Suppose you own a piece of art, a piece of gold, or even real estate. Simple and intuitive, right? Now imagine that you could convert these physical assets into digital tokens that can be bought, sold, or traded online, just like cryptocurrencies. This is the magic of Real World Assets (RWA) in the digital realm.
RWA are essentially entities, tangible assets with “real” value, such as real estate, gold, art, and even carbon credits, that will be digitized to be traded on the blockchain . The process of digitization, also known as tokenization, converts these assets into digital tokens, making them easier to trade and invest in, including for small amounts. It's like having a small piece of pie without having to buy the whole pie.
The process of converting real-world assets into RWA is similar to building a digital clone of your physical assets. It includes three main steps: off-chain formalization, information bridging, and demand and supply within the RWA protocol:
(1) Off-chain formalization: Real-world assets must be legal in the real world. Its value, ownership and legal status need to be clearly defined. This is where we take into account market price, ownership history and legal documents. We can think of it as a preparation stage before asset digitization.
(2) Information bridging: Then convert the asset information into digital tokens through tokenization. The token will contain all the basic information about the asset, such as value, ownership, etc. in its metadata. The transparency of blockchain allows anyone to verify the legitimacy of a token. Where assets are subject to regulatory surveillance, regulatory techniques are employed at this stage to maintain compliance.
(3) Demand and supply of RWA protocols: This is where RWA-focused DeFi protocols come into play, as they help bring new RWAs into the market and spark investor interest .
Simply put, the authenticity and value of an asset is first assessed and verified, and then represented as digital tokens on the blockchain, with each token reflecting a portion of the asset’s value. Therefore, an RWA could allow you to own a digital share of a Picasso work or part of a commercial building without actually holding the asset.
If you are not familiar with RWA tokens, here is a brief introduction to some representative RWAs:
MakerDAO and its governance token MKR lead the way Integration of RWA and DeFi. It is a decentralized credit platform on Ethereum with support for DAI, a USD-pegged stablecoin backed by multiple cryptocurrencies and most recently RWA. MKR holders have the right to vote on key decisions, including adding RWA as collateral type. Incorporating RWA into MakerDAO's collateral portfolio can not only diversify risks, but also demonstrate the potential of DeFi in parallel with traditional finance in terms of asset support, supporting the stability and growth of the DeFi ecosystem.
Compound is a groundbreaking decentralized finance (DeFi) protocol that allows users to deposit cryptocurrency into one of the multiple fund pools supported by the platform. to earn interest. COMP is its governance token and plays an important role in the ecosystem, allowing token holders to make suggestions and vote on changes to the protocol. This includes the decision to integrate RWA into the platform and may change the way traditional financial assets are used and interacted with in the DeFi industry. By supporting RWA, Compound can enhance its appeal and functionality and serve as a bridge between the digital and traditional financial fields. This can also facilitate broader asset liquidity and availability.
While PROPS may not directly promote the integration of RWA and DeFi, it embodies an important aspect of the promise of blockchain: in the digital ecosystem Achieve value democratization. PROPS is a loyalty and rewards token designed specifically for digital platforms that engage users and creators, ensuring value flows back into the communities that support and enrich the network. The spirit of PROPS to reward contributions and participation is consistent with the larger vision of RWA in DeFi, with the goal of distributing real-world asset benefits more broadly and fairly in the digital economic system.
Ondo Finance is a DeFi protocol dedicated to lowering the barriers to entry into traditional finance and decentralized finance markets. The launch of its native token ONDO represents an important step for RWA to be smoothly integrated into the DeFi ecosystem. Ondo Finance leverages RWA by offering structured financial products that bridge the gap between fixed income assets and digital currencies to provide a diversified portfolio of risk and return. This innovative approach could encourage traditional investors to explore opportunities associated with DeFi, while also allowing cryptocurrency investors to take advantage of the tangible value and stability provided by real-world assets.
TrueFi is a DeFi protocol for unsecured lending that allows lenders to earn interest and allows TRU token holders to participate in governance and staking. TRU plays an important role in managing platform risk and decision-making processes, including the potential to use RWA as part of its lending market. By facilitating lending without traditional collateral, and exploring the possibility of incorporating RWA, TrueFi is on the cusp of combining uncollateralized cryptocurrency lending with the reliability and familiarity of real-world financial assets, which could increase the protocol’s value for Appeal to a wider range of investors.
Goldfinch Finance is a special player in the DeFi space focused on expanding access to capital without the need for cryptocurrency collateral. GFI is its governance token that allows holders to influence the direction of the protocol, including its innovative approach to incorporating RWA. By offering loans that are backed by real-world business revenue rather than digital assets, Goldfinch Finance demonstrates the versatility and potential of RWA in DeFi. This model can not only democratize financing channels, but also open up new investment channels for emerging markets and industries that DeFi has not been involved in before.
