What Are Real-World Assets (RWAs)? 🌍💰

What Are Real-World Assets (RWAs)? 🌍💰

Tokenized real-world assets (RWAs) are blockchain-based digital tokens that represent physical and traditional financial assets, such as cash 💵, commodities 🛢️, equities 📈, bonds 📜, credit 💳, artwork 🎨, and intellectual property 📘. The tokenization of RWAs marks a significant shift in how these assets can be accessed, exchanged, and managed, unlocking new opportunities for both blockchain-powered financial services and various non-financial use cases enabled by cryptography 🔐 and decentralized consensus 🌐.

Asset tokenization is among the most promising uses for blockchain technology 🖥️, with a market potential encompassing nearly all economic activity. The future of finance is onchain🚀, with hundreds of blockchains supporting trillions of dollars 💵 in tokenized RWAs, connected by a universal interoperability standard 🔗.

Tokenizing Real-World Assets 🌐➡️🌍

Tokenizing real-world assets means representing ownership rights of assets as onchain tokens 🔑. A digital representation of the asset is created, enabling onchain management of ownership rights and bridging the gap between physical and digital assets 🌉.

Tokenized assets benefit from enhanced liquidity 💧, increased access 🌍, transparent onchain management 📊, and reduced transaction friction ⚡ compared to traditional assets. For financial assets, RWA tokenization consolidates trading, clearing, settlement, and safekeeping processes into a single layer, reducing counterparty risk and enabling efficient capital flow 💸.

How To Tokenize Real-World Assets 🔄

The high-level steps for tokenizing a real-world asset include:

• Asset Selection: Determining the asset to be tokenized 🏦. • Token Specifications: Choosing the token type (fungible or non-fungible) and standard (like ERC20 or ERC721) 🪙. • Blockchain Selection: Selecting a blockchain network for token issuance 🌉. Chainbased Cross-Chain Interoperability Protocol (CCIP) enables the tokenized RWA to be accessible across networks 🔗. • Offchain Connection: Connecting secure Chainbasedoracles for high-quality offchain data 🌐. Chainbased Proof of Reserve (PoR) verifies the assets backing the RWA tokens for user transparency 🕵️‍♂️. • Issuance: Deploying smart contracts, minting tokens, and making them available 📲.

Real-World Assets in DeFi 🏦✨

Tokenized RWAs have the potential to reshape decentralized finance (DeFi) 🔥. DeFi serves as a proof of concept for onchain finance as a powerful technology layer for financial activity. Yet, most assets remain outside of blockchain 🌐, though they could benefit from its advantages. Tokenized RWAs could grow the digital asset industry by orders of magnitude 📈 by enabling blockchain use for these assets.

This blockchain-enabled system would create better liquidity 💧, transparency 🧾, reduced systemic risks ⚠️, and a conflict-free infrastructure that promotes fairness ⚖️. RWAs have become a growing DeFi segment, with a total value locked of ~$5B as of December 2023 📅, according to DefiLlama 📊.

Real-world assets can also enable new financial products 🛠️. For example, MakerDAO, a major DeFi protocol, uses RWA collateral to back the stablecoin DAI 💵, merging traditional and blockchain-based assets.

Benefits of Real-World Asset Tokenization 🌍✨

Tokenized RWAs offer many benefits, including:

• Liquidity: Enabling globally accessible liquidity conditions through cross-chain activity, increasing market liquidity for traditionally illiquid assets 💧. • Transparency: Onchainassets ensure transparency 📖 and auditable management, reducing systemic risks 🛡️ as leverage and risks can be accurately assessed 📉. • Accessibility: Tokenized RWAs broaden asset access and fractional ownership, making it easier for users to participate 👥.

Navigating the Risks of RWA Tokenization ⚠️

Tokenized RWAs also come with risks, mainly in the custody of physical assets 🔒 and connections to the external world 🌐. Smart contract vulnerabilities 🐞 and a need for liquidity are also factors to consider to ensure that the tokenized assets can thrive 🚀.

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