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With the entry of traditional capital from firms like Goldman Sachs and SoftBank, as well as Web3 giants such as Binance and OKX, strong projects in the RWA sector are beginning to emerge. Projects both new and established, including Centrifuge, Maple Finance, Ondo Finance, and MakerDAO, are starting to stand out in this burgeoning field, establishing themselves as leaders in terms of technology and ecosystem development. Large asset management companies like BlackRock and Fidelity began experimenting with tokenization to manage parts of their asset portfolios, enhancing liquidity and transparency. The U.S. Securities and Exchange Commission (SEC) and the European Securities and Markets Authority (ESMA) also started to intervene, working on regulatory https://www.xcritical.com/ frameworks for RWA. Additionally, a balance sheet can be easily faked and “creative accounting” is a well-known problem.

Tokenized Real-World Assets (RWAs): Scaling Onchain Finance to a Global Level

It enables seamless tokenization of real-world and digital assets with unmatched performance, security, and compliance. From regulated security tokens to NFTs, Hedera empowers the efficient creation of diverse asset types by providing enterprises and developers with robust open-source tools to unlock illiquid assets and drive the evolution rwa real world assets of financial markets. With IX Swap’s IXS DEX capabilities and regulatory compliance, the tokenization of real-world assets will be conducted in a secure manner, offering more opportunities to global investors.

The Role of Blockchain Technology in Enhancing RWA Investments

USDY (U.S. Dollar Yield Token) is a new financial instrument issued by Ondo USDY LLC, combining the accessibility of stablecoins with the yield advantages of U.S. Unlike many blockchain yield tools, USDY’s structure is designed to comply with U.S. laws and regulations and is backed by short-term U.S. As an emerging sector, RWA is making an unprecedented impact on the DeFi market, with its vast potential warranting investor attention. However, the development of RWA projects is closely tied to real-world regulations, and the varying legal frameworks across different countries and regions could easily become a constraint on its growth. On the other hand, accounts receivable can be understood as the yields generated by a company (which with a variable level of risk and uncertainty) that will be received in the future and generally converted into cash. By using it as collateral for a loan whose payment has been made in crypto, lenders can gain exposure to the yield generated by that company.

Preparing for the Future: How Investors and Regulators Are Shaping the Landscape of RWA Investments

USD-collateralized stablecoins continue to improve in terms of transparency and reporting. Moody’s, a leading credit rating agency, is developing a scoring system for stablecoins based on the quality of their reserves attestations. Tether has derisked its reserves by eliminating commercial paper and phasing out secured loans. Circle’s USDC provides monthly reserve reports with attestations from leading global accounting firm Grant Thornton. Alex leans on his formal educational background (BSBA with a Major in Finance from the University of Florida) and his on-the-ground experiences with cryptocurrency starting in 2012.

• RWAs bridge traditional finance and the digital space, allowing DeFi to serve customers and businesses that are not crypto natives.
• Each token represents one actual dollar that the company has in reserve, and allows for faster and direct settlements between parties.
• There is a need for audit firms performing audits on RWA in the same fashion that this is done on traditional finance.
• In parallel, it is also likely that fully permissionless onchain finance protocols, focused on crypto-native assets with little-to-no RWA interaction, will continue to exist.

Real World Assets: The Bridge Between TradFi and DeFi

Unlike digital or virtual assets, RWAs have a physical presence or a real-world utility, whereas digital assets exist solely in the digital realm. A security token platform like INX simplifies the tokenization process and ensures regulatory compliance. Working with such a platform makes it easier to get the support and regulatory expertise necessary for the tokenization process. When dealing with assets that fall under regulatory scope or are classified as securities, utilizing regulatory technologies becomes pivotal. These may include employing licensed security token issuers, adhering to crypto-specific KYC (Know Your Customer) and KYB (Know Your Business) standards, and leveraging cleared security token exchanges.

Newest Real-world asset (RWA) tokens

Starting in the Babylonian empire in 3000 BC with clay tablets to track debts before evolving into paper formats, finance has entered an almost purely digital era. Despite these transformations, the recording of financial events still takes place across siloed ledgers that must be reconciled. This results in significant inefficiencies, such as increased costs and lengthened settlement times. The lack of interoperability and the resulting fractionalized liquidity present an opportunity for the next era of finance to be around asset tokenization. Most people are not financial experts and do not care about the intricacies of how the financial industry operates, and yet society depends on financial assets. Fiat currencies are used for commerce and savings; they are what people earn and spend.

Our infrastructure technology is regulated, compliant, secure, and embeddable

We are still in the early days of RWAs on public blockchains, but none of the above challenges are insurmountable. Continued industry collaboration, across both DeFi and TradFi, will chip away at these barriers over time in order to eventually arrive at a viable solution for onchain finance. Stablecoins formally entered the market in 2014 with the introduction of Tether (USD₮).

