What is Real World Asset (RWA) Tokenization?

What are Real World Assets (RWA) in Crypto?

Real World Assets (RWAs) are physical or financial assets represented as tradable digital crypto tokens on a blockchain like Ethereum. Examples of RWAs include physical assets such as real estate and commodities, as well as financial instruments like bonds and carbon credits.

Tokenization of RWAs integrates these real-world assets into the digital economy. This process simplifies ownership, trading, and transactions, while offering benefits like fractional ownership, which allows more people to invest in traditionally high-value assets.

RWAs connect traditional finance with blockchain technology, enabling faster transactions and broader accessibility. For example, stablecoins like USDC represent real world assets, such as fiat currency, in digital form, enabling global and frictionless transactions with greater liquidity.

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How do Real World Assets Work?

Real-world assets work by tokenizing the monetary value of physical or financial assets and integrating them into a crypto network. This process boosts liquidity, transparency, and accessibility, allowing more people to own parts of more expensive traditional assets.

Below is a simplified explanation of how the RWA tokenization process works:

1. Asset Identification: Select a physical or financial asset to tokenize, such as real estate, art, or company shares.
2. Asset Valuation: Determine the asset's current value to ensure the token reflects its offchain worth using an oracle like Chainlink.
3. Legal Compliance: Verify that the asset and token comply with regulations to prevent legal issues.
4. Token Creation: Create a digital token that represents the asset's value, also determining if it will be an ERC20 token for example, or an NFT.
5. Blockchain Listing: Deploy the token on a blockchain network, enabling trading on decentralized exchanges like any other cryptocurrency.
6. Ownership Transfer: Manage ongoing ownership and provide benefits to token holders based on their share.
7. Token Redemption: Set provisions for token redemption or buy-back according to the tokenization agreement.

The most popular platforms to tokenize RWAs are Securitize, Tokensoft, Tokeny, Algorand, and Chainlink. While anyone can create an RWA token, ensuring it truly represents real ownership is something that only established institutions, like BlackRock, have successfully pulled off.

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What are the RWA Coins?

RWA coins are cryptocurrencies associated with projects that focus on tokenizing real-world assets. These coins often represent governance, rewards, or fee-sharing within RWA ecosystems.

Some real-world asset tokens can even directly represent physical assets, whereas others might support the infrastructure and services related to these assets.

A list of the best RWA projects include:

1. Ondo (ONDO): Offers tokenized versions of US Treasuries and money market funds for on-chain access, including products like OUSG, OMMF, and USDY.
2. Quant (QNT): Facilitates secure data exchange between multiple blockchain networks to support tokenized assets, "smart money", and information.
3. Pendle (PENDLE): Enables users to split, trade, and access tokenized future yield from assets, with top products including the SY Token, Principal Token (PT), and Yield Token (YT).
4. XDC Network (XDC): An EVM-compatible chain that supports trading financial assets by tokenizing invoices, letters of credit, and other financial documents.
5. PAX Gold (PAXG): Represents allocated physical gold, backed one-to-one with real gold bars for easy trading. Its biggest competitor is Tether Gold.

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Are RWAs in Crypto Safe?

RWAs in crypto can be safe if they follow strict security protocols and comply with regulations. Key safety factors include blockchain security, regulatory compliance, and effective risk management.

Strong cybersecurity measures like multi-factor authentication and regular audits help protect assets, while compliance with AML and KYC standards reduces legal risks. However, technical vulnerabilities and market volatility are still concerns.

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Examples of Real World Asset Platforms

There are several platforms that provide Real World Asset (RWA) tokenization services, making it easier to bring physical assets onto the blockchain.

1. Securitize: Tokenizes assets like shares and bonds, ensuring compliance with financial rules. One example is the BlackRock BUIDL fund, launched on Ethereum and later expanded to other blockchains.
2. Tokensoft: Manages tokenized assets with a focus on security and compliance, including real estate and company shares, with top clients including Arbitrum and Polkadot.
3. Tokeny: Helps businesses issue and manage digital securities, ensuring regulatory compliance for end-to-end tokenization.
4. RealT: Offers tokenized real estate with fractional ownership. Each property is owned by an LLC, which has a unique ERC-20 token representing shares in the property.
5. Chainlink: Chainlink provides Oracle services to connect blockchain with real-world data, enabling accurate pricing and compliance for tokenized assets.

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What is the Prediction for Real World Assets?

A famous 2022 report by Boston Consulting Group and ADDX predicts that real asset tokenization will reach $16 trillion by 2030, representing 10% of global GDP. As of late 2024, the value of RWA crypto assets is $41 billion, or $235 billion if including the stablecoin sector, which represents only 1.47% of the 2030 projected target.

In terms of total value locked (TVL), the RWA crypto sector is currently standing at $6.49 billion, with top protocols building in the niche including MakerDAO ($907 million TVL), Solv Protocol ($729 million TVL), and Tether Gold ($658 million).

Looking deeper into traditional finance, Exchange Traded Funds (ETFs) had $13 trillion under management across over 12,000 ETFs globally in May 2024, according to a JPMorgan report. Since then, Ethereum and Bitcoin ETFs have added even more billions in value, but are yet to have an RWA onchain structure.

Additionally, Real Estate Investment Trusts (REITs) are now valued at $4.5 trillion in gross real estate assets, covering over 535,000 properties, which is up by $2 trillion from their 2021 value. Of course, many other real world assets (RWAs) continue to grow in value but aren't yet tokenized.

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Bottom Line

Crypto trends come and go, but Real World Assets (RWA) tokenization is a narrative set to stay and grow. Even if we don't hit the lofty projections, this sector will keep expanding, bringing decentralized and traditional finances closer together until they become one.

We've already seen successful examples like stablecoins, tokenized gold, and treasuries, but the true potential lies in BlackRock CEO Larry Fink's vision of tokenizing the world.

So far, he has been successful in institutionalizing Bitcoin with ETFs and driving RWA adoption and this is probably just the tip of the iceberg of what is to come.