Arweave TX
Real-world assets have been discussed extensively by crypto enthusiasts as one of the leading bullish use cases of blockchain technology. Real-world assets encompass a diverse array of offerings, including but not limited to real estate, fine art, commodities, currencies, and myriad others. The tokenization of these real-world assets (RWAs) and facilitating their trade and exchange through blockchain technology has been touted as a pioneering endeavor in the decentralized landscape.
Let’s dive deep into the field of RWAs, the key players, the stats behind the industry today, and how it will shape our world tomorrow.
Web2 puts a lot of our experiences on the Internet. We can engage with individuals irrespective of geographical constraints, embracing a location-agnostic approach to real-time interaction. No need to visit the nearby grocery store for food, order it with a tap of a button. Stocks and bonds can be traded from the convenience of our homes on screens that suit us. The evolution towards Web3 heralds a plethora of such occurrences unfolding across Web3 platforms.
The tokenization of assets presents an exciting opportunity to imbue the blockchain with an immense volume of real-world data. From tags to ID cards, stocks to currencies, bonds to real estate, the possibilities and potential for the tokenization of real-world assets are evolving to capture the needs of people and decentralize them. Imagine possessing a portable proof-of-identity embedded with the authority to selectively disclose either partial or complete details at your discretion.
Data and assets will increase with time. The human element will keep innovating and transforming the world. We will become a multi-planetary species, transition to renewable energy sources, and become a hybrid lifeform consisting of carbon and silicon elements. As our reach and requirements grow exponentially, the need for our assets to be digital, decentralized, and secure will prove to be a pressing requirement. Decentralization and the advent of RWA protocols ensure the security and privacy of our assets while providing an accessible medium for their barter and transfer.
The total value of tokenized assets has grown rapidly with their increased adoption by institutions and rising awareness among individuals. Stablecoins are considered to be the pioneering category of real-world assets, allowing the functionality of pegging the value of the cryptocurrency to real-world currency such as USD. Stablecoins enjoy a market cap of $160B+, with the top 3 projects being USDT, USDC, and DAI.
The categories of products tokenized and the number of projects related to each sector is steadily rising. The current count of the categories of projects stands at 82 with protocols working actively to bring disparate assets on the blockchain. This will allow an efficient value capture and penetrate areas of traditional finance reserved for an elite few. The growth in terms of a wave of individuals investing and trading RWA tokens can be understood in the dashboard below. Stablecoins and giants like $MKR and $AAVE are not taken into account in the statistics below.
The total number of unique interactions and token holders within the RWA ecosystem has been exponentially increasing. The potential of this burgeoning sector is still untapped, with the market witnessing a huge inflow of talented teams and enthusiastic investors stepping in to capitalize on its bright prospects. Boston Consulting Group estimates the tokenization of global illiquid assets to be a $16T business opportunity by 2030. These global illiquid assets include real estate, physical art, pre-initial public offering stocks(IPO), private funds, bonds, and many more. That’s their projections for the worst-case scenario, the best-case predictions exceed a $68T market.
The global value of total assets is estimated to be worth well over $900T. Thus, the disruption is long due and the innovation is rampantly shaping up the way we trade and preserve our assets. The headroom for growth due to the sheer magnitude of the availability of real-world assets and the size of the market generates a range of opportunities unheard of in traditional finance.
Other estimates by firms such as 21. co foresee a $10T market of tokenized assets by 2030. This positive outlook towards the tokenization of RWAs is driven by fundamental factors such as the provision of guaranteed and transparent ownership, ease of trade in the primary and secondary markets, diverse investment offerings, and many more.
Issues such as inefficient fractionalization, lack of information, limited access, regulatory hurdles, limited affordability, and many more will be eliminated due to the tokenization of real-world assets. A 24*7 secure market for a variety of real-world assets with the necessary data and information accessible to retail and institutional stakeholders holds the key to digital integrity and clarity. This would drive the adoption of complex assets among the masses and lower the barrier to entry for participation in various ancillary markets.
As seen in the above exhibit, Fiat collateralized stablecoins dominate the current landscape of tokenized real-world assets. Capturing 95%+ of the market, stablecoins have emerged as the prominent asset on the blockchain. Government securities and commodities are in second and third place respectively, with immense potential and rising interest in both categories.
