Original title: Tokenization of Real Assets (RWA): The Future of Finance
Original author: Vera Lim
Original source: https://www.coingecko.com/
Translation: Daisy, Mars Finance
Introduction: What is Asset Tokenization? First, define tokenization — this is a process that transforms the issuance, accounting, and management processes of assets into digital form while also digitizing asset transactions. Rights to assets are recorded in the form of cryptocurrency tokens. This process applies to both tangible and intangible assets.
The shift towards a decentralized economy expands the potential applications of blockchain technology in the financial system. Currently, asset tokenization is becoming the new standard of the modern economy. It provides additional investment opportunities for groups that cannot access financial instruments. Asset tokenization simplifies many processes in traditional markets, enabling the activation of illiquid assets and generating additional income through reinvestment opportunities. Both private companies and government agencies are showing strong interest in tokenization technology, seeking new ways to attract capital.
Blockchain technology allows users to break down assets and digitize them into tokens or digital certificates (ownership) that have real market value. Therefore, asset tokenization is a promising solution that converts various assets (rights to assets) into a unique digital representation — 'tokens'.
Asset tokenization is applicable to almost any object, including physical assets (real estate, commodities, currencies, securities, intellectual property, etc.), digital assets (DAO governance rights, cross-chain assets, etc.), and gaming assets (skins or in-game currencies).
What are RWAs (Real World Assets)?
The tokenization of physical assets is a process that transforms traditional assets into digital assets that can be traded on blockchain platforms. This technology has the potential to revolutionize the way we invest and manage assets.
Current Status: Scale and Adoption in the Crypto Space
According to DeFiLlama, the RWA TVL value exceeds $6 billion.
The tokenization of physical assets alone (currently valued at over $86.7 trillion) could make the global crypto industry a driving force for modern economic growth.
According to the World Economic Forum (WEF), by 2027, 10% of global GDP will be associated with tokenized assets, and this figure may grow to $24 trillion by then. Thus, not only scientists but also leading business institutions in the global economy (such as Microsoft and Vanguard, Boston Consulting Group and ADDX, BlackRock and Deloitte, BNY Mellon and EY, etc.) have begun to actively study this new economic phenomenon.
Boston Consulting Group and ADDX estimate that by 2030, the tokenization of global illiquid assets will create $16 trillion in business opportunities.
According to a report by S&P Global, the private credit market has expanded at a compound annual growth rate of 17% over the past five years. Despite the global private credit market reaching $1.7 trillion, only about $500 million of private credit has been tokenized. This indicates significant growth potential, as tokenization can enhance the market's liquidity, efficiency, and transparency.
Boston Consulting Group (BCG), a global consulting firm, published a report on October 29, referring to the tokenization of RWAs as 'the third revolution in asset management.' The report predicts that within seven years, tokenized funds will be able to manage assets equivalent to 1% of global mutual fund and ETF assets, expected to exceed $600 billion by 2030.
This trend is expected to continue, especially as regulated on-chain currencies (such as regulated stablecoins, tokenized deposits, and central bank digital currencies (CBDCs)) gradually come into application. Furthermore, an independent report by State Street Global Advisors pointed out that due to the structural characteristics of bonds, they may lead the way in the widespread application of tokenized physical assets. The report emphasized that the bond market is mature and very suitable for tokenization, and the complexity of these instruments, the repetitiveness of issuance costs, and the intensity of competition among intermediaries all contribute to rapid adoption and significant impact. Blockchain technology may play a key role in markets pursuing transaction speed (such as repurchase agreements and swap trading).
The industry analysis platform rwa.xyz noted in an article on platform X that the number of RWA research reports published by institutions and asset management companies has increased. The platform also shared that the total value of off-chain RWAs has reached $13.25 billion, with an annual growth rate of 60%.
Institutional Level and Regulatory Issues
Source: CoinGecko (https://www.coingecko.com/research/publications/rwa-crypto-interest-countries)
The financial sector and Asian countries: Ideal testing grounds for asset tokenization.
The financial sector and Asian countries are currently becoming ideal testing grounds for asset tokenization, leading the world in realizing the benefits of tokenized assets. A typical case is in May 2018, when HSBC's Singapore branch, Cargill, and ING completed a real trade finance transaction on R3's scalable blockchain platform, Corda. A year later, in November 2019, HSBC's Singapore branch announced a partnership with the Singapore Exchange (SGX) and Temasek to begin issuing and servicing fixed income securities.
