Everything You Need To Know

Blockchain technology is expanding at a fast pace and has revolutionized conventional finance. However, in this big difference, real-world asset tokenization is one feature now taking the lead. 

Real-world assets (RWAs) have a wide range of tangible (monetary, physical) and intangible (non-monetary, non-physical) assets. Tokenization is a way of converting these assets into tokens. 

So, in this blog, we will cover 360-degree concepts of real-world asset tokenization, what it is, its market size, what assets can be tokenized, examples, benefits, challenges, and more. 

Key Takeaways: 

1. Real-World Asset Tokenization (RWA Tokenization): This process involves converting real-world assets into digital tokens on a blockchain, offering increased liquidity and accessibility.
2. Benefits of RWA Tokenization: Beyond liquidity and accessibility, tokenization provides improved transparency, greater composability within the DeFi ecosystem, and the potential to revolutionize traditional finance.
3. Challenges and Considerations: While promising, RWA tokenization faces hurdles like regulatory uncertainties, market adoption, security concerns, and increased education.
4. Market Potential: According to Boston Consulting Group, the asset tokenization market is expected to grow significantly to a staggering $16 trillion by 2030, offering substantial opportunities for investors and businesses.
5. Key Players: Companies like Ondo Finance, Mantra, Polymesh, OriginTrail, and Pendle are leading the way in RWA tokenization.

What is Real World Asset Tokenization?

Real-world asset tokenization refers to converting the assets into digital tokens and storing them on blockchain technology. Thus, the asset is converted into fractions, smaller and more affordable units to given distributed ownership. 

For physical assets, tokenization represents the ownership of the real-world asset. On the other hand, for digital assets, tokenization means turning digital rights or information into a token that can be traded.

Tokens are designed using standards like ERC-20 or ERC-721 to ensure easy trading and management on blockchain platforms like Ethereum, Binance, and Solana.

Which real-world assets can be tokenized? 

Both tangible (physical), including real estate, commodities, art, infrastructure, and natural resources,  and non-tangible (digital) assets, including intellectual property (IP), financial instruments, and royalties, can be tokenized. Below is the breakdown: 

Physical Assets

• Real Estate: Commercial and residential properties, land.
• Commodities: Precious metals, oil, agricultural products.
• Collectibles and Art: Artwork, antiques, luxury items.
• Infrastructure: Transportation systems, utilities, telecommunications.
• Natural Resources: Forests, mineral rights, water rights.

Digital Assets with Real-World Ties

• Intellectual Property: Patents, trademarks, copyrights, which are digital rights with real-world applications and value.
• Financial Instruments: Stocks, bonds, and derivatives that exist in digital form but represent ownership or debt in real-world companies and projects.
• Royalties: Streams of income from creative works like books, music, and films, which, while digital, are tied to real-world revenues.

How Big Is The Real-World Asset Tokenization Market?

According to Boston Consulting Group, the asset tokenization market is estimated to grow to a staggering $16 trillion by 2030. 

The fun fact here is that only 0.3% of the total market size is currently captured. Hence, it is an early state with low-level market penetration right now, which directly means that this is a diamond opportunity for forward-thinking investors, institutions, and managers to build technologies in asset tokenization fields or start new ventures. This will help you position yourself as the supreme brand in the industry, thus making huge profits. 

Reach out to BlockTech Brew to get your cost-effective and top-performing RWA tokenization platform developed. 

Examples of Real World Asset Tokenization in Crypto 

Following are some examples depicting how RWA tokenization works in crypto: 

Real Estate Tokens 

Real estate is one of the widely used and promising cases of tokenization. Tokenizing real estate involves breaking digital ownership into smaller digital tokens or pieces. Real estate transactions usually require large amounts of funds to make any investment. By tokenizing the property, it becomes easy to buy or sell shares in individual properties in small proportions without depending on intermediaries like banks for loans. 

Bonds Tokens 

Tokenizing bonds is a growing trend in asset tokenization. It simplifies the bond issuance process and automates tasks like interest payments and maturity settlements. This reduces intermediaries and transaction costs, making bond markets more efficient and accessible.

Carbon Credits Tokens 

Carbon credits allow businesses to emit some carbon dioxide or other greenhouse gases. They put a limit on such emissions to reduce air pollution. When a company emits less gas in proportion to carbon credits, it trades it to the company, which is expected to emit more such gases. Tokenizing carbon credits can make the market more transparent and efficient. It allows smaller companies to buy and sell fractional credits easily. This approach could increase participation in the green economy and create new opportunities.