The process of bringing the real-world assets on-chain commences by identifying the asset earmarked for tokenization. Subsequently, a decision is made between two methods for tokenizing assets: Native Issuance and Tokenization.
Native issuance involves creating on-chain tokens that directly represent the real-world asset itself. In this scenario, the token is the asset, eliminating the need for off-chain management by a custodian. For instance, bonds issued directly on-chain as tokens exemplify native RWAs. This method offers a more streamlined and direct representation of ownership on the blockchain.
Tokenization, on the other hand, involves converting traditional assets into digital tokens that can be traded on a blockchain. These tokens represent ownership shares in the underlying asset, enabling fractional ownership and increased liquidity.
Control and Ownership: Native issuance provides a more direct link between the token and the asset, offering greater control and ownership transparency. Tokenization, while enabling fractional ownership, relies on custodians for off-chain asset management.
Trust and Security: Native issuance eliminates the need for trust in external custodians, enhancing security and reducing counterparty risks. Tokenization, although efficient, requires trust in custodians for asset custody and management.
Liquidity and Accessibility: Tokenization enhances liquidity by enabling fractional ownership and facilitating trading on digital exchanges. Native issuance may offer more straightforward ownership but could limit liquidity compared to tokenization.
Regulatory Considerations: Both approaches require compliance with regulatory standards, but native issuance may face fewer regulatory hurdles due to the direct representation of assets on-chain.
In conclusion, while native issuance provides a direct and secure representation of assets on the blockchain, tokenization offers enhanced liquidity and accessibility.
Token Specifications: The type of token (fungible or non-fungible), token standard (e.g., ERC-20 or ERC-721), and other fundamental aspects of the token are specified.
Blockchain Selection: The public or private blockchain network on which to issue the tokens is chosen. Integrating cross-chain interoperability protocols can make the tokenized RWA available on multiple blockchains.
Off-chain Connection: Reliable off-chain data from secure oracles is integrated to connect the tokenized asset to its real-world counterpart. Proof of Reserve services can verify the assets backing the RWA tokens, ensuring transparency.
Investor Onboarding: Potential investors undergo a thorough onboarding process, which may include KYC (Know Your Customer) and AML (Anti-Money Laundering) checks, depending on regulatory requirements.
Investment Allocation: Investors allocate funds to the tokenized RWA, either through a primary offering or by purchasing tokens on a secondary market.
Asset Representation: The minting process involves creating digital tokens that represent ownership rights to real-world assets.
Issuance: Smart contracts are deployed on the chosen network, and the tokens are minted and made available for usage.
Token Distribution: Once the investment is made, the corresponding number of tokens is distributed to the investor's wallet, representing their ownership of the underlying asset.
Decentralized Exchanges: Tokenized RWAs can be listed and traded on decentralized exchanges (DEXs), providing a transparent and accessible marketplace for investors to buy and sell these assets.
Liquidity Pools: Liquidity pools on DEXs allow for the automated matching of buyers and sellers, ensuring continuous trading opportunities for tokenized RWAs.
Cross-Chain Interoperability: Integrating cross-chain interoperability protocols, such as Chainlink CCIP, ensures that tokenized RWAs can be traded across multiple blockchain networks, enhancing liquidity and accessibility.
Fixed Tenor: For tokenized RWAs with a fixed tenor, such as bonds and closed-end funds, the tokens mature when the investment term ends.
Token Burning: Upon maturity of certain assets, the tokens are burned, and the principal capital plus returns are credited to the investor's wallet.
Redemption Process: Investors can redeem their tokens for the corresponding value of the underlying asset, subject to any lock-up periods or restrictions. The redemption process is transparent and automated, with the token's value and attributes reflecting any changes or updates to the underlying asset throughout the investment period.
The prospect of asset tokenization has attracted resilient builders and wealthy investors to take a bet on its potential growth. Investments from HNIs and alternate asset management firms have been on the rise with rapid improvements in technology. Institutional investors and family offices are increasingly recognizing the potential of tokenized RWAs as a means to diversify their investment portfolios and access new asset classes. Retail investors are also playing a significant role in the tokenized RWAs ecosystem. Their participation in the ecosystem is expected to grow, further driving the adoption and development of these disruptive financial instruments.