It is expected that by 2027, the Asia-Pacific region (APAC) will account for the vast majority (90%) of new global economic users, with an estimated 2.4 billion new users joining the global economy, most of which will come from China, India, and other regions in Southeast Asia (Schwab, 2019). These regions will have the largest number of internet users globally, and their populations will actively use cryptocurrencies and non-cash payments. Given the rapid increase in digital access for the population in the Asia-Pacific region (especially due to the rise of smartphone users), we believe this market has tremendous and unique potential for the development of asset tokenization.
In 2024, the decentralized finance (DeFi) platform Ethena invested $46 million in tokenized physical asset funds, targeting products such as BlackRock's BUIDL and Superstate's USTB. Meanwhile, the Solana-based marketplace AgriDex collaborated with Stripe's Bridge and Circle's USDC to reduce cross-border agricultural trade costs from traditional fees of 2-4% to about 0.5%. Banks in Latin America, such as Littio, are also adopting Avalanche's blockchain to build physical asset (RWA) repositories. In addition, UBS Group AG, Switzerland's largest financial holding company, launched its first tokenized fund, the UBS Money Market Investment Fund Token, on the Ethereum blockchain. The Monetary Authority of Singapore is exploring asset tokenization through the Project Guardian to develop universal standards for tokenized assets, while financial institutions in China are issuing fully digital structured products via blockchain, reflecting the region's increasing demand for asset tokenization and the growing significance of stablecoins as a low-cost alternative to traditional banking.
Advantages of Tokenization of Physical Assets
Benefits of Tokenization. Source: Greenwich Alliance
Tokenization is an innovative process today. Therefore, data regarding its reliability has not been fully validated and cannot be considered completely reliable. However, in practice, this technology is being developed and implemented to bring the following advantages:
Enhancing Liquidity and New Investment Methods Across Industries
Tokenization supports partial ownership of assets, enabling investors to buy and sell smaller portions of assets. This provides investors with opportunities to diversify their portfolios and access traditionally illiquid assets such as real estate or art, lowering barriers to entry and increasing market participation.
Real Estate: Tokenization allows for direct investment in specific properties, bypassing the restrictions of traditional real estate funds or Real Estate Investment Trusts (REITs). Investors can own a share of a building or property, promoting the democratization of real estate investment.
Art and Collectibles: In the art market, tokenization allows collectors to own partial shares of high-value works, enabling more investors to access expensive art.
Increased Transparency
Blockchain-based tokenization platforms are inherently secure and transparent, allowing investors to confidently track investment and ownership records.
Security
The reliability of blockchain technology reduces the risks of counterfeiting or theft associated with tokenized assets. All transactions are securely recorded on an immutable ledger.
High Operational Efficiency
Tokens can achieve seamless sharing of infrastructure without the need for intermediaries, significantly reducing transaction costs and complexity.
Technical Challenges and Solutions
The main challenges of asset tokenization stem from the 'Blockchain Trilemma' proposed by Ethereum co-founder Vitalik Buterin in 2014. This concept states that a blockchain can only achieve two out of three key properties: decentralization, security, and scalability.
Although higher decentralization enhances security, it also requires more nodes, which may slow consensus speed and limit scalability. Cases like Cosmos Hub and Polkadot showcase the financial and technical barriers to attacking these networks but also reveal performance trade-offs.
Modern developments are attempting to address these issues through methods such as sidechains, aggregators, and timestamps, allowing assets to be transferred and data exchanged across multiple blockchains. However, these solutions still have vulnerabilities, and security flaws in blockchain bridges have led to losses exceeding $2.5 billion.
To address these risks, some experts advocate for multi-chain interoperability, allowing decentralized applications to run across multiple chains. Despite differing opinions, cross-chain interoperability is increasingly viewed as key to enhancing the efficiency of tokenization and realizing broader blockchain applications. Projects like Genesis, Guardian, and those from JPMorgan are efforts in this area, aiming to establish a reliable cross-chain framework for asset tokenization.
