Decentralized finance had offered an easy way to enter the crypto landscape with an innovative approach to conduct financial transactions. More people turned to DeFi with the hopes of earning profitable yields only to end up as victims of a radical drop in DeFi TVL. The collapse of FTX exchange and Luna, followed by inflationary pressure due to poor tokenomics of various tokens, led to drastic drops in token values.
The spotlight on real-world assets or RWA in crypto has become more prominent with many DeFi participants leaving DeFi to find better opportunities. Market participants believe that real-world assets offer more sustainable and higher yields by capitalizing on opportunities to tokenize different assets. Let us learn more about the importance of real-world assets or RWA in the crypto landscape with some popular examples.
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Understanding the Meaning of RWAs in Crypto
The first assumption that comes to mind upon reading “real-world assets” is that it represents any physical asset in the real world. Interestingly, the meaning of real-world assets in crypto is the same albeit with a twist of technology. RWAs are the tokenized representations of physical and conventional financial assets such as cash, bonds, credit or equities. Tokenization of real-world assets opens new opportunities for accessing, exchanging and managing physical assets. The ideal real-world assets for tokenization in crypto must have substantial value along with universal recognition.
Real-world assets represented on blockchain through tokenization also present possibilities for earning economic benefits in future. Integration of real-world assets into the blockchain and DeFi ecosystem is an innovative transformation in the domain of asset management. Tokenization can help in representing physical assets on blockchain networks, thereby helping people buy, sell or trade them on digital platforms with ease and better security. The convergence between traditional assets with substantial economic value and blockchain technology can improve liquidity and accessibility of the assets.
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Exploring the Utility of RWAs in the Crypto Ecosystem
Real-world assets in the cryptocurrency and blockchain landscape create new opportunities for drawing in more market participants. The answers to “What are crypto real world assets?” shed light on the advantages of liquidity and accessibility. The real-world assets or tangible assets in traditional finance serve as an important component with maximum contribution to global financial value. Any investor can capitalize on these tangible assets to enhance their diversified portfolio. Participants in crypto markets can add a mix of tangible real-world assets to create a robust portfolio.
Investors have experienced multiple challenges to access the traditional assets, including liquidity issues, geographic barriers and regulatory restrictions. For example, you need a lot of initial investment for traditional assets such as real estate. On the other hand, you can also find assets such as bonds that demand a lot of money even for the smallest denominations. It is also important to note that you cannot find immediate liquidity with traditional real-world assets. You cannot sell a property immediately and convert it into cash.
RWA tokens in crypto serve effective solutions to the problems associated with traditional assets that can offer significant financial value. Crypto RWA tokens offer the benefit of fractional ownership, thereby allowing people to purchase portions of bonds or real estate. It can help in reducing the initial investment required for such assets, thereby inviting more people to participate in new markets. Tokenization of real-world assets on a blockchain also enables universal accessibility of the assets by removing jurisdictional barriers.
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Real-World Assets Suitable for Tokenization in Crypto
The only examples of tangible assets discussed here are real estate and bonds. The RWA crypto list includes a broad range of assets that signify the spectrum of their utility. You must note that real-world assets could be physical or digital with intrinsic value outside the blockchain and crypto ecosystem. You can welcome these assets into the blockchain and crypto landscape through tokenization. Tokenization helps in creating a digital twin of the assets on a blockchain, thereby making them useful for new opportunities in trading, investment and ownership.
The first example of real-world assets that became crypto tokens will draw attention towards stablecoins. Stablecoins represented fiat currencies such as the US Dollar on blockchain networks and served as a liquid alternative to traditional currency. Tokenization of real-world assets also focuses on financial assets, digital assets and physical assets. Financial assets such as shares, equities, securities, insurance and treasuries are the foremost candidates for tokenization. You can also tokenize digital assets such as intellectual property, digital content rights and datasets on any blockchain.