In the early days of real-world asset (RWA) tokenization, issuances were primarily confined to private, permissioned blockchains such as Nasdaq Linq (2015) and JPM Quorum (2016). These platforms provided asset managers with the controlled and confidential environments that traditional finance (TradFi) players were accustomed to. However, over time, asset managers have increasingly shifted their focus towards public blockchains, driven primarily by a desire for interoperability. This shift has allowed for greater collaboration, transparency, and accessibility within the blockchain ecosystem.
Figure, a prominent player in the tokenization industry, has made significant strides in the consumer lending space. Mike Cagney is the Co-Founder and CEO of Figure, a blockchain holding company that encompasses various financial services, including lending, payments, and marketplace operations. The company currently manages over $7 billion in on-chain consumer loans. Figure's primary focus was on originating Home Equity Lines of Credit (HELOC) using the Provenance Blockchain. In 2022, the company achieved a remarkable milestone by becoming the largest non-bank HELOC provider in the United States.
Provenance Blockchain boasts over $7 billion in active on-chain loans. The foundation has established itself as the leading Layer 1 (L1) blockchain for RWA applications. It has achieved a significant milestone by crossing $12 billion in total value locked (TVL) and $16 billion in transactions leveraged. Provenance boasts an impressive list of industry firsts, such as the tokenization of the first asset-backed securitization, among other significant achievements. More than 60 financial institutions leverage Provenance across various sectors, including banking, private equity, asset management, lending, payments, and capital markets.
Ondo Finance, a frontrunner in real-world asset tokenization, has exceeded $420 million in Total Value Locked (TVL) with its cash equivalent products. Ondo Finance is organized into two core divisions: the asset management wing and the technology division. The asset management sector is tasked with formulating and supervising tokenized financial products, while the technology division concentrates on crafting decentralized finance protocols crucial for the efficiency and expansion of Ondo's financial services.
One standout product in Ondo's lineup is the USDY (US Dollar Yield Token), a distinctive tokenized note. USDY, a stablecoin offering yield, is available across Ethereum, Solana, Mantle, and Sui blockchains, emphasizing initiatives to enhance adoption, integrations, and liquidity for these tokens. USDY is collateralized by short-term US Treasuries and bank demand deposits, designed to offer non-US individual and institutional investors the dual benefits of stablecoin accessibility and high-quality US dollar-denominated yield.
Centrifuge provides the infrastructure and ecosystem to tokenize, manage, and invest in a diverse portfolio of real-world assets. Centrifuge Prime offers decentralized autonomous organizations (DAOs) the necessary on-chain infrastructure and support to allocate their treasury funds to RWAs. The fund management feature facilitates data and investment management for asset managers and institutional investors.
Centrifuge aims to position itself as the bridge between traditional and decentralized finance by building a compliant platform for institutional DeFi adoption. Last week, Gnosis DAO made an on-chain investment of $1 million USDC (out of a $10 million allocation) into the 'Anemoy Liquid Treasury Fund (US T-Bills)' pool on Centrifuge. Currently, the 'New Silver Series 3' and the 'Anemoy Liquid Treasury Fund 1' are the two pools open for investments. Currently, Centrifuge's total value locked (TVL) stands at $290M, registering steady growth even during the bear market. This demonstrates the stable nature of RWA yields, their resilience, and their unique characteristics. The decoupling of RWA yields from cryptocurrency market fluctuations is a notable strength that appeals to investors.
Maple Finance, established in 2019 and launched in 2021, operates as an on-chain debt-capital marketplace facilitating institutional access to capital opportunities. By integrating conventional credit assessment and compliance practices with the streamlined transparency of blockchain technology, Maple Finance has facilitated the origination of over $3 billion in loans on its platform. They have catered to more than 1,500 lenders and 87 institutional borrowers across 15 lending pools.
