RWA, or Real-World Assets, are physical assets tokenized through the integration with blockchain technology. This aims to enable traditional finance to benefit from the more open, transparent, and transaction-friendly advantages of blockchain.

Currently, even global asset management giant BlackRock has launched its first tokenized fund on Ethereum, the “BlackRock USD Institutional Digital Liquidity Fund” (BUIDL). This fund invests 100% of its total assets in cash, US Treasury bonds, and repurchase agreements, allowing investors to earn returns while holding tokens on the blockchain.

In the following text, we will take you through a deep dive into what RWA is, how it operates, its future potential, and the challenges it faces.

What are RWAs?

In crypto terminology, Real-World Assets (RWA) refer to physical or tangible assets with intrinsic value in the real world, such as loans, insurance contracts, commodities, and real estate. These assets are tokenized using blockchain technology, with each token representing a share, stake, or ownership of the underlying asset.

The goal is to make traditional assets more accessible for online trading and investment, leveraging the immutability and transparency of blockchain. Additionally, RWAs can be integrated into the DeFi ecosystem, reducing intermediaries and providing a broader trading market.

Why Do You Need RWA?

In traditional finance, the tokenization of RWAs on the blockchain is akin to capital being brought on-chain and securitized. Taking the success of securitization in the 1990s as an example, we can see how regulatory improvements transformed capital formation.

Securitization is a system for creating, aggregating, storing, and dispersing risk. By establishing benchmarks that assets must meet (such as terms and risks), we greatly increased liquidity and sources of funding. Mortgages, corporate loans, and consumer loans were institutionalized and deployed through securitization, making financing more affordable for consumers, companies, and homebuyers.

To put it in simpler terms, many people can’t afford to buy a house outright, but through loans, most can afford to buy one.

Thirty years later, on-chain securitization can be seen as nearly the same; financial markets have not yet evolved to effectively adapt to the internet. Due to networks of intermediaries, including investment banks, custodians, rating agencies, and servicing agencies, the cost of borrowing remains higher than it should be. Most assets cannot be securitized, and most business owners still cannot access international financing markets.

If the crypto industry wants to impact traditional business operations, it must address the issue of value transfer within the industry, and RWAs are a crucial part of this transformation process.

Examples Of Assets That Can Be Tokenized

1. Real Estate

Traditional real estate investment is globally favored for its ability to preserve value and provide long-term returns. However, the real estate market is also known for its poor liquidity. Through RWA tokenization, transparency and liquidity are expected to improve.

Additionally, in the future, entire properties could be divided into multiple shares, making it easier for multiple people to co-own a piece of real estate and lowering the investment threshold. Automated execution through smart contracts can also facilitate the distribution of rental income or sales proceeds as dividends. (Regulations still need further refinement.)

1. Commodities

This includes the tokenization of physical commodities such as gold, oil, and agricultural products. This enables investors to trade and hold these assets more conveniently without the need to physically possess them. (Traditional finance has already optimized such transactions, but RWA is expected to further enhance them.)

1. Intellectual Property

This includes software code, copyrights, and patents. Tokenization can facilitate the licensing and commercialization of intellectual property. Artists can choose to sell partial rights to their works to raise funds while retaining some control over their creations.

1. Loans and Collateral

This involves using physical assets as collateral for loans. For example, tokenizing cars or machinery to secure loans, thereby increasing the liquidity of the assets.

Advantages of RWA

Increased Liquidity and Trading Efficiency: Through tokenization, previously “illiquid” assets (such as real estate) can be transformed into divisible and easily tradable tokens, helping to enhance market liquidity.

Increased Transparency and Security: Blockchain provides a tamper-proof ledger of ownership and transaction history, making asset management more secure and transparent.

Easier Access to Investment Opportunities: RWAs on the blockchain lower the minimum investment amount and entry barriers, enabling more people to invest in high-value assets.

Financial Product Innovation: RWAs open the door to new financial products, such as fractional ownership and asset-backed loans, leading to a more dynamic financial market.

Overall, RWAs are not a completely novel invention, but they have the potential to further enhance the trading efficiency and transparency of traditional finance through blockchain, creating a more efficient market.

RWA Working Principle

Based on Binance’s RWA research report, a comprehensive RWA system requires three main components: off-chain standardization, integration of asset information, and the design of DeFi protocols tailored for RWAs.

Off-Chain Standardization

Before real-world assets are integrated into digital ledgers, their asset value, ownership, and legal status must be determined in the physical world. When estimating the value of RWAs, factors such as market prices, performance history, and the physical condition of the assets need to be considered. Additionally, the asset must have undisputed legal ownership, which can be verified through contracts or invoices.

Integration of Asset Information

During this phase, the tokenization process takes place, converting asset information into digital tokens. The value and legal ownership information of the assets are embedded in the metadata of the tokens. Due to the transparency of blockchain, anyone can verify the authenticity of the tokens through the metadata.

Designing RWA-Specific DeFi Protocols

DeFi protocols specifically designed for RWA financial models not only facilitate user transactions but also make it easier to access information related to off-chain assets. This, in turn, can attract more investors.

