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Blockchain technology has brought significant benefits to real-world assets. Real estate, artwork, commodities and other tangible assets are being tokenized to facilitate trading, among other purposes.
Although disruptive, this technology is being implemented with increasing frequency. Real World Assets (RWAs) are the digital representation of real or personal property through the use of blockchain.
RWAs are a class of cryptographic tokens that represent tangible assets that exist outside of the digital realm. These can include everything from bonds to real estate, commodities and machinery. RWAs allow these assets to be integrated into the Decentralized Finance (DeFi) ecosystem, increasing accessibility to these often inaccessible financial tools and opening up new application opportunities.
It's a big world, so in this article we want to tell you all about RWAs, common uses and also the currencies currently listed.
RWA has shown us that everything from artwork to collections can be tokenized.
To begin with, let's define RWAs and "real-world assets" to clarify what we are talking about. Real-world assets are those assets that hold value and exist outside the blockchain. They can be physical, digital or data-based, and their value comes from their existence in the "real world", i.e. outside the blockchain.
These assets encompass, among others, fiat currencies, treasures, commodities, real estate, stocks, bonds, valuable collectibles and even intellectual property. In the context of cryptocurrencies, "RWA" refers to the tokenized form of these real-world assets. Therefore, RWAs have two important characteristics:
Tokenizing real-world assets and integrating them into blockchain is not primarily focused on bringing liquidity from cryptocurrency markets to traditional finance. The main objective is to leverage blockchain to improve the way we trade and manage real-world assets. Among the benefits of this approach are:
There are on-chain and some off-chain RWA tokens, which presents an interesting challenge for 2030
This is undoubtedly the main question that all investors ask themselves when researching before investing. There are currently a few RWA tokens on the market, although this list may be updated every month, as it is a relatively new technology
According to 21.co's Dune tokenization dashboard, there are currently 8 types of RWA onchain. Ranked by market share, they are listed below:
In the coming years, we could see further diversification and adoption of these and other types of RWAs as blockchain technology continues to evolve and expand its applications in different sectors.
Source: Tokenization Overview - Dune
Now that we have an idea of what's on-chain, let's explore what's not yet on-chain or just beginning to be. RWAs could technically represent any asset outside of blockchain, so this list is not exhaustive, but highlights some emerging and interesting categories. We can speculate on the development of these categories based on extrapolation and evidence from early developments:
Something interesting is going on here: we are in a very basic process. For that reason, and with the RWA philosophy, we can aggregate everything, but at the same time nothing. We must wait and see how it develops and surely this technology will give us many surprises.
Source: Twitter de Alliance DAO
If you ask the big financial experts, they will mention that the RWA markets are going to grow. How much will growth be? This is where the debate starts.
The RWA market is already large and expanding. Currently, we see over $6 billion in smart contracts in RWA protocols (excluding stable coins), which is a 33x increase from two years ago and over 5x increase from last year.
Recent reports have estimated that real estate tokenization alone would be valued at $2.7 billion by 2022, and that the total size of global illiquid asset tokenization would reach $16 trillion by 2030.
These projections consider that a large portion of global wealth is held in illiquid assets, including real estate (including home values), natural resources, land, commodities, public infrastructure, fine arts, IT infrastructure, private equity, and several other asset classes accessible only to wealthy investors and institutions due to ticket size limitations (e.g., pre-IPO stocks, hedge funds, infrastructure projects, commodities, alternative investment vehicles, and private credit).
Even in a pessimistic scenario, where only 2% of these assets reach blockchain by 2030, a $3.2 trillion RWA market can be extrapolated. In other words, RWA in 2030 would constitute a market larger than all cryptocurrencies today.
We can infer that there is a considerable possibility that RWAs will become a much larger market in this decade. The underlying assumption is that cryptocurrencies will continue to mature and that more traditional institutions will adopt blockchains and create products on top of them.
Source: On-Chain Asset Tokenization - BCG
As with the world of cryptocurrencies (and the current financial world, of course), RWAs face a number of current challenges. The ones we have detected are as follows:
The lack of standardized processes and the need for regulatory compliance are significant barriers. Many jurisdictions have yet to establish clear regulatory frameworks for tokenized assets, thereby increasing risk for institutions and potentially slowing adoption and innovation.
Whether or not an RWA protocol is compliant with regulations has no simple answer, and many are currently in a gray area. In addition, the timeline for establishing clear regulations is uncertain, as it depends on each country.
Integrating tokenization with existing financial systems presents several technical challenges. Issues to be addressed include:
The complexity and costs of implementing tokenization systems can be prohibitive for some institutions. Keeping up with ongoing technology updates and managing smart contract vulnerabilities can be too onerous.
Fortunately, there are projects such as Chainlink, Avalanche, Centrifuge, Nexera and Plume that are building RWA infrastructure to address the technical and operational risks
Assets with volatile values or those requiring periodic valuations present challenges for tokenization. It is important to integrate real-time Oracle valuations to accurately reflect current market conditions, ensuring that token values align with their real-world counterparts.
This is particularly important for assets such as commodities, art or collectibles, where fluctuations in value are common and can be influenced by extrinsic factors such as regulations, cultural and environmental aspects.
Market readiness to adopt tokenized assets on a large scale is uncertain. Stable coins, which represent over 96% of the RWA onchain market currently, experienced a significant drop following the Terra/UST collapse and during bearish market sentiment, with stable coin supply falling over 25% from ~$162 to ~$120 billion between April 2022 and September 2023.
However, there has been some recovery, indicating that the market is willing to embrace this asset class again, although it also highlights the volatility and immaturity of this market.
While there are signs of significant interest in stable coins, widespread adoption of tokenization in other newer RWA classes, such as government bonds and real estate, may take longer than expected. If crypto markets are hit by black swan events in the future, we could expect further delays.
Socioeconomic factors such as low internet penetration in some regions represent a barrier to accessing tokenized assets. To see significant market growth, not only considerable capital deployment is needed, but also fostering understanding and confidence in tokenization among institutional and retail investors. Without this knowledge and confidence, there will not be sufficient liquidity in the secondary markets to take advantage of the benefits of tokenization.
It is important to remember that not all RWAs are the same and each presents unique challenges in terms of ensuring authenticity, maintaining the condition of the underlying asset, and managing storage and preservation needs. These factors vary significantly depending on whether we are talking about fiat currencies, real estate, artwork or luxury goods. In addition, each asset class may have its own rules governing their tokenization, sale and transfer, which vary by jurisdiction.
Yes, although it depends on what kind of assets you want to have in your portfolio. For example, on-chain solutions, exchanges and cryptocurrency platforms such as TruBit can help you to hold RWA assets such as the following in your portfolio:
En TruBit Pro puedes encontrar tokens RWA en cadena, ideales para invertir
RWA demonstrates that literally everything can now be tokenized, everything to make it more secure and viable for everyone. Having value and existing outside of the Blockchain, Real Word Assests may be the future of online investing, as you can practically invest in anything at any time.
While it sounds encouraging, there are too many challenges to meet, beyond regulations. Keeping prices stable and eliminating ideological barriers seems to be a major challenge to meet.
But it will all be worth it with the possibility of a market surge never seen before. Will they have more market capacity than current cryptocurrencies? It is possible, but a difficult question to answer today.
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