Propy uses blockchain technology to streamline real estate transactions, making them easier to use, more transparent, and more secure. Although PROPC is not a direct promoter of RWA in the DeFi ecosystem, it represents an application scenario for blockchain tokenization and management of real-world assets. By buying, selling, and managing real estate on the blockchain, Propy prepares for a future where these valuable RWAs can be more easily integrated into DeFi platforms, thereby enhancing liquidity and investment opportunities in the real estate industry.
Polymath is committed to democratizing access to securities by allowing companies to issue and manage security tokens on the blockchain. POLYX is the native token of the Polymath network and plays an important role in this ecosystem, facilitating transactions, paying fees, and participating in governance. Through its platform, Polymath can directly promote the integration of RWA into the digital world, making it easier for investors to use, trade, and manage security tokens that represent asset shares in the real world. This not only expands the range of assets available in the DeFi industry, but also bridges the gap between traditional securities markets and the emerging world of decentralized finance, hinting at a future where the lines between the two will become increasingly blurred.
One of the great advantages of RWA is "fragmentation", which means that individuals can now own many indivisible parts of the real world part of the assets. In this way, RWA lowers the barrier to entry for the average investor, allowing for broader portfolio diversification without requiring large amounts of initial capital. At the same time, the digitization of real-world assets aims to provide liquidity to those assets that have traditionally been illiquid. Assets like real estate and art can be easily traded on secondary markets, providing sellers with faster access to capital and buyers with more opportunities for investment and exit strategies. This new asset class is further supported by the inherent transparency and security of blockchain, with every transaction and ownership change recorded on a public ledger and tamper-proof. This level of transparency reduces the risk of fraud, increases trust, and can significantly reduce the costs associated with verification and due diligence processes.
The concept of asset ownership has also evolved to some extent with the development of RWA. Digital tokens that represent a portion of an asset’s value change the traditional concept of ownership, making it more inclusive and adaptable. This shift in perspective allows for a wider range of individuals to participate in asset ownership, consistent with an individual’s financial capabilities and goals.
In addition, RWA can serve as a bridge between TradFi and DeFi by combining the stability and value of real-world assets with the efficiency and innovation of DeFi. This connection not only introduces real-world economic value into the DeFi ecosystem and makes it more robust, but also allows traditional financial markets to leverage the efficiency of DeFi for asset management and availability.
When RWA is used as loan collateral in the DeFi ecosystem, it can facilitate instant asset management and financing, and can transform asset leverage to promote financial growth. This provides a faster and more efficient process compared to traditional methods. Don’t forget, the nature of DeFi and blockchain is borderless, which means the global availability of RWA will allow people to invest in diverse assets around the world. This not only helps diversify investment portfolios but also democratizes investment opportunities across geographies.
We must be aware that these developments are challenging traditional investment and ownership models and laying the foundation for a more inclusive and connected financial future. From the perspective of cryptocurrency advocates, RWAs bring stability, diversity and new investment opportunities, making the volatile cryptocurrency market more attractive to traditional investors who prefer investing in tangible assets.
BlackRock’s recent entry into the RWA field symbolizes a critical moment for the integration of TradFi and DeFi. By launching the BlackRock USD Institutional Digital Liquidity Fund on Ethereum, the leading asset management company not only recognizes the potential of blockchain technology, but also takes an important step in integrating digital assets into the existing financial ecosystem. step. Represented by its blockchain token BUIDL, the fund utilizes cash, U.S. Treasury bills and repurchase agreements to provide daily returns to token holders, effectively combining the stability of traditional assets with the innovation and efficiency of blockchain technology Combine.
The impact of BlackRock and other TradFi leaders joining the digital asset tokenization space is far-reaching. The move is expected to inject significant liquidity and address the valuation issues of tokenized assets while driving development, innovation and stability. The addition of TradFi players to the space is expected to spur a clearer, more supportive regulatory framework as they replace obstacles with facilitation and friendly regulation of blockchain financial products. This regulatory development is critical to reducing risk and building investor trust, accelerating the mainstream integration of digital assets. Additionally, the collaboration between BlackRock and blockchain companies highlights the need for collaboration between traditional finance and blockchain, which is critical to building a secure, compliant and user-friendly platform. This integration trend symbolizes a future of mutual learning, as well as more potential investments and partnerships aimed at leveraging blockchain technology in financial services and connecting the traditional finance and digital asset fields.
RWA’s integration into the cryptocurrency space represents the evolution of traditional finance and decentralized finance. As these two worlds continue to merge, the potential for innovation and growth seems limitless. With the support of TradFi leaders such as BlackRock and the clever use of blockchain technology, RWA is expected to reshape our understanding of investment, ownership and financial market structure. Whether it’s owning part of a skyscraper or a small piece of a famous painting, the future of investing is already here and it’s easier than ever to engage, stabilize and connect.
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