RWA (real-world assets) are a category of assets backed by cryptocurrency, tokens, or stablecoins. These assets can include various types of property, such as real estate, jewelry, shares in companies, goods, and other real assets that hold physical value.
The use of RWA in the cryptocurrency world represents a new financial paradigm, opening up opportunities for the decentralization and digitization of traditional assets, while enhancing transparency, security, and efficiency in transactions involving real-world assets. The total value of RWA is expected to reach $16 trillion by 2030, as indicated by the projected tokenization chart of global illiquid assets presented in a Medium article.
Main Categories of RWA
Let's consider the main categories of RWA that are widely used in the crypto market:
- One of the primary categories of RWA is real estate, including land plots, residential, and commercial properties. Tokenizing real estate allows investors to easily buy and sell shares in properties, diversify their portfolios, and participate in investment projects in this sector.
- Precious metals like gold, silver, and platinum, as well as precious stones, can be tokenized and used as real assets in the cryptocurrency market. This practice provides accessibility and liquidity for investments in these valuables.
- Tokenizing shares in companies allows investors to easily acquire and sell digital shares, participate in voting, and receive dividends. This makes investments in enterprises more accessible and transparent.
- Art and collectible items, such as paintings, sculptures, antiques, and other valuables, can also be tokenized and used as real assets in the cryptocurrency market.
- Besides the above-mentioned categories, RWA can include various types of real valuables, such as goods, securities, intellectual property, and other assets with physical value.
Using RWA in the cryptocurrency world represents a new financial paradigm that opens up broad opportunities for the decentralization and digitization of traditional assets. There are already platforms that facilitate the tokenization of RWAs, such as HomebaseDAO, Polymath, Securitize, and others mentioned in a Bitcoin Store article. Reid Simon, the head of the credit department at Securitize (an asset tokenization company that allows for the issuance and trading of digital asset securities), reported seeing a growing interest and demand for their services. According to him, "the combination of cryptocurrency and private credit is attracting many new investors."
Tokenizing real assets provides more transparent, secure, and efficient financial operations with real value, making the cryptocurrency market more accessible and diverse for investors and entrepreneurs.
How the RWA Tokenization Procedure Works
The process of tokenizing RWA can be broken down into several key stages:
- Before tokenization, a thorough assessment of the asset is necessary. This step involves determining the market value of the asset, its physical condition, legal status, and other factors that can affect its value and liquidity.
- Tokenization requires the creation of a legal structure that ensures the lawful protection of token holders' rights. This may include setting up a special company (such as an SPV — Special Purpose Vehicle) that will own the asset and issuing tokens that represent shares in this asset.
- Next, it is necessary to create the token. At this stage, the asset is digitized. Using smart contracts on the blockchain, tokens are created to represent ownership shares in the corresponding asset. Tokens can be standard types (such as ERC-20 or ERC-721 for Ethereum) depending on the characteristics of the assets and the required functionality.
- After creating the tokens, they need to be promoted in the market. This might involve listing the tokens on an exchange platform, conducting an initial coin offering (ICO), or franchising. An important aspect is creating liquidity for the tokens so that investors can freely buy and sell them.
- After successful tokenization and token sales, proper management of both the asset and the tokens is necessary. This includes accounting for revenues from the assets (e.g., rental payments) and distributing them among token holders. It is also important to provide transparent reporting on the asset's status.
- The entire tokenization process must comply with legal requirements and standards in the areas of security, economics, and financial regulation. This ensures investor trust and minimizes risks associated with potential legal issues.
Currently, there are several popular crypto projects working in the field of real asset tokenization, such as Ondo (ONDO) on the Ethereum blockchain with a capitalization of $1 billion, Mantra (OM) on its own blockchain with a capitalization of $510 million, Centrifuge (CFG), Polymesh (POLYX), and others.
RWA tokenization represents an important step in the evolution of financial technologies, opening doors to the creation of a more advanced and accessible financial system. This process not only helps bypass traditional constraints associated with investing in real assets but also creates opportunities for innovation and improved asset management. Given the continuous development of technologies and legislation, the popularity of tokenization is expected to grow in the coming years. However, it is important to note that any tokenization project must comply with local laws and regulations depending on the jurisdiction, as highlighted by Coinbase.
How RWA Can Transform the Cryptocurrency Market
- Using RWA allows investors to diversify their portfolios by investing not only in cryptocurrencies but also in real-world assets. This helps to reduce risks and creates a more stable investment portfolio.
- RWAs provide assets with digital tokens, increasing the liquidity of real-world assets and simplifying their exchange and trade on various platforms.
- RWA can become a tool for attracting additional capital to the market, offering opportunities for funding projects and enterprises that were previously inaccessible to mass investment.
- The use of blockchain technology in combination with RWAs ensures transparency in transactions, improves asset authentication, and secures transactions, reducing the risk of fraud.
It's important to note that many large-scale projects have been launched this year. For example, BlackRock (BLK), the asset management giant, announced the creation of the BlackRock USD Institutional Digital Liquidity Fund. This project will be carried out in partnership with the aforementioned company, Securitize. The crypto-friendly bank MELD also announced plans to offer borrowing and lending services against tokenized assets for retail trading in the near future. Additionally, one of the world's largest investment banks, Goldman Sachs, stated that it plans to launch three tokenization projects by the end of 2024. Moreover, the investment company State Street plans to launch its own stablecoin, with the deposit token representing client deposits on the blockchain.
Overall, the integration of RWAs into the cryptocurrency market represents a promising direction that can transform existing financial models and open new opportunities for investors, entrepreneurs, and consumers. However, the need for regulation and standardization in this field remains a crucial step to ensure the stability and reliability of operations with real-world assets in the cryptocurrency world.