Unlocking the Potential of Real-World Assets

Opportunities and Trends in Tokenisation

According to the renowned scholar Carlota Perez, technology follows a fascinating pattern of adoption. It goes through cycles of exuberant bubbles and subsequent crashes before entering long periods of "golden ages" marked by substantial growth. And now, we find ourselves in the midst of one such revolution with Web3. It's going through that familiar cycle of boom and bust, capturing our attention.

In 2023, something exciting is happening in the world of finance. Real-world assets are taking the spotlight, offering innovative ways to generate yield. It's all about tapping into tangible assets like loans, as the name suggests.

Binance Research estimates that by 2030, the Real World Asset (RWA) market could be valued at a whopping $16 trillion. That's a mind-boggling opportunity for the blockchain industry. We're already seeing increased adoption of RWAs with a growing total value locked in decentralised finance (DeFi) protocols.

Let's dive into the world of RWAs! We'll explore what they are, check out some examples, and even look into their current trends and future possibilities.

What is Tokenising Real World Assets?

Real World Assets (RWA) in crypto are not just tokens on a screen. They are the tokenisation of real, tangible assets that exist in the physical world. Think of it as bringing the real world onto the blockchain. We're talking about assets like real estate, commodities, art, and even US Treasuries.

These assets hold massive value in the global financial landscape. For instance, the total value of global real estate in 2020 was a mind-boggling $326.5 trillion, while the gold market capitalisation reached a staggering $12.39 trillion.

Now, here's the kicker. Traditional finance has been leveraging real-world assets for ages, but the DeFi world has barely tapped into this potential. Imagine the possibilities if real-world assets were included in the DeFi industry. It would bring in more liquidity, open up a whole new asset class for DeFi enthusiasts to explore, and offer a reliable investment option that's less affected by crypto's notorious volatility.

Real World Assets (RWA) in crypto refers to the tokenisation of tangible assets that exist in the physical world, that are brought on-chain. They also include the growing issuance of capital market products on-chain, where digital securities are tokenised and offered to retail customers.

Tokenisation's potential benefits

Tokenisation offers several compelling advantages in the financial sector:

1. Improved Capital Efficiency: Tokenisation boosts capital efficiency, enabling faster transactions and reducing settlement times, which is especially valuable during high-interest-rate periods.

2. Democratisation of Access: Tokenisation offers the potential to democratise investments by allowing smaller ownership shares.

3. Operational Cost Savings: Asset programmability through tokenisation reduces operational costs. For instance, it automates tasks like interest calculations and coupon payments in corporate bonds, streamlining securities lending and repos, ultimately lowering expenses.

4. Enhanced Compliance and Transparency: Tokenisation enhances compliance by embedding actions like transfer restrictions. Blockchain's 24/7 data availability enables real-time, auditable accounting and consolidated reporting, increasing transparency. It's exemplified in the case of carbon credits, enhancing trust through real-time tracking.

5. Cost-Effective, Agile Infrastructure: Using blockchain, financial institutions can adopt smart contracts and embrace new technologies seamlessly without incurring huge cost/time.

Diverse Applications of RWAs

With such attractive advantages of tokenising real-world assets, companies, especially banks and real estate, are rushing to tokenise their offerings. Let's look at some of the use cases:

Real Estate

Real estate tokenisation on the blockchain is gaining momentum, enabling fractional ownership and transparency of property rights. Companies like Roofstock in the US offer "Real-world homes on blockchain that you can buy with one click" through their web3 subsidiary, Roofstock onChain.

Precious Metals/stones

Tokenisation extends to precious metals like gold and diamonds, making them more accessible and tradable. For example, Kimberlite, a Web 3 diamond company, will launch a diamond-backed Tangible NFT or TNFT that can be traded and redeemed into physical diamonds.

Supply Chains

Tokenisation enhances transparency and automation in supply chains. Digital tokens represent assets along the supply chain, allowing for verification of ownership, product authenticity, and responsible sourcing. This technology also supports environmental and social initiatives.

Art

With blockchain technology, high-value, one-of-a-kind art can now be fragmented into hundreds, or even thousands of tokens. This opens the door for a wider circle of potential investors, thus inviting greater liquidity, less exclusivity, and a step towards reducing the influence of super-wealthy art collectors.

Intangible Assets

Blockchain tokenization provides a fresh approach to safeguarding intangible assets like copyrights, trademarks, and patents, usually stored in either paper or digital formats.

By harnessing the blockchain's transparency and immutability, owners can secure their intangible assets. Once tokenized, copyrights or patents become impervious to tampering, while also remaining traceable and verifiable in real-time on the blockchain. For an added layer of authenticity protection, they can even be transformed into NFTs.

Trends in RWAs and future outlook

The tokenisation of real-world assets (RWAs) is experiencing dynamic trends and a promising future outlook. Stablecoins are serving as key enablers, bridging traditional finance with the blockchain world, while cryptocurrencies are evolving into monetisation tools for specific projects and digital commodities.

General RWA tokenisation is gaining traction, with a focus on assets that require minimal additional infrastructure, such as those in the Internet of Things (IoT). Established players like Tzero and Securitze are driving the space forward, and major financial institutions like Goldman Sachs are entering with platforms like the Digital Asset Platform (DAP).

The market is also witnessing global expansion, with international institutions like the European Investment Bank participating. Additionally, the RWA market itself is flourishing, ranking eighth in DeFi with a Total Value Locked (TVL) of $1.3 billion as of September 1st, 2023. The number of RWA token holders is also on the rise, indicating growing interest and adoption in this evolving landscape.

Final thoughts

To sum up, tokenisation has come a long way and has been an increasingly sought after phenomenon with an ever-growing number of applications across industries. As the technology and regulatory framework surrounding it matures rapidly, there are clearly immense opportunities for unlocking the digital potential of physical assets through tokenising them.