Slow Burn
$People, Synths, and Mullets - The 3 Ways Into Club RWA
As you may have noticed, crypto isn't much of a party these days…but we are confident that RWAs can make it one. In fact, we believe that the on-chain RWA marketplace ("Club RWA") will be the hottest destination for accessing low-cost, liquid, and diverse asset classes on a global scale; even our friend Warren Buffett will be forced to admit that crypto is, at the very least, not rat poison.
Founders and VCs are already pretty active promotors for Club RWA, but the absence of a standard structure(s) for RWA issuance has limited adoption. In other words, Club RWA is effectively empty and, as any patron hopeful of Berghain knows, the allure of what’s inside is a function of how it’s filled.
Though on-chain RWAs are in relative nascency, three notable templates for issuance have emerged that will inform future iterations.
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$People - Purchasing DAOs—vehicles that pool participant resources to buy an asset(s) and fractionalize ownership pro rata with member contributions—roared into mainstream consciousness in November 2021, when the ConstitutionDAO engaged in a live, public bidding war for a copy of the US Constitution. Although it lost to then-crypto-villain Ken Griffin, ConstitutionDAO forged the first framework for off-chain asset acquisition and the division of governance rights among quasi-bearer tokens.
However, ConstitutionDAO did not offer its contributors an actual legal claim to the Constitution. Absent legally tethering the DAO to the purchasing entity, ConstitutionDAO (and other purchasing DAOs like it) failed to enable true, defensible RWA ownership on-chain.
Synths - The growth of on-chain oracles (e.g., Chainlink, Pyth) has brought performant and trust-minimized real-world data to crypto. This emergent technology has given rise to synthetic assets (synths), which mirror off-chain data streams—from AAPL to neighborhood-specific MLS listings—on crypto rails.
While more readily accessible than purchasing DAOs thanks to myriad robust data pipelines, synths are fundamentally derivatives and do not confer legal ownership of the underlying; at most, products on synthetic platforms like Synthetix, Mirror, and previously FTX can be considered “RWA-lite.” Additionally, because price oracles only exist for highly liquid assets, synths exclude the long tail of RWAs (which are most ripe for disruption).
Mullets - In their Unreal Primer on Real World Assets, Teej, Jack, and Mukund assert, “we will not in the near term unplug from traditional legal systems…as long as creditors require legal recourse in the case of default.” Though ostensibly anti-crypto, strict adherence to legislation is the Club RWA cover charge in this hybrid DeFi environment. Currently, mullets most elegantly address regulatory overlay; they wrap conventional legal entities (the business front, e.g., a Delaware LLC) in crypto vehicles (the party in the back, e.g., a DAO), effectively marrying the safety of jurisdiction-specific legal recourse with the benefits of on-chain ownership/liquidity.
Even if slightly slow and (at least initially) exclusive, mullets provide the requisite issuer and investor protections to expand RWA supply while the gears of regulation grind towards future evolutions of Regs A & D.
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These experimental structures further illuminate the path to Club RWA admission, but an immense amount of work is still required before Charlie Munger approaches the velvet rope.
Thanks to Greg, Ryan, and Jack for your feedback.
About Slow Burn
Weekly explorations into emerging crypto trends and how to navigate 2023 from the Slow Crypto Team, Sam Lessin, Clay Robbins, and Caroline Cline.