The Current State of Onchain Finance

The concept of digital tokens tied to a real-world asset isn’t anything new or groundbreaking. The underlying technology is legitimate and has many live examples of working without issue. Surprisingly, the tokenized treasury spurt is led by a conservative traditional finance company, Franklin Templeton, which has tokenized over $300 million of its U.S. While other sections have been losing Total Value Locked (TVL), RWAs have grown considerably during the 2023 bear market– tokens representing real-world assets have seen their TVL jump from $750M to over $6B in 2023.

To reorder the list, simply click on one of the options – such as 24h or 7d – to see the sector from a different perspective. Despite the strong narrative and potential of the RWA sector, the uncertainty around its compliance means that caution is necessary when investing in related projects, with a readiness to manage potential risks. Multiple well-known Web3 companies, including Binance, are optimistic about the future market value of RWA. Some estimates suggest that by 2030, the total market value of RWA could reach $16 trillion. These off-chain liquidations, in addition to reducing the efficiency of the entire process and including a considerable degree of uncertainty, go against the ideological conception of not only DeFi, but of the blockchain itself. Having to depend on a separate third party or intermediary in a process that could be peer-to-peer collides directly with the founding principles of decentralization.

It also allows the incorporation of assets into the ecosystem with a lower degree of correlation with the crypto market as a whole. Today the crypto market moves in unison due to the extreme correlation that exists between crypto assets. Although this is common in any market with a low or medium maturity level, it is also normal because all crypto assets eventually belong to the same industry. The incorporation of assets from different industries to the blockchain has the possibility to reduce this extreme correlation of at least part of the TVL, with an eventual reduction in volatility. In addition, the use of RWA by players outside the blockchain ecosystem is a powerful argument to defend the adoption of this technology. The main use case that current RWA protocols allow is the collateralization of these assets to obtain loans denominated in cryptocurrencies, normally stablecoins.

HVB used MakerDAO to support the growth of its existing businesses and investments around real estate and other related verticals, and served as the first commercial loan participation between a US-regulated financial institution and a decentralized digital currency. In a separate vault, Société Générale borrowed $7M from MakerDAO in a position backed by €40M worth of AAA-rated bonds tokenized as OFH tokens. INX holds an SEC  transfer agent license as well as a broker-dealer, and ATS licenses under FINRA (Financial Industry Regulatory Authority) and SEC (U.S. Securities and Exchange Commission). Therefore, the company can help with the full cycle of the STO process, from getting approval as an issuer to managing the security tokens.

The potential market opportunity for RWAs has generated increasing interest, as demonstrated by the deployment of pilot tests by both traditional institutions and crypto-native projects. According to a 2022 Celent survey, 91% of institutional investors have signaled their interest in investing in tokenized assets. Below are a few examples of how institutions are actively engaging in the tokenization of RWAs on public blockchains.

Perhaps most exciting is the potential for RWA tokenization to give rise to entirely new financial products and investment paradigms. As the technology evolves and matures, we can expect to see innovative applications and use cases emerge, pushing the boundaries of what is possible in the realm of investing [3]. Leveraging external expertise and outsourcing certain compliance functions can provide additional assurance on compliance processes and help address the challenge of obtaining comfort that regulatory risk is effectively managed. Businesses should carefully evaluate potential vendors and ensure that they have the necessary expertise, technology, and resources to provide reliable and compliant services [5].

It is clear that RWA have great potential and can be an important bridge between traditional finance and blockchain technology, but today they are not among the most attractive DeFi categories. Few protocols exist and the TVL across chains as a category at the time of writing is only $177 million. Nevertheless, the market must solve the question of whether the connection between traditional finance and blockchain, especially DeFi, is the natural evolution of this industry or if it should remain more or less alien to it. In any case, this question will be answered by the demand for RWA, both in TVL and in the number of protocols building real world assets. About Hedera Governed by a council of the world’s leading institutions, Hedera is a high-performance, secure, and sustainable public, permissioned DLT network.

Tokenization offers a way to seamlessly blend the digital and physical worlds to enhance liquidity and democratize asset ownership. The evolving regulatory landscape and complexities in valuation and custody underscore the need for a robust framework to ensure the sustainable growth of tokenized RWAs. As a US-regulated company, INX was the first company that offered a tokenized initial public offering (IPO) or a security token offering (STO) with SEC registration. Now, INX helps other companies issue security tokens/RWAs and facilitate their security token offering. Tokenization involves converting the rights to a tangible or intangible asset into a digital token on a blockchain. This enhances the liquidity of traditionally illiquid assets and democratizes access to investment opportunities.

Pioneer projects like Polymath and Harbor began exploring the feasibility of tokenizing securities. Polymath focused on creating a platform for security token issuance, addressing legal compliance issues, while Harbor worked on a compliance framework for trading securities on the blockchain. The most commonly used definition of the term “RWA” is that it refers to anything physical that can be represented on-chain. Although the origins of RWA were effectively limited to physical assets (in fact, one of the first RWA to exist was something as physical as it can get, tokenized real estate), RWA’ scope has far exceeded that limitation.