Compilation of potential projects on the RWA track

Ondo Finance

Ondo Finance aims to bridge the gap between traditional finance and DeFi by developing structured financial products that offer high yields and stable returns. In addition, it provides a range of investment options to meet various risk preferences.

Key Metrics:

• Token: $ONDO
• Market Cap: $1.18 billion
• Fully Diluted Valuation (FDV): $8.2 billion
• Unlocked: 14.3% of total supply

Goldfinch

Goldfinch focuses on real-world lending and offers decentralized credit protocols. The project provides investment returns for capital providers while also offering cryptocurrency loans to creditworthy applicants who do not need to lock up cryptocurrency as collateral.

Key Metrics:

• Token: $GFI
• Market Cap: $144.1 million
• Fully Diluted Valuation (FDV): $236.3 million
• Unlocked: 60.9% of total supply

Creditcoin

Creditcoin is a multi-chain credit protocol that serves as a foundational L1 blockchain, aiming to enhance trust in credit history and the lending market.

Key Metrics:

• Token: $CTC
• Market Cap: $271 million
• Fully Diluted Valuation (FDV): $507 million
• Unlocked: 53.4% of total supply

Polytrade

Polytrade is a blockchain-based decentralized trade finance protocol designed to connect buyers, sellers, insurance companies, and investors to provide a seamless trading experience.

Key Metrics:

• Token: $TRADE
• Market Cap: $52.7 million
• Fully Diluted Valuation (FDV): $167.5 million
• Unlocked: 32.5% of total supply

Realio

Realio is a digital issuance, investment, and peer-to-peer trading platform that integrates blockchain technology with real estate investment to enhance transparency and liquidity.

Key Metrics:

• Token: $RIO
• Market Cap: $11 million
• Fully Diluted Valuation (FDV): $92.6 million
• Unlocked: 11.8% of total supply

Challenges Faced by RWA

For RWAs to thrive in the cryptocurrency field, regulatory clarity is crucial. Additionally, due to the immaturity of related technologies and the insufficient understanding of blockchain among users, issues such as hacker attacks, technical vulnerabilities, or malicious actors posing as RWA entities may occur.

In the future, ensuring the security of the link between tokens and physical assets will be vital. Moreover, whether RWA platforms can effectively manage large volumes of transactions and data will also pose a significant challenge.

The following is a compilation of the latest news about RWA

RWA market investment and financing

2024/05/13

RWA Weekly Report: Arbitrum Launches Tender, Ten Financial Giants Collaborate on Tokenized Deposits, CBDC…

Broadly speaking, the essence of RWAs is to bring all real-world assets on-chain to enable efficient asset transfer and, combined with on-chain composability, create new asset classes. The Bank for International Settlements (BIS) has explicitly stated: “In the future, all assets will be tokenized, and blockchain-based Finternet will be the future of the financial system.”

2024/05/02

BlackRock Targets RWA Market: Leads $47 Million Funding Round for Securitize, BUIDL Becomes Largest Tokenized U.S. Treasury Fund

U.S.-based asset tokenization company Securitize announced the completion of a $47 million funding round, led by asset management giant BlackRock. The round also received support from Hamilton Lane, one of the world’s largest private markets investment firms, and leading fixed-income trading platform Tradeweb Markets.

2024/03/28

Raised $250 Million in One Week! BlackRock’s Tokenized Fund BUIDL Pays Monthly Dividends, Capturing the RWA Market

On March 20, BlackRock announced the launch of its first asset tokenization fund on Ethereum, the “BlackRock USD Institutional Digital Liquidity Fund” (BUIDL). The fund invests 100% of its assets in cash, U.S. Treasury bonds, and repurchase agreements, allowing investors to earn returns while holding tokens on the blockchain. Within one week of its launch, BUIDL reached a market value of $244.8 million, becoming the second-largest tokenized U.S. Treasury fund.

RWA Future Development

2024/01/23

Opinion: What Does Ondo Finance Need to Do After Betting on U.S. Treasury RWAs?

Ondo Finance made a strategic move by directly entering the RWA U.S. Treasury market early on. U.S. Treasuries, being low-risk, stable-yield, and scalable assets, are currently the biggest beneficiaries in the RWA sector, with limitless future potential.

2024/01/03

2024 RWA Outlook: Seven Predictions to Disrupt Traditional Financial Models

The core of real-world asset tokenization is creating an investment tool on the blockchain that is associated with tangible assets like real estate or cars, or any other physical items. Once ownership is recorded on the blockchain, these assets can be traded, divided, or securely held.

2023/10/26

RWA Market Cap to Reach $16 Trillion by 2030: VanEck Predicts Tokenization of Real-World Assets and Stablecoins to Disrupt Traditional Finance

The tokenization of real-world assets (RWA) has been a hot topic in the crypto space. Gabor Gurbacs, Digital Asset Strategist at VanEck, which is also applying for a Bitcoin spot ETF, recently stated on X (formerly Twitter) that the market potential for stablecoins and tokenized RWAs is enormous.

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