The most interesting category of real-world assets suitable for tokenization in crypto are the actual assets in the real world. Tokenization of tangible assets such as raw materials, real estate, music, artwork, precious metals and agricultural products can transform investments. Tokenized real-world assets will play a vital role in bridging the gap between the physical world and the crypto landscape.
Unraveling the Examples of RWAs in DeFi
The best way to understand the importance of real-world assets in blockchain and crypto is through examples. Tokenized real-world assets have the capability to introduce fundamental changes in the DeFi landscape. Decentralized finance proved that onchain finance can be the ideal solution to enhance economic and financial activity. At the same time, it could not accommodate different types of assets that can capitalize on benefits of blockchain technology.
You can notice real world assets crypto projects gaining more attention for their potential to expand the digital asset ecosystem. Once you bring traditional real-world assets into the digital asset ecosystem, it will establish the foundations for a new financial system. The new financial landscape can offer better liquidity and transparency alongside reducing systemic risks. The total value of real-world asset tokens at the end of 2023 was almost $5 billion.
One of the most notable examples of DeFi protocols that have embraced real-world asset tokenization is MakerDAO. The DeFi protocol leverages real-world asset collateral for the DAI stablecoin, thereby showcasing a new approach for creating financial assets.
stUSDT is another popular example of RWA in DeFi with a contribution of more than $1.4 billion in TVL. It works as a money market fund solution where users can stake USDT on the platform to earn passive income. The most interesting highlight of stUSDT is the RWA DAO that manages user asset investments.
Ondo Finance is the next notable example of real-world asset tokenization in DeFi. The platform invests in multi-billion dollar exchange-traded funds with higher liquidity and helps stablecoin holders in earning yield for their assets. It is the second biggest RWA protocol in DeFi with a TVL ranging up to $220 million.
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Review of Benefits from Real-World Assets in Blockchain and Crypto
Another important aspect in understanding the significance of RWAs in crypto focuses on their benefits. You can find hints of various benefits in the design of crypto RWA tokens that leverages blockchain technology. Real-world asset tokenization with blockchain can help in revolutionizing traditional markets with an array of interconnected benefits. The tokenization process helps in improving efficiency alongside ensuring trust through fractional ownership of high-value assets. You can access real-world assets for trading at any time of the day without relying on traditional brokers.
Tokenized RWAs offer faster, global transactions without the restrictions of international borders and regulations. The consensus mechanisms in blockchain technology help in reducing dependence on third-party clearing agents such as conventional clearinghouses. On top of it, the public and immutable ledger of blockchain provides promising improvements in compliance and transparency. The decentralized ledger in blockchain technology provides complete visibility of asset ownership trail and transaction activity to facilitate clear provenance.
Smart contracts can play a major role in automation of regulatory requirements and compliance checks. The use of smart contracts with tokenized real-world assets can enable simpler compliance and tax reporting alongside ensuring formidable advantages. With the advantages of better transparency and compliance, you can notice that RWAs in crypto reduce cost and streamline administration.
The most promising advantage of tokenizing real-world assets on blockchain is the assurance of improved liquidity. Tokenization of traditionally illiquid assets such as real estate, bonds and securities improves their liquidity. The advantage of fractional ownership of real-world assets ensures that investors can sell off their share without any worries. Fractional ownership of tangible real-world assets in the form of RWA tokens also establishes a new secondary market. The new market can provide democratic access to different types of investments with profitable opportunities for asset owners and investors.
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Final Thoughts
Tokenization of real-world assets on a blockchain represents one of the most promising applications of blockchain technology. The introduction of DeFi brought many traditional assets to the blockchain and crypto ecosystem. With the arrival of RWA in crypto, you can witness the tangible assets in real world turning into notable crypto tokens. Real-world assets in the blockchain and crypto landscape will create a new market that can welcome more investors.
Tokenization of real-world assets such as real estate, music licenses, digital content rights or artwork can open the doors to many advantages. You can enjoy the value of fractional ownership, better liquidity and transparency in asset management with tokenized real-world assets. Learn more about asset tokenization in crypto to understand the value of real-world assets for the future of finance.
*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!
