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Projects rwa crypto like Book.io, for example, pioneer the issuance of ebook and audiobook RWAs. Keen on helping others navigate the complicated, and sometimes, confusing world of crypto through easy-to-understand articles, designed for non-techies like me. These are individuals handpicked by the Maple Finance team and their job is to vet the institutional borrowers. This is done by checking up on their creditworthiness and will influence what kind of loan they will get. Once they pass the required checks, their pool is open to receive investments and the borrower pays an “establishment fee” that goes towards the DAO and the pool delegates. Here, we can see that pool delegates are incentivized to pass through as many borrowers as they can because they get a kind of kickback from the fees paid by borrowers.
RWA Tokenization: What Does It Mean to Tokenize Real-World Assets?
Starting in the Babylonian empire in 3000 BC with clay tablets to track debts before evolving into paper formats, finance has entered an almost purely digital era. Despite these transformations, the recording of financial https://www.xcritical.com/ events still takes place across siloed ledgers that must be reconciled. This results in significant inefficiencies, such as increased costs and lengthened settlement times.
Helping companies, investors, and industry trailblazers navigate the crypto and digital asset economy.
The tokenization of real-world assets (RWAs) represents one of the most compelling applications of blockchain technology, revolutionizing how we perceive and interact with various forms of value. From art and collectibles to real estate, stocks, commodities, and even personal data, a wide array of tangible and intangible assets can now be represented digitally on-chain through the issuance of tokens. Blockchain technology is bringing real-world assets (RWAs) online, with $5.29 billion currently tokenized across categories like real estate, commodities, and stocks.
- Two guys from Canada with fintech and legal knowledge saw an opportunity to provide a more robust offering to both investors and lenders while also cutting down the amount of red tape and middlemen involved.
- However, there are early signs of adoption for RWAs by major traditional financial companies like Franklin Templeton and Wisdom Tree that illustrate the potential for this budding sector of DeFi to attract new users in the future.
- With smart contracts, most of the middlemen can be eliminated, costly fees go flying out the window and the settlement times are greatly reduced.
- Fractional ownership of shares is common these days so it is a matter of time before fractional ownership of property is going to be on the table.
- In turn, this could make fractional investments in higher-value items more accessible.
Tokenized Real-World Assets (RWAs): Scaling Onchain Finance to a Global Level
Who knows, we might even be able to tokenise our time but that’s something I’ll leave to sci-fi authors to ponder over. An important thing that tokenization brings to the ownership of real-world assets is partial or fractional ownership. This kind of ownership is already beginning to gain acceptance in the art world with NFTs of artworks sold to art enthusiasts who want to own a piece of Banksy or Andy Warhol. Fractional ownership of shares is common these days so it is a matter of time before fractional ownership of property is going to be on the table.
Platforms are emerging to offer fractional ownership in diverse alternative assets. Ctrl-Alt, built on Algorand, makes it easy for users to invest in assets like property and green energy projects, increasing accessibility to these markets for a broader audience. Real-world asset tokenization spans various sectors, with several projects leveraging blockchain technology to enhance accessibility, liquidity, and transparency.
However, as the markets moved lower, DeFi TVL slumped to $49.87 billion by June 2022. The lack of real utility and poor tokenomics seen in some DeFi protocols certainly didn’t help their case, as liquidity leaked from the market. The integration of RWA in DeFi is often lauded as one of the best examples of traditional finance assets blending with DeFi. The high level of institutional interest and investment in RWAs, along with the potential scale of the economic opportunity, means the segment seems well-positioned for future growth over the coming years.
Moreover, “USD-collateralized” stablecoins are often not backed by dollars alone, but also in part by other assets including cash equivalents (e.g. US treasuries, commercial paper), secured loans, corporate bonds, and more. However, the most trusted stablecoins are backed entirely by cash and short-term US treasuries. The core value proposition of public blockchains is to solve coordination problems by serving as a decentralized, credibly neutral settlement layer that any application can be permissionlessly deployed upon.
Tangible, another real estate focused RWA issuer, has seen the strongest growth this year. Total value locked in Tangible’s tokens grew from $100,000 to $64m over the first three quarters of 2023. Without a secure blockchain interoperability standard, this would lead to fragmented islands of liquidity that prevent the growth of new onchain markets. The bulk of MakerDAO’s RWA collateral (~$500M) comes in the form of US treasury bonds managed by Monetalis (MIP65).
Artists, writers, and inventors can issue digital tokens representing shares in future revenues generated from their works. Platforms like ANote Music allow investors to bid on shares of music catalog royalties. The travel industry is exploring tokenization to create new revenue streams and improve customer experiences. TravelX, built on Algorand, transforms airline ticket inventories into NFTs, serving millions of users and demonstrating RWA applications in travel. Those who have a real-world asset that they want to tokenise find out which platforms handle tokenisation. They then submit to the KYC checks that are usually mandatory due to regulatory governance.
We are still in the early days of RWAs on public blockchains, but none of the above challenges are insurmountable. Continued industry collaboration, across both DeFi and TradFi, will chip away at these barriers over time in order to eventually arrive at a viable solution for onchain finance. Traditional finance firms are excited by the idea of tokenizing assets they already trade, such as gold, stocks and commodities.
Clearpool, a decentralized credit marketplace, experienced the greatest relative change over the past three quarters. From January 1 to September 30, the platform’s loan balance grew 966%, reaching $23.96m by September 30. Cumulatively, Clearpool has originated more than $400m worth of private credit loans across 3 chains (Polygon, Polygon zkEVM, and Ethereum) in its lifetime. Chainlink is already the leading platform for tokenized RWAs, powering TrueUSD stablecoin, tokenized gold product Pax Gold, and many others.
MANTRA is a decentralized finance (DeFi) and governance platform operating on a multi-chain architecture, designed to facilitate the tokenization of RWAs. With its scalable and interoperable environment, MANTRA enables seamless integration of RWAs into blockchain ecosystems, comprising varieties of DeFi applications. Recently, the platform raised $11 million to further its RWAs tokenization efforts, particularly focusing on the Middle East, where blockchain adoption for financial solutions is growing rapidly.
RWAs are gated by similar, or in some cases more, limitations than their traditional financial counterparts. This means RWAs are not broadening access to financial instruments by enabling individuals to engage in financial activities that they would otherwise not be able to access. Furthermore, W3C Verifiable Credentials issued by trusted financial institutions demonstrated how compliance controls could be integrated within onchain applications involving RWAs. The tokenization of real-world assets and their use in onchain finance provides a number of advantages over the status-quo, many of which derive from the properties that make public blockchains and onchain finance valuable. VeChain originally started as a blockchain platform focused on revolutionizing supply chain management through distributed ledger technology, ensuring transparency and security in tracking RWAs.