How Real World Assets Tokenization Is Opening Up Investment

Introduction

Real World Assets alias RWA's are a class of crypto or digital tokens that represent physical, digital or tangible assets that get their value outside of the existence of a blockchain. They can range from Securities, indices, treasuries, bonds, real estate properties, Commodities and bonds.

RWAs allow these assets to find a place within the Decentralized Finance (DeFi) ecosystem, increasing the availability to these often inaccessible financial tools on chain. In tokenizing Real World Assers, you will be creating a digital twin for the RWA that exists on a blockchain.

Its possible to tokenize these financial assets, such as insurance, shares, securities, treasuries, equities, and indices beyond tokenizing traditional currencies. Tangible assets that can be brought on-chain are fairly limitless. Through tokenization, tangible assets can be represented as tokens onchain, allowing for ease of them being traded, bought, or sold

RWA protocols backed by money market funds, bonds (MMF), and equities dominate the market share in terms of total value locked (TVL), followed by RWA lending and real estate.

How are Real World Assets Tokenised

Non-native Tokens

On-chain tokens are issued to represent Real Worl Assets that are managed off-chain.
Presently, all stablecoins collateralized with USD exist in the form of a token that is not native to the platform.
Given the early stage of RWAs, leveraging the existing financial infrastructure around asset custody is the more prevalent approach and holds an advantage.

Native Tokens

A token is issued on-chain and functions as the Real World Asset itself. Put differently, the token does not represent any off-chain asset.

Advantages of tokenising Real World Assets

Transparency: On-chain reflection ensures the accurate representation of an asset's true value.
Efficiency: Asset owner distributions can be smoothly conducted through their crypto wallets.
Liquidity: The inherent on-chain nature of blockchain allows for the trading of assets that were once illiquid.
Self-custody: Individuals retain control over their assets.
Collateralization: Assets have the potential to be used as collateral on decentralized finance (DeFi) protocols.

Types of Real World Assets

Real World Assets represent a rapidly evolving sector within the crypto landscape. Here are some types of RWA

Stablecoins: Stablecoins are cryptocurrencies that are designed to have a stable value, often pegged to a fiat currency like the US dollar or the euro. Stablecoins try to tackle price fluctuations by tying the value of cryptocurrencies to other more stable assets, more commonly used is fiat currencies. Learn more about stablecoins here
Real Estate; Tokenizing real estate allows people to own a fraction of an asset like housing and earn income from it. Smart Contracts are able to manage tenant payments and property expenses thus democratizing real estate investing and making real estate accessible to anyone anywhere.
Commodities: Tokenizing commodities allows for democratization of commodities such as gold, precious metals, sculpture, paints, etc, hence asset holders can earn income from it. This can lead to the accessibility of the assets to users who are not able to access them, because of factors such as prices.
Art and Collectibles: Blockchain enables the generation, ownership, and transfer of non-fungible tokens (NFTs) that represent unique artworks, collectibles, and antiques existing in the physical realm. The tokenization of art and collectibles allows for the division of ownership, enabling high-value art to be fragmented into fractions, thus reducing the cost of investment and making it more accessible.
Intellectual Properties: Creators such as artists, writers, and inventors have the ability to create digital tokens symbolizing ownership shares in the future revenues generated by their creations. Through the use of smart contracts, these tokens can be distributed, providing recurring shares of licensing fees or sales to early supporters.

How RWA are being used in Decentralized Finance?

Trade finance: Tokenized invoices from businesses can be used as collateral for loans, providing access to working capital more efficiently than traditional channels.
Lending and borrowing: Tokenized RWAs can be used as collateral for loans within DeFi protocols. This allows borrowers to access capital without relying on traditional financial institutions, potentially offering more flexible and affordable options. Lenders, on the other hand, can benefit from exposure to a wider range of assets and potentially higher returns.
Increased Yield Generation: Real World Assets can be integrated into various DeFi yield-generating strategies. For example, tokenized real estate can be used to generate rental income on DeFi platforms, while tokenized bonds can offer fixed-income returns. This expands the range of yield-generating opportunities available to DeFi users.
Asset management: Autonomous funds protocols can deploy capital by trading RWA tokens, aiming to generate returns.
Less risky investments: RWAs grant DeFi access to alternative asset classes, not just crypto-related assets. Asset types linked to real estate, commodities, art, or other physical goods may introduce less volatility than crypto-native assets
Fractional Ownership and Liquidity: Tokenization allows for fractional ownership of assets, making them more accessible to a wider range of investors. Imagine owning a fraction of a Van Gogh painting or a luxury apartment through DeFi protocols. This increases liquidity for previously illiquid assets, opening up new investment opportunities.