Some of the most interesting applications of blockchain technology are related to real-world assets (RWAs), which are tokenized things of value that might be digital, physical, or data-based. Through the issuing of tokens representing RWAs, a variety of tangible and intangible assets, including real estate, art, collectibles, equities, and commodities, as well as personal data, may now be represented digitally on-chain. Assets that were previously non-commercial or illiquid can now be more liquid by sharing revenue streams, transferring ownership, and improving liquidity thanks to real-world assets. Financial markets and conventional asset classes might undergo significant change as a result of tokenization.
Read More: Real World Assets
The rising trend of RWA tokenization and its repercussions will be discussed in this essay. First, we provide a comprehensive definition of a real-world asset, including valuable physical, digital, and data-based objects, and we discuss how blockchain enables the fractionalization of these into digital tokens. The advantages of asset tokenization will next be discussed, along with a number of industry examples and application cases from a variety of sectors, including commodities, real estate, intellectual property, art, tourism, and more.
What are assets in the real world?
Any item—digital, physical, or data-based—that derives its value from its presence outside of the blockchain is referred to as a “real-world asset,” or RWA. You are effectively constructing a blockchain-based digital doppelganger when you tokenize RWAs.
Real-world assets’ original form is the stablecoin. Stablecoins, which are backed by fiat currencies like the US dollar or the euro, offer a reliable and easily convertible substitute for fiat money. Tokenizing financial assets beyond cash is feasible, including stocks, bonds, insurance, treasuries, insurance, and indexes. The amount of tangible items that may be added to the chain is practically infinite. Tokenization can be advantageous for precious metals, raw commodities, agricultural goods, real estate, artwork, and music licensing.
Improved access to real-world assets, more liquidity, and higher transparency may all be obtained by tokenization. Furthermore, numerous people can possess portions of high-value assets through the process of fractionalization, which divides assets into fractions. The dynamics of asset ownership and investing are changing as a result of this democratization, which also increases involvement, gives smaller investors more influence, and expands the distribution of wealth.
Real-world asset benefits
Efficiency: By eliminating intermediaries and enabling quick, large-scale transactions across borders, tokenizing real-world assets makes it possible to trade fractions of valuable assets quickly and continuously on digital exchanges. This simplifies procedures such as automatic income/profit redistribution and cross-border transactions.
Trust: One of the main advantages of tokenization is that it eliminates the need for a trusted third party to serve as a clearing agent, as is currently the case with traditional clearinghouses and CSDs, enabling atomic settlement of real-world assets (sold against tokenized money). Blockchain systems increase transaction efficiency and trust by facilitating who goes first in an exchange through inherent consensus processes.
Transparency: Full insight into asset ownership and transaction activity is provided via an immutable, publicly accessible record on the blockchain. In addition to deterring fraud by open monitoring of transfers, liens, and other facts, this ensures unambiguous title and provenance.
Compliance: KYC/AML checks and regulatory obligations may be automated using smart contracts. With integrated tools and public ledgers, digital tokens may also make it easier to comply with tax reporting requirements.
Cost: Traditional transaction fees and paperwork costs are decreased when middlemen are eliminated. Maintaining tokens through blockchain consensus, as opposed to real assets and historical record keeping, can reduce maintenance expenses.
Liquidity: More liquidity is made possible by fractionalizing RWA assets. RWA-representative tokens can easily swapped at any moment. This perpetual tradeability creates a new, hitherto unfeasible secondary market for real-world investments.
Real-world asset types
Coins with stablecoins
The purpose of stablecoins is to keep their value steady in relation to specified assets, such as commodities or currencies. In the actual world, stablecoins are used for international transfers, serve as a kind of financial infrastructure for people without access, and are becoming more and more well-liked around the globe. Stablecoins on Algorand include USDC from Circle and USDT from Tether.
Tokenizing properties enables fractional ownership of assets like as residential or commercial buildings, hence enabling global real estate investment. Tenant payments and property expenditures may be handled via smart contracts, which can also transfer profits to token holders. While SliceSpace tokenizes commercial assets like offices and co-work spaces, Lofty tokenizes residential real estate like homes and condominiums.
Precious metals and commodities
Tokenizing commodities makes it easier to invest in precious metals or raw materials in innovative ways. Meld makes it possible for customers to possess actual gold in digital form by tokenizing gold and other precious metals on blockchain. Farmers may tokenize their grains through projects like Agrotoken, turning them into digital assets they can trade, swap for goods and services, or utilize as loan collateral. With a platform like Origino, any product can be tokenized and tracked along the supply chain.
Collectibles and artwork
Blockchain makes it easier to create, possess, and transfer non-fungible tokens that stand in for unique pieces of art, collectibles, and antiques that are also found in the real world. This maintains scarcity and offers digital provenance. A startup called Artory offers collectibles and art on-chain. Tokenizing art also allows for ownership divides; valuable art may be divided into smaller pieces, resulting in a far more affordable and accessible investment.
Music and books
Books, music, and movies are examples of cultural products that have a sizable market for tokenization as blockchain digital files. The issue of RWAs for ebooks and audiobooks that reflect actual ownership of the content is being led by initiatives such as Book.io. Digital music rights agreements (RWAs) are being minted by music platforms such as Opulous, allowing fans and producers to really own their music. The tokenization of cultural assets has the enormous potential to completely transform producers’ revenue structures and alter how people consume media throughout the world.
It is possible for authors, inventors, and artists to create digital tokens that reflect future earnings from their creations. Tokens and recurrent portions of license fees or sales can be distributed to early supporters using smart contracts. For instance, investors may bid on shares of music library royalties on ANote Music. With dequency, musicians can sell usage rights for their compositions fast and easily, and all transaction data is tracked on-chain.
Blockchain enables smooth custody transitions for automobiles and the tracking of their origin when they are transferred between owners by tokenizing automobiles, boats, and airplanes. Additionally, tokenization can make it easier to own a share of private planes, yachts, and luxury cars fractionally. Smart contracts can divide the expenses, usage, and profits of these assets proportionally.
Payroll and receipts
Payroll and invoicing are being tokenized through the development of blockchain apps. This makes it possible for independent contractors and small enterprises to sell a portion of their future revenue streams on secondary markets or use them as collateral for loans. Workers could be able to obtain earnings that they have earned but not yet received, or freelancers might receive fast cash by discounting bills. These platforms offer much-needed flexibility and make financing accessible that could otherwise be unavailable for months.
High-end consumer goods like electronics and luxury goods can be tokenized to allow for fractional ownership and a secondary market. This might take many different forms: users could exchange partial ownership fractions, auction off pre-owned products, or accumulate tokens over time for using their devices. Additional strategies for maintaining asset value cycles inside their ecosystems and promoting consumer loyalty programs are advantageous to brands.