What are Tokenized Real World Assets (RWA)? Everything You Need to Know!

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Bittime - Tokenized real world assets (RWA) is a digital representation of real assets on a blockchain or similar technology. So, how does it work, benefits, and real examples of tokenized RWA? Keep reading this article!

What are Tokenized Real World Assets (RWA)?

Tokenized real world assets (RWA) are digital representations of real assets on a blockchain or similar technology, such as property, art, or gold. With tokenization, real assets can be divided into units that can be traded easily and cheaply on a decentralized network. 

RWA tokens can provide benefits such as liquidity, transparency, accessibility and returns for real asset owners and investors.

How Do Tokenized Real World Assets (RWA) Work?

The Tokenized RWA process involves several steps, including:

• Choose the real asset you want to tokenize, for example a house, car, or painting.
• Determining the market value of real assets based on professional or secondary market appraisals.
• Creating digital tokens that represent real assets on the blockchain, for example using the ERC-20 or ERC-721 standards on Ethereum.
• Registering digital tokens on a tokenization platform, for example RealT, Centrifuge, or Tinlake, which provides services such as verification, custodianship, and token issuance.
• Sell ​​digital tokens to investors via primary or secondary markets, for example using DeFi protocols such as Uniswap, Aave, or MakerDAO.
• Manage digital tokens and their underlying real assets, for example by paying taxes, maintenance fees or dividends to token holders.

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Why Are Tokenized Real World Assets (RWA) Important for DeFi?

Tokenized RWA can open new opportunities for the DeFi ecosystem, namely open and intermediary-free financial networks that operate on the blockchain. Some reasons why Tokenized RWA is important for DeFi are:

Tokenized RWA can increase value locked (TVL) in DeFi 

The total number of assets used as collateral or liquidity in a DeFi protocol. Currently, TVL in DeFi is mostly dominated by crypto assets such as ETH, BTC, or stablecoins. With Tokenized RWA, TVL in DeFi can cover real assets that have greater market value and are more stable than crypto assets.

Tokenized RWA can increase diversification and inclusion in DeFi

Diversification and inclusion is the ability to access and participate in a variety of financial services on the blockchain. Today, many investors are limited by geographic, regulatory, or capital barriers to investing in real assets. 

With Tokenized RWA, investors can buy and sell fractions of real assets from anywhere and at any time with low fees and high transparency.

Tokenized RWA can increase innovation and efficiency in DeFi 

Tokenized RWA has the ability to create and deploy new financial products and solutions on the blockchain. Currently, many DeFi protocols offer services such as lending, exchange, or insurance for crypto assets. 

With Tokenized RWA, DeFi protocols can offer the same or more services for real assets, for example by using RWA tokens as collateral, liquidity, or claims.

What Are Some Examples of Tokenized Real World Assets (RWA) in DeFi?

Tokenized RWA in DeFi has started to develop and shows great potential. Some examples of Tokenized RWA in DeFi are:

RealT 

RealT is a property tokenization platform in the United States that uses the ERC-20 standard on Ethereum. RealT allows investors to buy and sell property fractions for as little as $50 and earn monthly dividends from property rentals. 

RealT also integrates with DeFi protocols such as Uniswap, Compound, and Balancer, allowing investors to swap, borrow, or provide liquidity for property tokens.

Centrifuge 

Centrifuge is a protocol that connects real assets with DeFi through Tinlake, an RWA token issuance platform. Centrifuge allows owners of real assets such as invoices, loans, or merchandise to convert their assets into RWA tokens and obtain funding from DeFi investors. 

Centrifuge also integrates with DeFi protocols such as MakerDAO, Aave, and Curve, allowing investors to use RWA tokens as collateral, loans, or stablecoins.

NFTfi 

NFTfi is a lending platform that uses NFT (non-fungible token) as collateral. NFTs are digital tokens that represent unique, non-fungible assets, such as art, collectibles or games. 

NFTfi allows NFT owners to borrow money by submitting their NFT as collateral to a lender. If the borrower cannot repay the loan, the lender can repossess the NFT in exchange for money.

What are the Challenges and Risks of Tokenized Real World Assets (RWA) in DeFi?

Tokenized RWA in DeFi also faces several challenges and risks, including:

Regulations

A regulatory challenge is the uncertainty of the laws and regulations that apply to Tokenized RWAs in various countries and regions. Some aspects to consider are the legal status of RWA tokens, tax obligations, consumer protection, and anti-money laundering. 

Tokenized RWA also requires cooperation with traditional financial authorities and institutions, which may have different views and interests to DeFi.

Security 

Potential threats and attacks that could damage or steal RWA tokens or underlying real assets. Some aspects to consider are the reliability and trustworthiness of the tokenization platform, custodian, and verifier. 

Apart from that, there is also the power and security of smart contract code, DeFi protocols, and blockchain. Tokenized RWAs also require dispute prevention and resolution measures, such as insurance, arbitration, or law enforcement.

Adoption 

Adoption means the level of awareness and interest of real asset owners, investors and users towards tokenization and DeFi. Some aspects that need to be considered are education and outreach about the benefits and risks of tokenized RWA, ease and comfort of using tokenized platforms and DeFi protocols, as well as the availability and quality of customer service and support.

Conclusion

Tokenized RWA is the process of converting real assets into digital tokens that can be traded on the blockchain. Tokenized RWA can provide benefits to real asset owners and investors, such as liquidity, transparency, accessibility, and returns. 

Tokenized RWA could also open up new opportunities for the DeFi ecosystem, namely open, intermediary-free financial networks that operate on the blockchain. Tokenized RWA in DeFi has begun to develop and shows great potential, but also faces several challenges and risks, such as regulation, security, and adoption. 

How to Buy Crypto on Bittime

You can buy and sell crypto assets in an easy and safe way via Bittime. Bittime is one of the best crypto applications in Indonesia which is officially registered with Bappbeti. 

To be able to buy crypto assets on Bittime, make sure you have registered and completed identity verification. Apart from that, also make sure that you have sufficient balance by depositing some funds into your wallet . For your information, the minimum purchase of assets on Bittime is IDR 10,000. After that, you can purchase crypto assets in the application. 

Monitor price chart movements of Bitcoin (BTC), Ethereum (ETH), Solana (SOL) and other cryptos to find out today's crypto market trends in real-time on Bittime.

Also read:

What Are Real World Assets (RWA), and How Do They Function in DeFi?

Ripple and Axelar Work on RWA Tokenization Project on the XRP Ledger

Understanding the Role of Real World Assets (RWA) in Stablecoin Development

Types and List of the Best Crypto Real World Assets

DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.