Blog

Criptomonedas

Eventos

Trading Academia

Guía de Productos

Cripto Glosario

Acerca de TruBit

Acerca de TruBit Business

Acerca de MMXN


Regístrate→

TruBit→

TruBit Pro→

Descargar→


Más Idiomas

🌐 English

🇧🇷 Português

⭐️ 中文


Nuestra Academia de Negocios y Economía

📊 TruBit Business

RWA: All about Real Word Assets

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.

RWA has shown us that everything from artwork to collections can be tokenized.

What is RWA? Real world assets for everyone

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:

  1. They represent something valuable off-chain.
  2. They are managed and recorded on a blockchain, rather than on a different ledger.

What is the main purpose of these tokens?

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:

  1. unlocking liquidity for illiquid assets: illiquidity is a significant capital efficiency problem in traditional finance. According to academic research, the illiquidity discount can be as much as 30% of an asset's value. Tokenization allows typically illiquid assets (such as real estate, private equity, art) to be divided into smaller, more affordable units, thereby reducing barriers to entry and creating more liquid markets.
  2. Global reach: blockchains provide a borderless, permissionless ledger that operates under a strict global consensus. Tokenization thus exposes real-world assets to the massive Internet marketplace. Investors from different countries or jurisdictions can invest in assets more seamlessly and at lower costs than in traditional markets.
  3. Transparency and security: The strict global consensus, immutability and transparency of a public blockchain ensure that all transactions are securely recorded and can be audited by anyone. Compared to traditional markets, where transactions often require validation by intermediaries and audit trails are opaque, privatized, costly and slow, blockchain offers a more transparent and secure alternative.
  4. Cost reduction and efficiency: Traditional asset transactions can be complex and resource-intensive. Blockchains simplify this process by enabling peer-to-peer transactions with smart contracts that automate and secure the entire process. If the code is robust, we can expect greater security without the costs associated with manual and expensive human intermediaries. Fewer intermediaries result in lower intermediary costs.
  5. Financial innovation: Tokenization facilitates the creation of new types of financial products and services that can combine multiple asset classes or offer structured returns, providing more options for portfolio diversification. For example, tokenization technology would enable the creation of a single token representing a combination of stocks, bonds and commodities, offering structured returns based on the performance of the underlying assets. In addition, prioritization of exposure to bonds when equity volatility is high, or to growth stocks during risky bull markets, could be automated.

There are on-chain and some off-chain RWA tokens, which presents an interesting challenge for 2030

There are on-chain and some off-chain RWA tokens, which presents an interesting challenge for 2030

What kinds of RWA are currently on the market and which ones could we see in the coming years?

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:

  1. fiat-backed stablecoins (96.69% market share): digital tokens backed by fiat currency reserves, such as USD or Euro. They do not include algorithmic stablecoins or cryptocurrency-backed stablecoins.
  2. Government securities (1.40%): Tokenized forms of government-issued debt instruments, such as treasury bills.
  3. Commodities (1.17%): Digital representations of commodities and fungible physical goods, such as gold, oil and agricultural products.
  4. Asset-based finance (0.47%): Tokens representing financial assets backed by physical or other tangible assets, such as securities and asset-backed loans.
  5. Real estate (0.24%): Tokenization of real estate assets, enabling fractional ownership and reducing barriers to entry, such as high costs (See Villcaso's presentation from Alliance's Demo Day ALL12).
  6. Private equity (0.03%): Tokens representing ownership of unlisted companies, democratizing access to private equity investments.
  7. Private funds (0.01%): Tokens associated with holdings in private investment funds, such as hedge funds and private equity.
  8. Equities (<0.01%): Tokenized shares of publicly traded companies, allowing 24/7 global access to shares and facilitating access to people in less developed areas.

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

Source: Tokenization Overview - Dune

What about what is not in the chain?

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:

  1. fine art: While blockchain-native digital art, such as NFTs, has become popular, there is a question as to whether "real world" art will follow suit. Tokenization and fractional ownership could provide better liquidity for high-value artwork and collectibles, making them accessible to more people.
  2. Other luxury collectibles: Luxury items such as watches and wines could benefit from tokenization, as these markets are well capitalized but generally illiquid. Tokenization would open these markets to a wider audience. However, physical storage, maintenance and insurance are significant challenges. There are discussions about using various luxury collectible RWA as collateral in DeFi, similar to the use of NFT for loans.
  3. Intellectual Property Rights: Intellectual property, including patents, copyrights and trademarks, is an asset class that could be tokenized. This could streamline licensing processes, improve ownership transparency and open up new funding opportunities for creators.
  4. Infrastructure financing: Large-scale infrastructure projects, such as energy financing, transportation networks and utilities, could be tokenized to enable fractional investment and easier management of investor holdings. Tokenization could address key challenges in infrastructure financing: financing initiatives, democratizing infrastructure, and increasing management efficiency.
  5. Impact statements: Tokenizing impact statements, such as emission reductions, is an interesting direction for RWAs. This would allow investors to more easily and accurately track the impact of their investments and improve capital efficiency in impact-related markets, such as carbon markets.
  6. Insurance policies: tokenization of insurance policies could increase the efficiency of insurance markets by enabling fractional policies, risk diversification and automated claims processing through smart contracts.
  7. Agricultural assets: tokenization of agricultural assets, including agricultural land and agricultural commodities, could facilitate better risk diversification for investors and improve transparency and efficiency.

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

Source: Twitter de Alliance DAO

How is the RWA market developing?

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

Source: On-Chain Asset Tokenization - BCG

Current challenges for RWAs in the marketplace

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:

Regulations

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.

Technical and Operational Risks

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

Volatility

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

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.

Economic and Social Barriers

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.

Diverse Asset Categories

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.

Is it currently possible to invest in RWA?

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:

✅ Avalanche (AVAX)

✅ Chainlink (LINK)

✅ ONDO (ONDO)

✅ Quant (QNT)

✅ Synthetix (SNX)

✅ Chia (XCH)

✅ Polyhedra Network (ZK)

✅ PolyTrade (TRADE)

En TruBit Pro puedes encontrar tokens RWA en cadena, ideales para invertir

En TruBit Pro puedes encontrar tokens RWA en cadena, ideales para invertir

Conclusions

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.


You may also be interested in 👇

Main Tokens BRC-20 | ORDI, SATS and more | 2024

Deadlines for the approval of bitcoin ETFs

Bitcoin ETF | What it is and everything you need to know ✅ 2024