Regulatory considerations are also important, as regulatory differences across jurisdictions are significant, so any tokenization project must comply with local laws and regulations.
Comparison with NFTs: Hype or Utility?
Although RWAs and NFTs both utilize blockchain technology, their purposes and value propositions are entirely different. RWAs focus on the tokenization of physical or financial assets such as real estate, bonds, or commodities, aiming to bring liquidity, transparency, and partial ownership to traditional investments. This provides clear and practical benefits for bridging traditional finance and blockchain.
In contrast, NFTs primarily represent digital art, collectibles, and digital ownership, often carrying a speculative element driven by market trends. Although they have some utility in the digital ecosystem and gaming sectors, NFTs have been criticized for relying more on hype than intrinsic value.
Unlike NFTs, tokenized RWAs are backed by real assets, ensuring their value is tied to actual economic factors rather than market sentiment. This fundamental difference makes RWAs more inclined towards stable, investment-driven opportunities, while NFTs cater to niche markets and cultural trends.
Key Players and Market Outlook
RWA Ecosystem
Some prominent RWA (Real World Assets) projects are leading the progress of traditional asset tokenization. These projects are at the forefront of integrating traditional finance with decentralized finance (DeFi), each bringing unique value and driving innovation in areas such as lending, compliance, and institutional investment. Here are some influential RWA projects worth noting.
MakerDAO: Focusing on assets such as U.S. Treasury bonds, MakerDAO's high RWA income highlights its commitment to safe, stable investments. As it expands into traditional asset areas, this strategy may attract more institutional capital.
Maple Finance: Maple primarily engages in unsecured RWA loans, with recent expansions in trade receivables demonstrating its continued growth in the DeFi credit sector.
Centrifuge: Centrifuge is known for its diverse RWA infrastructure, aiming to expand DeFi's appeal through institutional-grade asset-backed pools, potentially driving the mainstream adoption of RWAs.
Polymesh: Designed for regulated securities, Polymesh's compliance makes it a key player for traditional investors seeking security and transparency.
Ethena: Ethena is establishing its position by making substantial investments in tokenized assets, bringing funds into secure RWA products. With a recent investment of $46 million in BlackRock's BUIDL and other stable, income-generating tokens, Ethena is well-positioned in the RWA space, leveraging blockchain for reliable asset-backed investments.
Not all RWA projects use their blockchain technology, such as Polymesh. Many projects rely on established blockchain solutions. For example, Maker (MKR), Ethena, Maple (MPL), Centrifuge (CFG), LCX (LCX), and Ondo Finance (ONDO) operate on Ethereum; while RedSwan is based on Algorand, Juno on Cosmos, and Parcl on Solana. Investing in projects that provide ready-made blockchain solutions for RWA (like Ethereum or Solana) carries relatively lower risk, as many mentioned projects are undercapitalized and have not yet proven to be reliable and mature in the market.
Market analysis of Ethereum (ETH) and Solana (SOL)
Mid-term Forecast
For mid-term forecasts, attention should be paid to the weekly level. Currently, ETH/USD is operating within a symmetrical triangle, compressed by two trend lines. The price is testing the 2575 level's POC (point of control) and is supported by the 200-day moving average. The momentum oscillator has crossed above the 100 line, indicating bullish market sentiment. A potential upward trend may push ETH/USD above the POC, targeting a price close to 3400 at the VAH (high value area), coinciding with the golden ratio range. In a pullback scenario, ETH/USD may retreat to the 0.318 golden ratio level before rising again.
At the daily level, Solana (SOL/USDT) is currently within a bullish flag pattern, testing the upper boundary of the 175 resistance level. If this level is broken, it may move further upwards, targeting the VAH area or even the previous high of 257.70. In a pullback scenario, the price may retreat to the POC area close to the 0.318 golden ratio level before continuing to rise.
Conclusion
In summary, the tokenization of real-world assets is leading a new financial era, providing traditional assets with greater liquidity, transparency, and global accessibility. As the field evolves and regulations gradually clarify, RWA platforms are expected to create a more inclusive and efficient financial ecosystem, benefiting both traditional and digital investors. This emerging field will serve as the cornerstone connecting DeFi and traditional finance, offering broader participation opportunities and more flexible global investment options.
