Startups vs Incumbents in the Real World Asset Tokenization (RWA) Era
TradFi vs. Startups: The Strategic Divide
The financial landscape is witnessing a significant strategic divide between traditional finance (TradFi) institutions and startups, particularly in the realms of technology, user experience, and market innovation. This divide is marked by several key developments and trends:
1. Unexplored Private Markets: The untapped potential of private markets is a battleground where TradFi lags behind.
2. Historical Precedents in FinTech: The story of fintechs outpacing banks in payment solutions serves as a lesson.
3. Amazon's Rise: From an online bookstore to a market leader, a tale of underestimation and triumph.
4. Emerging Leaders in Asset Management: The rise of platforms like Coinbase Asset Management and Project Diamond in the tokenized asset management space.
5. User-Driven Evolution: TradFi's forced adaptation in UX/UI to meet rising user expectations.
6. The Legacy System Quandary: High investment with limited success in blockchain integration, as seen in ASX's blockchain upgrade failure.
7. Strategic Partnerships and Compliance: In the dynamic world of finance, Real World Asset Tokenization (RWA) stands as a beacon of opportunity, offering a new frontier for both burgeoning startups and seasoned financial institutions. Navigating this evolving landscape demands a keen understanding of the unique conditions and strategies that favor different market players. In this edition, we turn the spotlight on startups, the agile disruptors reshaping the future of asset management and the broader financial sector.
Our exploration dives deep into the contrasting worlds of startups and traditional finance (TradFi) institutions. As we dissect their approaches, we unearth 10 compelling reasons why startups are not just participating in the RWA race but are positioned to lead it.
Join us as we delve into an in-depth analysis of the ten pivotal factors that catapult startups to the forefront of the RWA revolution. From the advantages of decentralization to the adoption of digital-first strategies, we examine how these trailblazing companies are redefining industry norms and setting new benchmarks of excellence.
TradFi (Traditional Finance) Incumbents:
Key Characteristics and Asset Issuance Dynamics
In the rapidly evolving financial landscape, traditional finance (TradFi) institutions remain foundational yet exhibit inherent limitations that can hinder their adaptability and innovation. These established entities, characterized by their robustness and stability, often face challenges in embracing the dynamic changes shaping the financial sector. Here are some key aspects of TradFi's DNA that reflect its robust but restrained nature:
1. Centralized
2. “Closed wall” architecture, only open to existing clients
3. Only issue TradFi assets
4. Assets priced in fiat only
5. Asset back tokens represent an equivalent of the paper share (dual share issuance: paper shares and tokens)
6. Traditional assets offered in digital form mostly using a private blockchain, which is a contradiction in itself (https://investax.io/blog/public-vs-private-blockchain…)
7. Building towards TradFi and the same constraints and restrictions that have been built up over time, layers of rent seeking middleman/steps in transactions
8. Slow-moving, with internal pushbacks and conflicting interests impeding the introduction of new technology and products, constrained by old-world challenges and outdated technology.
9. Typically, they only consider onboarding third-party investment products with a 7-10 year track record. This means a significant delay in adopting any private market RWA, given the industry's novelty and the lack of entities with even a 3-year track record, let alone 7 years. Such a stringent requirement effectively sidelines them from the entire private market RWA industry unless they adapt to change.
10. Married to fiat currencies
Decoding the DNA and Characteristics of RWA Startups and Their Assets
Real World Asset (RWA) startups are emerging as a dynamic and innovative force, contrasting sharply with the more traditional and conservative approaches of traditional finance (TradFi) institutions.
1. Decentralized
2. Open and accessible to everyone
3. Assets are on chain and tradeable with other on chain assets
4. Assets priced in digital currencies/stablecoins only
5. The token is the asset; it is an on-chain-only asset with no paper shares, featuring single share issuance exclusively through tokens.
6. New innovative products utilizing public blockchains and protocols
7. Building towards decentralized finance (DeFi) and utilizing the power and innovations of blockchain
8. Fast moving, creating positive market inertia, harnessing new technology and unlocking new world possibilities
9. TradFi employees, primarily motivated by their salaries and possessing numerous alternative job opportunities at other TradFi institutions, often struggle to demonstrate long-term dedication to RWAs within their own ranks. Even those with good intentions frequently find themselves entangled in internal politics and conflicting issues.
10. No use of fiat currencies
Foundational Traits of RWA Startups
Real-world asset (RWA) startups are increasingly gaining attention in the financial sector for their distinctive approach and innovative mindset. These companies are not merely participants in the evolving financial landscape; they are at the forefront of revolutionizing it.
Here are some foundational traits that define RWA startups:
- Digital native mindset
- Here to build 0 to 1 improvements not 0 to 0.1 Building platforms delivering a meaningful value increase (https://investax.io/blog/esop-2-0-digital-employee-share-options-plan-desop…)
- Consider building only on public blockchains, not private databases, to ensure equality and equal access for everyone.
- Build for all asset interoperability
- Build better ways to share value and build loyal communities and users (https://investax.io/knowledge-center/blog/web3-fundraising-a-new-paradigm-for-building-community-and-sharing-ownership… )
- Build new innovative products (https://investax.io/knowledge-center/blog/investax-tokenized-bored-ape-2371…)
- Build a new type of market maker for securities (https://ixswap.io/products/saas-liquidity-solution…)
-See the exponential value of tokenization far beyond fundraising (https://investax.io/knowledge-center/blog/tokenization-beyond-fundraising…)
- For founding teams, the stakes are higher when it comes to achieving success and charting a viable path forward. I am acquainted with numerous founding teams who have real skin in the game and have been navigating challenges in the trenches from their inception until today.
- Founding teams are here to change the world; they certainly didn't start up for the salary (or the lack thereof) but are rather driven by a passion to make a meaningful impact on the world of investing.
The Path Forward: A Blending of Traditions and Innovation
In the contemporary financial landscape, a compelling narrative is unfolding, marked by the convergence of traditional methods and groundbreaking innovation. This is characterized by a blend of established financial practices and emerging technologies, reshaping how financial services are delivered and experienced. Key aspects of this evolution include:
1. Evolving Digital Finance: Platforms like Coinbase, IX Swap, and others are at the forefront of redefining finance.
2. RWA Distribution by TradFi: A strategic, albeit reluctant, embrace of RWA to stay relevant.
3. Innovative Funding Approaches: Startups leveraging token sales, bypassing traditional financing needs.
4. The Blue Ocean of RWA: A vast, untapped market ripe with opportunities and challenges.
To learn more, discuss opportunities, or share your thoughts, please contact us. We are here to explore and navigate this journey together, ushering in an era of financial innovation and inclusivity.
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