Tokenization of Real Assets (RWA). Field overview

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Real World Assets (RWA) are real-world assets that have been tokenized and transferred onto the blockchain to simplify and expedite trading processes.

The initial implementation of the idea of ​​converting real assets to the blockchain world was the attachment of NFTs to any object. This allowed for the purchase of rights to real estate, artworks, music, and textual works in the form of cryptocurrency tokens.

Since then, the RWA sphere has significantly expanded, and now it encompasses not only real estate and luxury items but also real financial assets such as short-term US Treasury bonds, credit obligations, collectibles, and more.

Let's explore the RWA sphere to investigate its overall impact on the cryptocurrency economy and showcase projects that are already actively meeting demand among users.

RWA Statistical Data

The analytical information resource DeFiLlama includes 25 protocols in the Real World Assets category, with a total TVL of approximately $2.4 billion. According to the Federal Reserve report as of September 8, this figure is not significantly different and amounts to $2.15 billion.

Cryptocurrency resources CoinGecko and CoinMarketCap interpret the situation with RWA somewhat differently. According to CoinGecko, the market capitalization of tokenized assets is only $480 million, while on CoinMarketCap, this figure exceeds $6.5 billion, including cryptocurrency projects such as Chainlink, Maker, Synthetix, Centrifuge, Reserve Rights, and others.

Technical Features of Asset Tokenization

The main goal of RWA is to combine the traditional financial system with the DeFi sector. Thus, the blockchain sphere integrates into the real world, which is beneficial for both sectors.

The process of tokenizing assets and transferring them to the blockchain realm consists of three sequential stages:

Off-chain formalization, which includes confirming ownership rights to the asset, assessing its relative and absolute value, and legally formalizing the asset.

Information bridge, which involves transferring information about the real world asset tokenization into the blockchain sphere. This is achieved by creating a corresponding smart contract containing all detailed information about the asset. This can be either a standard ERC-20 token or an NFT ERC-721, as well as ERC-3643, ERC-2222, and ERC-4626 standards for different types of assets.

Introduction of RWA into circulation and servicing by protocols. At this stage, assets become available for trading and use. Their support and servicing are provided by relevant DeFi protocols.

RWA work requires the involvement of experts from finance, law, tokenization, and business analytics sectors, enabling the creation of clear and valid documentation for each financial asset.

Main Categories of RWA

Practically any assets can be tokenized and transferred to the blockchain, including:

  • Real estate properties;

  • Precious metals (gold, silver, platinum);

  • Collectibles and artworks;

  • Movable property (cars, boats, airplanes, etc.);

  • Company stocks and corporate bonds;

  • Carbon credits;

  • Central bank currencies and other financial instruments.

Stablecoins like USDC, DAI, PAX are also to some extent tokenized assets because they are backed by obligations and cash reserves in arbitrary proportions.

Advantages and Disadvantages of the RWA Sphere

RWA has many strengths, including:

  • Increasing the authority and application of blockchain technology in the real world, as well as expanding the user segment of cryptocurrency assets;

  • Combining centralized and decentralized finance sectors;

  • Increasing liquidity in the DeFi sector and injecting new liquidity;

  • Reducing operational costs through the use of smart contracts, eliminating many intermediaries and third-party service providers;

  • Expanding the intellectual property trading sector;

  • The possibility of managing supply chains and creating blockchain-based lending mechanisms.

At the same time, tokenized real assets have several disadvantages, such as:

  • RWA's susceptibility to traditional RWA risks, such as smart contract breaches, hacker attacks on protocols;

  • Technical shortcomings related to the inability to make changes to smart contracts that have already been released for RWA;

  • Regulatory and legislative issues with RWA in many countries. Tokenized assets are difficult to control, leading to risks of regulatory pressure and legal issues. This is also associated with the slow development of general cryptocurrency legislation;

  • The likelihood of forming unsecured assets and depreciating RWA;

  • High entry thresholds for some protocols. For example, projects primarily targeting institutional and retail investors may have a minimum purchase requirement for RWA of $100,000 and above.

Major RWA Projects

StUSDT — a decentralized stablecoin launched on Ethereum and Tron blockchains, backed by $1.7 billion in fiat reserves. The project is designed to improve interaction between RWA projects and investors.

Ondo Finance — a platform for trading US Treasury bonds and money market assets. The protocol offers its own stablecoin USDY, backed by Treasury bonds, as well as a range of tokens tied to real assets. Asset tokenization is carried out through exchange-traded funds.

In the real estate sector, RWA allows not only trading real estate but also earning from its rental, including by dividing the property into various fragments to increase accessibility and reduce the minimum purchase threshold. Popular projects include RealT, Tangible, and Lofty. Similar projects have also started to be offered on the WhiteBIT Launchpad.

Prospects for RWA Development

RWA is a direct application of blockchain technology in the real world, which eliminates most bureaucratic problems and makes asset trading standardized and accessible regardless of the user's geographical location. It is likely that many cryptocurrency companies will focus on RWA in the future, especially those experiencing liquidity crises and funding deficiencies due to bearish market cycles