Process of Real-World Asset Tokenization

The process of RWA tokenization involves the following steps: 

Step 1: Asset Identification & Regulatory Setup.

Step 2: Digital Token Creation.

Step 3: Smart Contract Deployment. 

Step 4: Token Distribution and Sale.

Step 5: Asset Management and Governance.

Step 6: Secondary Market Trading

Below are the detailed explanations determining how tokenization works: 

Asset Identification & Regulatory Setup

Asset Identification & Regulatory Setup involves selecting a real-world asset to tokenize, such as real estate or commodities, and evaluating its suitability for digital representation. The regulatory setup ensures compliance with legal requirements, including property rights and financial regulations. This step establishes the legal framework needed to support the tokenization process and safeguard both the asset and its digital representation.

Create The Digital Token 

Creating digital tokens that represent the fractions of real-world assets is the first tokenization process. For this, one can set up a legal entity to own the property, with tokens representing its shares. Token holders are entitled to a portion of the property’s value and benefits, like rental income or appreciation. 

Smart Contract Implementation  

As the second step, a smart contract is implemented to tokenize the asset. Smart contracts are online digital contracts or programs that automate the transactions for blockchain operations. For instance, in real estate, smart contracts will be automated, carrying all the buy, sell, and trading operations like issuance, balance tracking, distribution of rental incomes, payouts, and payments associated with the maintenance of the property.   

Token Distribution & Sale  

Once the digital tokens are created and smart contracts are deployed, tokens are sold to investors. Different types of sales, like public sales, which are open to everybody, private sales for existing investors, or whitelist sales that combine these two are organized to attract investors. Thus, this third step allows more people to invest in the asset, creating a larger and more liquid market. 

Asset Management & Governance 

With each token the investor holds comes the authority to manage the asset, participate in related operations, and make decisions. For example, in real estate, token holders can take part in rental operations, property maintenance, renovations, tenant relations, and so on. The level of control given to token holders and the voting process must be detailed in the legal entity’s charter and programmed into the smart contracts. This ensures token holders know their rights and how to participate in decision-making. 

Secondary Market Trading  

After the initial launch, tokens representing shares in the real estate property can be traded on secondary markets. This is where the liquidity benefits become evident. Unlike traditional real estate, which can be difficult to sell, token holders have the flexibility to sell their shares at any time. This creates a more dynamic and accessible market, allowing token holders to find potential buyers more easily and explore different price points. This increased liquidity can make real estate investments more attractive and manageable.

What are the benefits of real-world asset tokenization?

The following are the benefits of real-world asset tokenization:

Increased Liquidity 

Tokenization has been seen to improve the liquidity of illiquid assets. With tokenization, an asset is broken down (digitally) into millions or billions of tokens, forming small fractions that are bought, sold, and traded easily. All these transactions are carried out using automated smart contracts, eliminating the need and costs for intermediaries like banks and third parties, thereby making the assets more liquid. 

Enhanced Accessibility 

In the real-world scenario, meeting the high financial demands of personal and commercial properties in the preferred geographical area is challenging. Tokenization works digitally and hence eliminates these geographical boundaries as well as financial constraints for people. When any property, especially commercial ones, gets tokenized and ownership is distributed, any person from any part of the world can invest in it and start new earning streams. 

Improved Transparency 

All the data on asset transactions gets stored on the blockchain ledger, immutably in a decentralized manner. This enhances the transparency, reliability, and availability of such data without compromising its security.

Greater Composability 

Composability in asset tokenization connects real-world assets to the decentralized finance (DeFi) ecosystem. This allows users to earn interest from tokenized assets, boosting DeFi liquidity and giving retail investors access to new investment opportunities. Asset tokenization will provide smart contract developers numerous opportunities to create synthetic assets, indexes, and token baskets by combining various tokens. Additionally, turning real-world revenue streams into collateral will further innovate the DeFi space.

Top Companies Dealing in Real-World Asset Tokenization: 

Now that we have understood the concept of exponential growth let us see some examples  of RWA tokenization:

Ondo Finance (ONDO) 

Ondo Finance is a leader in Real World Asset (RWA) tokenization, connecting traditional finance with decentralized finance (DeFi). It tokenizes real-world assets, making them accessible and liquid on blockchains. Key products include OUSG, the first tokenized US Treasuries product, and Flux Finance, a lending protocol using tokenized Treasuries as collateral in DeFi. The ONDO token is used for governance within the Ondo DAO, allowing holders to vote on the protocol’s future direction and development.

