Real World Assets – Established players in the finance industry are enthusiastic about the prospect of transferring ownership of assets such as precious metals, artwork, real estate, and other valuables onto blockchain technology.
What are Real World Assets and Examples?
Real world assets (RWAs) encompass both fungible and non-fungible tokens that mirror conventional financial assets on the blockchain. RWAs have the capacity to symbolize tangible holdings like real estate as well as intangible assets such as government bonds and carbon credits.
The process of real world asset tokenization entails the migration of these assets onto the blockchain as security tokens, thereby harnessing the capabilities of blockchain technology. Virtually any valuable asset can be tokenized and incorporated into on-chain transactions.
Security tokens can be generated to signify real world assets managed off-chain by custodians, or they can serve as the assets themselves. For instance, a bond can either be directly issued on-chain as a token or be issued and retained off-chain.
Supported by conventional assets, real world assets have the potential to function as enduring and dependable digital asset classes, positioning decentralized finance in direct competition with traditional finance.
Real world assets are physical assets such as real estate, cars, collectibles, fine art, gold, and other tangible or intangible assets that have value or physical relevance.
Overview of Real World Assets narrative in the crypto market.
Currently, Total Value Locked (TVL) of the RWAs sector ranks 8th in the market, with approximately $2.3 billion in 25 different projects.
The data mentioned above do not calculate that MakerDAO currently holds approximately $2 billion worth of US government bonds.
2023 Potential Real World Assets Projects
MakerDAO (MKR)
MakerDao is a decentralized lending platform that facilitates loans with over-collateralization. Users lock their Ether cryptocurrency in a smart contract, and in return, they create DAI, a stablecoin with its value pegged to the US dollar.
DAI’s stability is maintained through a dynamic system that involves collateralized debt positions, self-regulating feedback mechanisms, and incentives for external participants. Once generated, DAI can be easily transferred to others, employed for transactions, or stored as a form of long-term savings.
Maple (MPL)
On Maple, credit professionals manage fast-flowing lending businesses where capital is syndicated and lent to institutional borrowers to fund business growth and operations.
Maple is the only on-chain marketplace focused exclusively on serving Institutional and Individual Accredited Investors with high-quality lending opportunities that suit their liquidity, risk, and return requirements.
Centrifuge (CFG)
Goldfinch cooperates with real-world entities such as institutions, funds, and financial companies with lending needs, bringing off-chain demands on-chain. This greatly mitigates the credit risks posed by borrowers.
Users only need to deposit USDC to obtain returns denominated in USDC and GFI. Goldfinch is among the projects introducing real-world debt into the decentralized crypto space under the RWA (Real World Asset) concept.
Boson Protocol
The Boson Protocol leverages the peer-to-peer structure of blockchain technology to create a reliable and sustainable infrastructure for data transfers and DeFi commercial transactions. The system supports both users and developers which adds to its overall flexibility.
Users convert their assets into redeemable NFTs (NFT) in the Boson Protocol Web3’s commerce layer.
Realio Network (RIO)
Realio Network is a layer 1 blockchain built on the Cosmos ecosystem. The Web3 infrastructure is fully open-source, permissionless, and multi-chain. Some of the featured tools services include RealioVerse, a metaverse app that allows users to buy digital land tied to real-world properties.
The Realio ecosystem also features a non-custodial DeFi wallet app dubbed Freehold and a decentralized finance platform that allows users to link real-world equities to the blockchain using UniSwap.
How will Real World Assets play a crucial role in Defi innovation?
Advantages of Tokenization for Enterprises
- Transparency: Tokenization ensures transparency by recording all transactions on the blockchain, preventing fraud. With public access to this data, ownership records become visible to everyone.
- Asset Accessibility: Tokenized assets are accessible with just an internet connection, regardless of location. You can access them whenever you choose.
- Cost-Efficiency: Transactions on the blockchain eliminate the need for intermediaries like banks or payment service providers, leading to significant cost reductions in transaction fees.
- Immutability: Token owners enjoy immutable ownership rights, which cannot be revoked unless they willingly transfer or sell their tokens. Ownership records remain unchanged.
Tokenizing Real World Assets: Pros and Cons
The tokenization of real world assets within the cryptocurrency realm comes with its own set of advantages and drawbacks. Let’s explore the pros and cons of blockchain-based Real World Assets (RWAs).
Pros:
- Grows the DeFi Ecosystem: Integrating traditional finance into the blockchain industry injects substantial liquidity and utility into the DeFi (Decentralized Finance) ecosystem, fostering its growth.
- Provides New Investment Opportunities: Previously, certain investment fields, such as real estate, had high barriers to entry. Tokenization lowers these barriers, opening up new investment opportunities for a broader range of individuals.
- Solidifies Crypto’s Image: As more components of traditional financial systems transition to blockchain-based frameworks, the cryptocurrency industry’s reputation gains credibility and improves in the eyes of the public.
Cons:
- Regulatory Friction: The fact that RWAs can be brought onto blockchain doesn’t guarantee universal recognition and support in all jurisdictions. Regulatory challenges and inconsistencies can hinder the adoption of tokenized assets.
- Loan Defaults: Similar to traditional finance, loan defaults are a reality in the RWA space. The inherent volatility of the crypto market adds an extra layer of risk to these platforms. Therefore, due diligence is crucial when participating in lending or converting RWAs into digital tokens.
- Underdeveloped Niche: While the potential of tokenizing real world assets is promising, it remains in its early stages of development. If RWA applications struggle to attract users and gain traction, these protocols may fade into obscurity.
Conclusion
In conclusion, the tokenization of real-world assets offers numerous advantages, including expanding the DeFi ecosystem and democratizing investments. However, it also faces challenges like regulatory uncertainties and market risks.
The success of RWA tokenization will depend on its ability to overcome these hurdles and establish itself as a sustainable and widely adopted financial innovation