Blockchain technology has found its way to connect our real assets. RWA, or real-world asset tokenization is taking off as there is more interest from traditional financial institutions, and it could revolutionize the way you manage your investment portfolio. So for some of you who do not know what RWA is, now is the time.
Highlights:
- RWA refers to the practice of tokenizing tangible assets and representing them as digital tokens on the blockchain.
- It is the second most profitable crypto narrative in Q1.
- RWA creates new opportunities and makes it easier for those who wish to invest through DeFi.
- Ondo, Lofty, MANTRA are some projects targeted different RWA markets
- Jurisdictions and legal frameworks of RWA are yet to be established
How RWA Shows Its Impact?
First of all, memecoins won the prize for “the most profitable crypto narrative” in Q1. The overall market had 1,312.6% growth in returns, with Brett (BRETT) alone up 7727.6% compared to its launch price, according to CoinGecko.
However, the second place went to RWA, which had gained 285.6% growth in Q1. Although it was much less than the meme-theme-tokens (around 4.6 times), the term is expected to be exposed again and again to the market this year along with DeAI and dePIN, as it could “reshape the future of finance.”
So What Is RWA?
The tokenized real-world assets, named RWA for short, refer to the practice of tokenizing tangible assets and representing them as digital tokens on the blockchain, creating a virtual investment vehicle linked to real-world assets.
When a real-world asset i.e. an asset that exists in the world has been tokenized, it means it is represented through a digital token on the blockchain.
Take real estate as an example. If someone’s property is tokenized, it means his or her ownership of a home is represented through digital tokens while underlying assets and transactions take place in the physical world.
Most physical assets can be tokenized. Some other examples of real-world assets are cars, gold, artwork, and collectibles. Not just that, but some intangible assets like stocks, bonds, credits, patents, etc. could also be tokenized.
That is why the concept is gaining momentum and interest from traditional finance players.
The Way RWA Works
Tokenized RWA is the process of turning a real asset's ownership rights into blockchain tokens. Thanks to distributed ledger technology, the process is accomplished by tracking assets and their real-world characteristics—such as performance and valuation—that come from sources outside the blockchain.
Real-world asset tokens can be coded to include characteristics like lockup times and particular conditions for investors, much like other cryptocurrency tokens.
The Benefits of RWA
By placing real estate or other valuables on the blockchain, RWA creates new opportunities and makes it easier for those who wish to invest through DeFi.
For example, some extremely costly assets like Andy Warhol’s painting, could be divided into smaller pieces, lowering the investment cost for retail investors. It could also lower the transaction costs by taking the middlemen like banks, lawyers, or brokers away.
The other benefit would be the liquidity. On the blockchain, RWA tokens allow investors to purchase, sell, and swap them instantaneously, providing them with access to otherwise illiquid assets.
Furthermore, with RWA tokens, the trading time and space would not be a concern anymore. You can use RWA tokens regardless of where you live, and the items could be traded 24/7 with speed and efficiency that traditional finance could not cover with the concept of “working hours”. Investing becomes possible anywhere and any time in the globe as long as you have access to the internet.
Some RWA Tokens Examples
Ondo Finance (ONDO)
Ondo Finance is one of the well-known RWA projects that claims itself as “institutional-grade finance on-chain." Ondo provides products that generate yields on-chain, which is very familiar to DeFi projects. Their ONDO U.S. Dollar Yield Token is a tokenized note backed by short-term U.S. Treasury bonds and bank deposits, drawing inspiration from stablecoins.
One way that Ondo differs from DeFi projects is that you have to do the KYC check in order to use their products, and they have relatively strict regulatory compliance that makes it not so decentralized.
Lofty
Lofty is a RWA platform that made fractional real estate investing possible through Algorand’s blockchain. Lofty offers immediate access to real estate offers around the United States, free from the burden of connections, down payments, or other landlord-related annoyances.
When they cash out, investors will get daily rent payments in addition to appreciation on their real estate. By creating real estate tokens, it seeks to change the way investors view the real estate market; those investors with tight budgets as little as $50 could join the game.
MANTRA Chain (OM)
MANTRA Chain is an up-and-coming Middle East-focused RWA project that plans to build the first RWA Layer 1 blockchain and host a suite of compliance-minded tools for issuing and trading different types of RWAs.
Recently, it has raised $11 million in success, and it is now in the final stages of securing licences from Dubai’s crypto regulator VARA, according to MANTRA Chain’s founder, John Patrick Mullin.
MANTRA aspires to position itself as the leading RWA project on the Cosmos network.
What Blocks RWA?
After all those beautiful stories, there are some obstacles that RWA is facing when we try to build the bridge between real-world things and the blockchain.
They could be wrapped up by two main points. First, we are lacking authorities involving different jurisdictions and legal frameworks to establish a standard set of laws on on-chain ownership, which could be very complex, from navigating the landscape of legal and regulatory compliance to addressing valuation and auditing intricacies.
Second, we have to build enough governance and trust. Token issuers, service providers, investors involved, and regulatory watchdogs—everyone needs to work together while keeping a watchful eye on scalability concerns.
Final Thoughts: The Significance of RWA in 2024 Should Not Be Overlooked
So far, we know that traditional finance firms are excited by the idea of tokenizing assets they already trade.
Investment fund giant Franklin Templeton, the first U.S. registered mutual fund to use a public blockchain to process transactions and record share ownership, launched the Franklin OnChain U.S. Government Money Fund in 2021 on Stellar and expanded to Polygon in 2023. The Bank of America called RWA tokenization a “key driver of digital asset adoption.”
The demand for tokenized RWA keeps growing. We could foresee there are many more projects of RWA that are more versatile than U.S. Treasury bonds, gold, stocks, and commodities. If you have any interest in investing in those tokens related to RWA projects, don't forget to click on CoinEx for the latest price and other useful information.
Disclaimer: Please note that the information provided on this website is intended for informational purposes only. CoinEx assumes no liability for any financial losses resulting from cryptocurrency trading. It is advised that you conduct your own research.
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