Real-world assets (RWAs) are crypto tokens that represent physical assets in the real world. These assets can include bonds, real estate, commodities, and machinery. RWAs bring these assets into the Decentralized Finance (DeFi) space, making them more accessible and opening up new opportunities.
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Understanding RWAs
RWAs represent valuable assets that everyone recognizes. Their value and ownership are accepted worldwide, making them suitable for transactions, investments, and other financial activities.
Bringing recognized assets onto the blockchain using RWAs is a significant innovation that is a central narrative in the 2024-2024 crypto season.
Tokenization allows these assets to exist as tokens on a blockchain, making it easy to buy, sell, or trade them online. This blend of traditional assets with digital technology aims to improve liquidity, accessibility, and transparency for buyers and asset owners.
Why RWA tokens are important
Traditional assets represent a significant portion of global financial value, and investing in them often requires a lot of money upfront. While available in various amounts, bonds usually need substantial investment, keeping many people out of the market. Restrictions based on country laws can further limit access to these assets, often leaving only wealthy individuals able to invest.
Real estate and commodities are difficult to convert quickly into cash. Selling these assets can take time and be complicated and frustrating for those who need liquidity quickly.
Crypto RWA tokens make it easier for people to invest by allowing fractional ownership. This means you can buy tokens representing parts of assets, like real estate or bonds. This access opens doors for many who might have found these markets too expensive.
Blockchain technology removes geographic and regulatory barriers. It allows people worldwide to invest in assets that may have been out of reach due to regional restrictions.
Finally, tokenization allows more people to invest in an inclusive asset ownership landscape. RWAs connect traditional finance with new digital opportunities, creating a fairer market for everyone.
Which assets can be tokenized?
Real-world assets are quickly becoming a vital part of the crypto world. Here are some main uses for RWAs:
- Bonds: RWA tokens let investors earn money from bond investments. Government bonds, such as US Treasury bills, back these tokens.
Real estate: Tokenized real estate allows people to invest in a portion of a property and earn rental income, making real estate investment more accessible to everyone.
Commodities: Tokenizing fine art allows people to own a fraction of a painting or sculpture and make money from it. This makes art investing easier for those who can't afford to buy an entire piece.
Equipment and machinery: Companies are considering tokenizing industrial equipment and machinery. This would allow for shared ownership and usage rights, helping to use these assets better.
How real-world assets are tokenized
Tokenization is turning real-world assets into digital tokens on the blockchain. Tokenizing a real-world asset involves several important steps:
Asset selection: The real-world asset is selected based on market sentiment, demand, or regulatory conditions.
Token standard and type: The token type—fungible (like currency) or non-fungible (like unique items)—is chosen, as well as the token standard to use, such as ERC20.
Blockchain selection: A public or private blockchain network can be used to issue the tokens.
Sync off-chain data: Most tokenized assets need reliable off-chain data from secure oracles. A service like a certified Proof of Reserve (PoR) verifies the assets backing the tokens, helping build trust with investors.
Token issuance: The smart contracts are deployed on the chosen network, and the tokens are minted and made available for use.
Top real-world assets (RWA) coins by market cap
Mantra (OM)
MANTRA is a security-focused RWA Layer 1 blockchain designed for institutions and developers. It ensures compliance with real-world regulations. It's built with the Cosmos SDK and secured by a sovereign PoS validator set. Mantra has built-in modules, SDKs, and APIs for managing regulatory-compliant RWAs.
Ondo Finance (ONDO)
Ondo Finance is a decentralized investment bank serving various stakeholders in the DeFi ecosystem, including DAOs, institutional investors, and retail customers. Ondo pioneers liquidity-as-a-service with partnerships with 10+ DAOs and commitments from stablecoin issuers (FEI, FRAX, UST, RAI), facilitating token trading on decentralized exchanges.
Quant (QNT)
London-based Quant Network is transforming blockchain technology with its Overledger operating system. This platform is the first interoperable blockchain OS, enabling the development of decentralized, multi-chain applications at scale. Overledger connects various networks to blockchains, ensuring users are not restricted to a single vendor or technology. It aims to fulfill the original vision of the Internet by creating a secure, open network for people, machines, and data.
Maker (MKR)
MakerDAO is an Ethereum-based protocol that enables collateral-backed loans without intermediaries. It has become a key player in the DeFi space, utilizing smart contracts to manage borrowing and lending. The protocol features two currencies, DAI and MKR, to help regulate loan values.
Polymesh (POLYX)
Polymesh is a permissioned blockchain designed for regulated assets, addressing governance, identity, compliance, confidentiality, and settlement issues. Its native token, POLYX, is used for staking, transaction fees, and governance participation. POLYX facilitates creating and managing security tokens, securing the network, and fostering engagement within the Polymesh ecosystem.
According to Cryptorank, over 185 crypto tokens are classified as RWA. Their market capitalization is over 10.62 billion dollars, a 61% increase from the previous month.
Benefits of tokenizing real-world assets
Tokenized assets offer improved liquidity, greater access, transparent on-chain management, and lower transactional friction than traditional assets.
For financial assets, tokenization streamlines distribution, trading, clearing, settlement, and safekeeping into one layer, reducing counterparty risk and enabling more efficient capital mobilization.
Challenges in tokenizing real-world assets
Tokenizing real-world assets (RWAs) offers benefits but also poses challenges. Regulatory differences across jurisdictions present significant concerns, requiring adherence to local laws.
Additionally, the security of digital assets is vital due to the risks of fraud and hacking, making robust custody solutions and security measures essential.
The role of RWAs in DeFi
Tokenized real-world assets (RWAs) can greatly change decentralized finance (DeFi), showing that blockchain technology can improve financial activities. Even though most assets are outside the blockchain ecosystem, they could benefit from this technology.
Bringing these assets onto the blockchain can lead to a financial system with better liquidity, more transparency, less risk, and fairer infrastructure. This means a few people cannot exploit the system for their gain.