to receive a Moody’s rating. We plan to continue winning institutional investors over with more tradfi seals of quality.

However, TBILLs are just the tip of the iceberg. We can’t reveal more at this stage, but as I’ve discussed with you, there is a world of assets, and use cases that we haven’t even touched.

Given Bake's diverse offering of digital assets and earn products, how would you advise users to balance their portfolio between exposure to U.S. T-Bills and other crypto investments?

T-bills are typically considered cash management instruments. They are high-quality, liquid assets that are considered cash equivalents. They are an alternative to idle cash sitting in a bank deposit account. Generally, if you have stablecoins lying somewhere not generating yield, why not allocate that to US Treasuries instead?