Maple Finance has constructed a platform that empowers pre-approved financial sponsors, known as "delegates," to establish under-collateralized lending businesses. Delegates like Orthogonal Trading, Maven11, and Celsius leverage Maple's technology to source capital from lenders and fund borrowers. In this regard, Maple's business model resembles Shopify, where the foundational infrastructure is provided for third parties to build their two-sided businesses. In April, Maple introduced Global Permissioning, a cutting-edge feature designed to facilitate effortless deposits across Maple Pools for compliant sources of capital. This innovative functionality streamlines the process for lenders to allocate funds across various pools.
Superstate, a prominent DeFi asset manager, is disrupting the sector with its range of tokenized Real World Asset (RWA) products. In February 2024, Superstate unveiled its inaugural offering, the Superstate Short Duration U.S. Government Securities Fund (USTB). This fund focuses on investing in short-duration U.S. Treasury securities, aiming to achieve returns aligned with the federal funds rate. Investors can acquire and redeem shares of the fund using USD and USDC, with each share represented by USTB, an Ethereum ERC-20 token.
Within a brief span of less than three months, USTB amassed over $100 million in Assets Under Management (AUM), marking a significant milestone for Superstate. On May 14th, Superstate enabled on-chain peer-to-peer transfers of USTB between investors' whitelisted addresses, further enhancing the utility and accessibility of the tokenized fund shares. Additionally, Superstate's USTB Fund has taken steps to expand its presence in the decentralized treasury management space. In April, the fund applied to the Arbitrum Stable Treasury Endowment Program (STEP).
Honorary Mentions: GoldFinch, Credix, TrueFi, Paxos, ADDX, Meld Gold,
Jenny Johnson and Franklin Templeton
Jenny Johnson, the CEO of Franklin Templeton, envisions a future where exchange-traded funds (ETFs) and mutual funds will be built upon blockchain technology.
Under Johnson's leadership, Franklin Templeton launched the Franklin OnChain U.S. Government Money Fund, which utilizes blockchain technology for record-keeping and transactions. This fund is available on both the Stellar and Polygon blockchains, making it accessible to a wider range of investors. Jenny Johnson's optimism extends beyond just the Franklin OnChain fund. She believes that blockchain technology can help democratize access to high-return investment opportunities, making them available to a broader range of investors, not just the ultra-wealthy.
Franklin Templeton, with over $1.5 trillion in assets under management, has also launched a spot Bitcoin ETF, capitalizing on escalating demand for crypto exposure from investors. Johnson also expressed her conviction that blockchain has the potential to revolutionize the investment management industry by enhancing transparency and reducing operational costs for traditional financial products.
Deutsche Bank joins Project Guardian
Deutsche Bank has joined the Monetary Authority of Singapore's (MAS) Project Guardian to explore the feasibility of asset tokenization applications in regulated financial markets.
Project Guardian was initiated by Singapore's MAS and launched in 2022. It is a multi-year collaborative initiative involving global policymakers and financial services industry representatives such as the United Kingdom's Financial Conduct Authority, Switzerland's Financial Market Supervisory Authority, and Japan's Financial Services Agency. The project aims to test the potential of asset tokenization in wholesale funding markets and decentralized finance (DeFi) applications.
Deutsche Bank will contribute to the project by testing an open architecture and interoperable blockchain platform to service tokenized and digital funds. The bank will also propose protocol standards and identify best practices to contribute to industry progress.
Digital Asset Exchange in Busan
The Busan Digital Asset Exchange, backed by Hana Financial Group, has been incorporated and will focus on tokenizing real-world assets (RWAs). The exchange was established in Busan, South Korea, a city designated as a regulation-free blockchain zone by the government.
Hana Financial Group, one of the largest financial conglomerates in South Korea, is the main backer of the new digital asset exchange BDX. The incorporation of the Busan Digital Asset Exchange comes as part of South Korea's broader push to establish Busan as a hub for blockchain innovation and adoption.
JP Morgan's Onyx Digital Assets
JP Morgan's Onyx blockchain has processed over $1 trillion in transactions and plans to open its permissioned blockchain to third parties for app deployment and asset tokenization.
This move will allow external parties to tokenize assets on the JP Morgan blockchain, expanding its utility beyond internal operations. Additionally, JP Morgan's Onyx Digital Assets division aims to partner with third parties to enhance the tokenization of various financial instruments, moving from proofs of concept to live products to demonstrate the practical application and benefits of blockchain technology in the financial sector.
