We often hear about cryptocurrencies, layers and non-functional tokens (NFTs), but now another area with just as much potential is emerging: Real World Asset Tokenization (RWA).
What are real world assets (RWAs)?
Real world assets (RWAs) refer to a class of digital assets (exchangeable or non-exchangeable) from the real world. In other words, in our case, they are "real world assets" that have been tokenized and then placed on the blockchain. These assets can be any type of property, such as real estate, artwork, commodities, government bonds, or even traditional financial instruments.
Historically, these types of assets were traded and valued using traditional methods, such as certificates of ownership or certificates that served as legal proof of ownership. However, these traditional procedures entailed many problems such as excessive entry costs, lack of liquidity, lack of transparency and long transaction times.
This is where real-world asset tokenization, made possible by blockchain technology and whose benefits are revolutionary to say the least, comes in.
Real World Asset Tokenization (RWA)
In practical terms, tokenization is the process by which ownership of a real-world asset (such as real estate) is converted into one or more digital tokens on the blockchain. In other words, this process breaks down the ownership of an asset into digital units or "fragments" known as "tokens", which can then be traded within decentralized finance (DeFi).
These digital representations are often backed by smart contracts that define the rights and obligations of token holders.
Let's look at the example of real estate divided into 100 digital shares, each of which acts as a title deed. If you buy, say, 10 of them, you become a co-owner (along with all other buyers) of the same real estate and are therefore entitled to a proportional share (in this case 10%) of the monthly rental income.
What is a real world asset?
As you've already realized, this process has a number of advantages including greater accessibility, lower upfront costs, increased liquidity, traceability and transparency.
RWA: a revolution for individuals and businesses
The integration of real world assets (RWAs) into financial markets through tokenization is redefining the way people invest and hold assets.
For individuals, RWAs open up investment opportunities traditionally reserved for institutional investors or those with large amounts of capital. Tokenization allows them to buy just a fraction of these real assets, lowering the cost of entry.
It also allows them to diversify their portfolio and not keep all their eggs in one asset class.
For businesses, using RWAs opens up access to new forms of financing. By tokenizing their assets, they can raise capital without resorting to traditional financing methods, which are often long and expensive. This can be particularly beneficial for startups and SMEs looking for an alternative to bank loans or traditional fundraising.
Buying tokenized real estate with RealT
Among the sectors that have benefited the most from the tokenization of real world assets is real estate. And if there's one player that has seized this opportunity to change the rental investment landscape, it's RealT.
RealT is a real estate tokenization platform located primarily in the United States.
In practical terms, RealT buys a property, divides it into several thousand ERC-20 tokens, known as RealTokens, and puts them up for sale on its trading platform. Users can invest in these properties, or rather shares of them, from as little as €50, with the option to resell them at any time.
Once in your portfolio, the properties you purchase will generate an income corresponding to the rent, usually between 10% and 20% per year. These rewards will be transferred to your wallet every Monday, providing you with a recurring income.
By acting in this way, RealT makes rental investments much more accessible to smaller portfolios that do not always have the means to invest hundreds of thousands of euros. Moreover, this method is particularly attractive for those who want to enter the real estate market without the traditional constraints associated with the direct purchase of real estate (administrative paperwork, visits, appraisals, etc.).
What other options are there for utilizing real world assets (RWAs)?
Real World Asset (RWA) tokenization has changed more than just the real estate sector. It also includes:
- Art: tokenization of art and collectibles is revolutionizing the art market, making it accessible to more investors by allowing them to purchase shares of high-value works.
- Commodities: tokens backed by commodities such as gold allow investors to benefit from exposure to these tangible assets without the cost of storage. Additionally, the fact that tokenization turns commodities into tradable digital assets simplifies access to these markets and provides high liquidity while preserving the intrinsic value of these resources.
- Corporate finance: companies can tokenize their assets (usually in the form of shares) to raise funds, offering an alternative to traditional financing methods. This allows capital to be raised faster and possibly at a lower cost.
- Luxury goods: the picture is similar to other sectors. Tokenization of luxury goods offers individuals entry into an industry that was previously reserved for wealthy customers.
The future of RWAs in decentralized finance (DeFi)
The future of real-world assets (RWAs) in decentralized finance (DeFi) looks promising, so much so that some experts believe it could redefine traditional economic interactions. Indeed, the merger of RWAs and DeFi has the potential to create a much more inclusive and democratic financial ecosystem.
RWAs for real world assets
By integrating RWAs, DeFi can go beyond "pure" digital assets (cryptocurrencies, NFTs, etc.) to encompass a wider range of economic assets. The merger of these two systems can offer a whole new ecosystem that combines the transparency and efficiency of blockchain with the tangible value of real assets.
In addition, RWAs can be used as collateral for DeFi loans, providing greater security for lenders and more attractive interest rates for borrowers. As another example, they can facilitate the creation of derivatives and index funds, again expanding investment opportunities.
Things to keep in mind
Real asset tokenization is an approach that is fully in line with the promise of decentralized finance (DeFi): to open up financial markets to a wider audience.
By simplifying transactions, increasing the liquidity of illiquid assets, and reducing the number of intermediaries, tokenization has the potential to democratize access to traditional sectors that were previously the preserve of the financial elite.
Undoubtedly, RWAs represent a significant step forward in the democratization of investment in general and promise to change the financial landscape in the coming years.