Mantra (OM) 

Mantra is a Layer 1 blockchain platform that tokenizes real-world assets (RWAs). After raising $11 million led by Shorooq Partners, a major investor in the MENA region, Mantra is set to advance RWA tokenization. The funding will help Mantra build regulatory-compliant infrastructure, provide tools for developers to create RWA protocols, and expand asset tokenization. Mantra aims to make investments more accessible, especially in the Middle East and Asia, by increasing market liquidity and promoting economic growth.

Polymesh (POLYX)

Polymesh is a specialized public permissioned blockchain designed to improve the security token industry. It focuses on tokenizing securities, adding real-world value to the market. Polymesh addresses key challenges like governance, identity, compliance, confidentiality, and settlement. This institutional-grade blockchain simplifies and secures the process of bringing real-world assets to the blockchain, promoting a more efficient and transparent market. It combines the reliability of private networks with the openness of public chains, creating a trustworthy ecosystem for all participants.

OriginTrail (TRAC) 

OriginTrail enhances trust and transparency in supply chains using its Decentralized Knowledge Graph (DKG). This technology combines blockchain and knowledge graph methods to create AI-ready Knowledge Assets. It ensures secure and verifiable data exchange across sectors like supply chains, healthcare, construction, and the metaverse. OriginTrail aims to improve data ownership, discoverability, and trust, combating misinformation. By organizing trusted AI-ready Knowledge Assets it supports a sustainable global economy and plays a key role in real-world asset tokenization.

Pendle (PENDLE)

Pendle is a decentralized protocol that changes how yield-bearing assets are managed in DeFi. It allows users to tokenize these assets into Principal Tokens (PT) and Yield Tokens (YT), enabling advanced yield management. Users can trade future yields and principal separately on Pendle’s Automated Market Maker (AMM). This offers new investment opportunities and flexibility in handling yield-bearing assets. By tokenizing the yield component, Pendle lets investors speculate on yield changes and optimize their yield strategies over time.

What are the challenges of RWA tokenization?

Though tokenization brings a lot of benefits for traders and investors, it is still important for the public to evaluate the challenges it brings. Here are the potential challenges stated: 

Regulatory Fluctuations 

In many countries, there are no strict regulations for blockchain and cryptocurrencies to be followed. Thus, building stable platforms for issuers and investors with secure cross-border transactions is a challenge. As blockchain is being adopted widely and is expecting tremendous growth in its market size, we can expect some stability in blockchain-related laws and regulations as well. 

Market Adoption & Liquidity 

Tokenized assets promise greater liquidity, but this relies on widespread adoption. If investors don’t trust tokenized assets or blockchain technology, or if the supporting infrastructure is lacking, building a robust market can be difficult. Establishing trust and developing the necessary systems are crucial for achieving the liquidity benefits that tokenization aims to offer.

Security Breaches 

Most of the crypto projects today have security threats, like decentralized finance protocols being hacked and many kinds of data breaches. Financial institutions can reduce these risks by using private blockchains, but this might limit the openness and decentralization benefits of tokenization.

Education Gap 

Blockchain and cryptocurrencies are taking over the world, but many investors and traders still do not know the depths of this field. Thus, to overcome this gap, it is necessary for people to educate themselves about blockchain, its working, benefits, and risks. 

Operational Complexity 

Many crypto platforms have complex user interfaces, which makes it harder for commoners to enter the blockchain world. Hence, if you work with a top blockchain company like BlockTech Brew, you can develop fascinating, user-friendly interfaces, which will eventually help you attract a lot of investors. 

To overcome all these challenges in your RWA solutions, you must collaborate with a company that has the right kind of knowledge and expertise to provide you with secure, user-friendly, and scalable solutions to grow your blockchain venture! 

If you are looking to launch your top-notch real-world asset tokenization app, then don’t miss your free consultation with the world’s best blockchain development company, BlockTech Brew. 

Here, you not only get delivered with high-end solutions, but our marketing team also helps you with 360-degree points of view to help you earn high returns from your business.  

Reach out to us via email: business@blocktechbrew.com to know more.