BlackRock's BUIDL Fund
BlackRock's first tokenized fund BUIDL has achieved the milestone $400 M+ in AUM. The fund, created with the tokenization services platform Securitize, has captured more than 30% market share since its debut on March 21. It has become the largest asset tokenization fund and is registering consistent growth dominating the space.
The growth of Ondo Finance's OUSG token, which uses BlackRock's token as a reserve asset, also contributes significantly to the inflows. The fund is backed by U.S. Treasury bills, repo agreements, and cash while being represented by an Ethereum Token. The fund is managed by BlackRock Financial Management, with BNY Mellon as custodian and administrator.
HSBC Tokenized Gold
HSBC, one of the largest banking and financial services organizations, has launched its HSBC GOLD Token. The HSBC GOLD Token is a digital representation of physical gold bars stored in HSBC's vaults. Each token represents one fine troy ounce of London Good Delivery gold, a standard set by the London Bullion Market Association. The token is built on HSBC's proprietary blockchain platform called Orion, which is designed to provide transparency, security, and efficiency in gold trading.
HSBC has partnered with several major financial institutions, including the World Gold Council and the Shanghai Gold Exchange, to promote the adoption of the HSBC GOLD Token. The token is targeted at institutional investors, such as central banks, sovereign wealth funds, and asset managers, who can use it for trading, hedging, and portfolio diversification purposes. Since its launch in 2022, the HSBC GOLD Token has processed over $1 billion in transactions and has been used by more than 50 institutional clients worldwide.
Private Credit and Treasuries are two key areas where RWA will witness exponential growth in the short term and will continue enjoying steady growth over the long term. Stablecoins will continue to dominate the sector with the potential to become the de-facto standard of transactions across several use cases. Real Estate is possibly the most underutilized category with tremendous incentives for builders and investors. This organization which will solve the tokenization issues of the real estate market will reap massive benefits in the future.
The potency of real-world asset (RWA) tokenization resides in the diverse spectrum of asset classes that will be ushered onto the blockchain by innovators worldwide. For instance, BAXUS recently raised $5M seed round led by Multicoin Capital to address the highly inefficient $85 B/year whiskey market. Prominent backers such as Solana Ventures, Narwhal Ventures, FJ Labs, and other angel investors also participated in this round.
BAXUS leverages blockchain technology for the on-chain representation of authenticated collectible spirits through Solana NFTs. With the recent funding, BAXUS plans to scale its sensor and vaulting technologies to serve the growing retail and institutional interest in the collectible spirits market. The company also acquired BoozApp in 2023, a popular mobile app that tracks over 1.5 million bottles worth $100 million, which BAXUS will integrate to enhance its market and pricing data.
Securitize, which played a key role in the launch of BUIDL fund by Blackrock, raised $47M recently. BlackRock spearheaded this strategic funding round, with notable investors including Aptos, Paxos, and Circle. Securitize announced that the funds raised from the financing round will be allocated towards product development, global expansion, and enhancing collaborations within the financial services ecosystem.
Backed, a Swiss startup that provides infrastructure for bridging real-world assets onto the blockchain has raised $9.5 million in a seed funding round. The round was led by Gnosis and several other investors. Backed issues ERC-20 tokens that track the value of real-world assets such as stocks or ETFs. These tokens are fully collateralized by the underlying assets and are issued in compliance with the Swiss DLT Act. The $9.5 million in funding will allow Backed to further develop its platform and expand its offerings.
The influx of skilled and experienced professionals entering the realm of real-world asset (RWA) tokenization is poised to experience exponential growth. As the majority of traditional finance migrate onto the blockchain, we are likely to witness a significant increase in the involvement of various financial institutions, including private equity firms, venture capital firms, hedge funds, and even participants in the public markets, as they direct their focus towards this burgeoning sector.
I firmly believe that individuals possessing insight and expertise in specific domains will be able to seamlessly translate their experience into developing exceptional blockchain-based solutions within their respective fields. This convergence of domain-specific knowledge and blockchain technology will undoubtedly lead to innovative and transformative applications that bridge the gap between traditional finance and the decentralized digital landscape.