Understanding the Behavior of Institutional Funds

Abstract

The real-world asset market (RWA) is an expanding industry in which traditional assets such as real estate, commodities, and financial instruments are tokenized and utilized on the blockchain. Recent developments within the RWA market indicate an increasing volume of institutional funds, including hedge funds, venture capital, private credit, and other alternative investments. The understanding of this sector remains limited, resulting in a lack of useful information for regulators, market participants, and other academic researchers. Utilizing rwa.xyz, company newsletters, and blockchain transactions, we are able to conduct a comprehensive examination of the institutional funds industry. Specifically, by examining regulatory filings and prospectuses, crucial details such as legal considerations, peg mechanisms, economic rationale, and market implications were revealed. A thorough analysis of the market shows typically around 46% of the market relies on a master-feeder fund structure, exclusively opened to accredited investors. These funds appeal to investors because of their yield-bearing potential, decreased minimum investments ($10,000-$20,000), and accessibility to the global market. Their influence on the credit market is significant. By utilizing the blockchain, they open the market to a broader investment base and allow for greater transparency, therefore enabling increased efficiency within the credit market. However, the volatility of the fund is extreme, with certain time periods having high activity and other times having idle activity. This phenomenon is due to roughly 50% of the funds being feeder funds, meaning they usually can only mint and burn at specific times, causing large shifts in the market. These results provide a deeper insight into the institutional funds market and allow investors greater information on which to base their financial decisions.