Fourth attempt at a captivating introduction! I’m attempting a new writing style for this challenge, where I explain blockchain terms/concepts from my interactions with them. I’m not sure how this will work, but let’s find out.
RWA (Real-world assets) and Tokenized Assets in general are the latest trend in Web3 right now. Kinda like the DeFi era of 2020 and the NFT boom of 2021. I have been exposed to tokenization a lot myself over the past few months, courtesy of my work at Umoja and freelance work.
So, what are Tokenized assets?
ChatGPT describes tokenized assets as “traditional assets that have been converted into digital tokens on a blockchain.”
I won’t argue with that, but tokenized assets have gone beyond that. Tokenized assets can be anything now as long they represent ownership or a share of ownership in an asset (physical or digital). That sounds a lot like NFTs, right?
But no, tokenized assets are not NFTs. NFTs represent ownership or proof of ownership of a unique digital content—emphasis on unique (non-fungible). On the other hand, tokenized assets represent tangible or intangible assets from the physical world on-chain. The process of tokenization offers investors an opportunity to get a stake, equity, or part ownership in these real-world assets.
Think of how buying a company’s shares give you a stake in the company and makes you a shareholder.
Let’s talk stats for a min.
- RWAs grew considerably during the bear market with tokens representing real-world assets seeing their TVL jump from $750 million to over $6 billion.
- RWAs have seen a notable surge in 2023, nearly doubling in total value locked, growing from $1.44 billion to $2.5 billion as of September 30, 2023.
- The market cap for tokenized U.S. treasury bills surged in 2023, increasing from $113.9 million in January to $704.4 million by the end of October.
- Tokenized T-bills have been the largest driver of on-chain RWA assets in 2023, totaling $665 million.
Tokenization, RWAs, Tokenized Assets? Interchangeable?
Tokenization is the process (of converting rights or ownership of an asset into a digital token on a blockchain). The digital tokens produced as tokenized assets represent the equity, stake, and share in digital form. While RWA (Real-World Assets) is a smaller part of tokenized assets that refer specifically to tangible assets (physical assets) like real estate,
What makes tokenization exciting for me is the fact that it bridges traditional finance with blockchain. Breaking into this traditional finance is essential to the mainstream adoption of blockchain and Web3. I also think it is a strong use case of blockchain technology - decentralization and accessibility.
Not only does it bring traditional finance on-chain, it also makes it accessible. Accessibility is very important to me when I consider financial assets and tools in fact, that one of the reason I got into DeFi.
Let me paint a picture: As a Nigerian, I have the opportunity to invest in tokenized US treasury bonds on-chain without any complicated process. Maybe I have to carry out a KYC process and that is all.
That opens up a new world for me entirely! One of the problems with being a Nigerian is a limitation to participate in many financial opportunities. Also, I can buy bonds even if I don’t have hundreds of thousands of dollars. It makes the traditional assets class less closed (less “bougie”).
It doesn’t just stop there, though; think about transparency. Blockchain technology has built-in transparency. All transactions recorded on the blockchain are available to anyone to view and verify.
Tokenization also takes care of an important problem – liquidity. RWAs have opened new ways for people to access liquidity. And this is not just for Web3 startups or builders but also for the everyday user as well.
Fractional ownership is a big deal in the tokenized asset world. Groups of friends can decide to tokenize a share in a real estate property. Fact: there are companies working on this already.
I interacted with one of such companies at ETHSafari, and they were trying to get investors stake in rental properties. It is an amazing use case.
But let’s shift our attention to how tokenization can help companies fundraise
Tokenization and Fundraising
Heard of security tokens/assets? Tokenization offers startups a more accessible way to raise funds for their project with tokenized assets. Founders can bring shares of their company by turning them into digital tokens representing shares/equity in their company. So, buying these tokens equates to buying shares of the company.
I have interacted with some companies that raised funds through STO (Security Token Offering). INX is an example of this, raising over $85 million in the first SEC-regulated security token offering.
Tokenization and Investment
Let’s talk about the obvious use case of tokenization – investment and store of value. Tokenized assets offer us a whole world of investing opportunities, from real-estate tokenization to tokenized bonds and securities.
Tokenized bonds and treasury bills are great fixed-income investments with fixed interest and dividend payments facilitated by blockchain technology. They are great for many reasons - they are easy to buy, decentralization, transparency, and security. Tokenized assets reduce the distance between issuers and investors (connect directly without the need for intermediaries).
This makes the investment process a better experience compared to what we have in the traditional investment world. There is also not much gatekeeping; it doesn’t matter how much more you have as long you can buy your token, you owe your share of the company.
Apart from investments, tokenized assets are also a great way to store value. This is important to me because of how bad the economic situation is in my country. I find it essential to store in another currency or physical assets. While stablecoins are supposed to be the most stable way to hold your money, recent events have proved that anything can happen.
RWAs offer a way to store money in physical assets like real estate on-chain. That is a pretty cool feature if you ask me!
In my next article, I will probably talk about how the tokenization process. See you next time!