Digital Assets Challenges What are Real World Assets (RWA)?


7 months ago

What are Real World Assets (RWA)?

Real World Assets (RWA) refers to the market of “real-world” assets tokenized on the blockchain. RWAs encompass real estate, ownership rights, art pieces, precious items, and traditional financial instruments in capital markets.

The concept involves tokenizing existing assets to transfer value into decentralized financial applications, aiming to reduce costs or enhance fund management efficiency in traditional markets.

What Falls Under RWA?

The Real World Assets market has not yet fully developed, but it has already been divided into categories of projects related to the general trend of tokenized real-world assets.

Centralized Stablecoins

Popular coins like USDT (Tether) or USDC (Circle) inherently fall under RWA. Companies issuing these tokens lock fiat currencies and government or commercial securities in their accounts as collateral. They then release stablecoins, representing a form of tokenization.

Private Lending

DAO MakerDAO, the issuer of the DAI stablecoin, is involved in this sector. In mid-2022, the organization opened a $100 million token credit line for the U.S. Huntingdon Valley Bank, securing it with off-balance sheet loans. The USDC stablecoin issuer also entered this market, launching the open-source Perimeter protocol, a foundation for creating tokenized lending markets.

trend of tokenized real-world assets

Government Bonds

Companies issuing stablecoins backed by treasury bonds of a specific country fall into this sector. For instance, Ondo Finance issues the stablecoin USDY backed by short-term U.S. Treasury bonds. The Mountain Protocol project also falls into this category, launching the USDM stablecoin on the Ethereum blockchain, backed by treasury bonds generating a 5% annual passive income.

Tokenized Securities

Bitfinex, a cryptocurrency exchange, became an innovator in this sector. In September 2021, its subsidiary Bitfinex Securities began operations targeting the RWA market. In October 2023, it issued the first tokenized bond with a three-year maturity and a 10% interest rate.

Real Estate

In January 2023, the Société Générale conglomerate borrowed $7 million in DAI from MakerDAO. Regulated French mortgage bonds backed the loan.

Carbon Credit Certificates

The market for “green” certificates gained popularity in 2022. KlimaDAO, a project backed by billionaire Mark Cuban, offered crypto users carbon credits. Theoretically, increasing prices for such certificates should encourage environmentally polluting companies to reduce emissions.