Real world asset (RWA) tokenization is when a traditional asset is securely locked up and represented on a blockchain or other decentralized network for trading or purchasing. In this vid, I share a possible future vision for assets that are on-chain.
Cryptocurrency wallets are then used to verify ownership of the asset. They are how RWAs are held by individuals.
Of course, banks and other institutions will want to custody those things for you and collect fees! That’s the angle I see large firms taking in the near future.
Tokenization is one of the main routes that mass adoption of DeFi is taking. That’s why it is my latest research obsession! Here are some of the positives that come from tokenization:
Advantages of RWA Tokenization
- Fractional Ownership: high value assets such as buildings, artwork, etc., can be split between many owners. This is widening exposure for more investors.
- Invest from a Phone: all people need for getting access to tokens is a phone, an Internet connection, and the right app. This expands access to billions of people around the world.
- Expanded Liquidity: secondary markets can be created, cross-chain swaps will be the norm, and pools of liquidity will grow around RWA assets.
- 24/7 Trading: soon there will be no more closing times on global markets. Assets that are on-chain will be available for swapping at all times.
- Less Intermediaries: less middle men in trading means faster trades and lower transaction fees, in general.
I keep a futurist view about RWA tokenization. The excitement and projects are rapidly expanding. As politicians, banks, and regulators continue to give in to this inevitable shift, an explosion in RWA tokenization will continue to take place.
When a few regulatory laws are passed in the US, it will open the floodgates on this financial technology. With Trump and other pro-crypto candidates winning in the 2024 elections, US government support is probable to increase.
Massive testing for tokenization has already been done over the years. Big names such as Blackrock’s CEO, Larry Fink, is talking about this future too.
Pain Points for RWA Tokenization
Of course, there are challenges to tokenization now and into the near future. Here are the main ones:
- Smart Contract and Code Bugs: since blockchain and smart contract programming is new, there have been a host of bugs and hacks over the years. Software security will be a large challenge as it always has been.
- The Custodians of Assets: tokenized assets have to be held with a reliable firm. Regulations and audits will need to be in place for RWA tokens to be trustworthy. This can be a type of centralization too.
- Choosing a Network to use: there are tons of options for blockchains and other decentralized networks. Finding one that is going to last, has good security, high speeds, and low fees will take a lot of research.
- Oracle Problems: oracles feed prices of assets onto blockchains. They can sometimes be slow or lose connectivity. There are many failure points for pricing when trading RWA tokens.
- Cross-Border Tokens and Trading: since decentralized networks are global, they will be trading across many different jurisdictions. Each one may have different rules and laws to consider.
- Price Depreciation and Maintenance: it will be tough to automatically price in certain costs when a real item is represented as a token.
These types of challenges will grow along with the tokenization of real world assets. There will have to be international rules and regulations, maybe put forth by central banks, the BIS, or maybe parts of the UN. All I know is it will be a confusing time with many overlapping authorities.
Big money is innovating in the RWA space and this is certain to grow. The technology is improving and laws are being discussed around the world.
The near future of tokenization will have assets traded 24/7. Goods and services will be bought with almost anything we can think up as long as it can be represented on-chain. That’s where I think a global RWA tokenization future lies.
