Real-world assets (RWA) protocols and platforms are beginning to tokenize long-since illiquid assets into accessible and far more versatile RWAs. This advancement has established a bridge between the world of traditional finance (TradFi) and the freedom of decentralized finance (DeFi), breaking down barriers thought immovable.
Taking a step away from the technological progression, it’s important to keep a keen eye on the management side of RWA protocols and platforms. The inner workings require deep understanding of complex infrastructure, strategic insight, and the right portion of risk management.
With prime examples like Blocksquare and Zivoe to look towards for guidance, managing all these moving parts can become a simplified process for all branching out into the RWA space.
RWA Intricacies
The tokenization of RWAs is ultimately the process of turning tangible assets like real estate or intangible assets like intellectual property rights into financial instruments — accessible on the immutable blockchain. Through tokenization, investor access to these newly tokenized assets increases significantly, and in turn, so too does the flow of liquidity and the opportunities DeFi presents.
However, although the benefits drastically improve many aspects of asset transacting, the process also adds lays of legal compliance, risk management, technical know-how, and community governance intricacies. To appropriately tackle these hurdles before they become insurmountable, it is vital to take preventative and preparatory steps.
Tokenization
The primary step and one that must be meticulously managed is the tokenization process. By creating digital tokens representative of economical rights or ownership to RWAs, tokenization protocols like Blocksquare have been able to establish fragmental PropTokens linked to real estate properties.
Built on the Ethereum blockchain, these PropTokens are linked to smart contracts that maintain the immutability, security, and transparency of asset handling through blockchain technology. By recording transaction data in this way, digital ownership becomes irrefutable on a digital public ledger — verifiable and tamper-proof.
Smart Contract Support
As the bedrock of RWA protocols, smart contracts automate transaction execution, maintain contractual obligations set out when transacting the tokenized RWAs. Through this foundation of contractual automation, protocols like Zivoe are able to issue on-chain loans to customers at affordable rates — monitorable and trackable on-chain at any point in time.
Coded for security, smart contracts establish a reliable infrastructure for RWA protocols and are necessary to protect investors from bad actors. To ensure this, audits and testing should be regularly carried out to identify any vulnerabilities early before they’re exploited.
Integrating TradFi
RWAs function as a bridge between the world of TradFi and DeFi, two very different systems of transacting. This stark difference can present a significant transition challenge for those unprepared.
By integrating tokenized RWAs into existing financial infrastructure — not forgetting to carry out due diligence through legal requirements — the integration of TradFi becomes a far less daunting task. Blocksquare’s success in establishing the first notarization of a tokenized real estate transaction on the EU land registry portrays the importance of this integration and the potential when regulatory oversight is well-managed.
Best Practices
RWA protocols, like Blocksquare and Zivoe, that succeed in the space do so by employing best practice in three core areas: risk management, regulatory compliance, and community governance.
Firstly, to handle risk management appropriately, it is important to first identify risks associated with the RWA protocol — such as operational risks, market-based risks and legal risks due to regulatory statute violations. As seen through Zivoe’s use of special purpose vehicles (SPVs) to secure loans while reducing credit risk, assessed and mitigated risks offset future potential for financial damages.
Secondly, one of the biggest hurdles in the space is regulatory compliance. Differing across separate jurisdictions and presenting legal obstacles relating to securities, anti-money laundering (AML) laws, and property rights; regulations quickly become a minefield for RWA protocols. The best (and quickest) way to employ best practice legally is to remain 100% transparent and communicate regularly with regulatory bodies to ensure legal compliance.
Lastly, one of the fundamental best practices to ensure is the establishment of a decentralized autonomous organization (DAO). This facilitates community governance and allows token holders to partake in the pivotal direction changes of the protocol as it develops. This practice can be see in Zivoe’s governance model, powered by its native ZVE token, which allows users to stake tokens, earn fees, and participate in the decisions that affect the protocol.
RWA Protocols At Their Best
After recently announcing the tokenization of $100 million worth of real estate properties, Blocksquare marked a significant milestone in the RWA space. The milestone encompasses a diverse variety of 118 assets, including hotels, healthcare facilities, apartments, and restaurants across more than 21 countries.
Additionally, Blocksquare also rolled out its DeFi launchpad upgrade, Oceanpoint v0.5, enabling start-ups to build entire tokenized marketplaces from the ground up with a one-stop solution.
Alongside these achievements, Zivoe has achieved huge strides in consumer lending innovation and regulatory compliance. By employing a B2B2C model, lending on-chain to capital allocators like Zinclusive to offer more affordable credit products to all customers.
Forearmed is Forewarned
In managing RWA protocols successfully and effectively, a preparatory approach is shown above to be the best method to ensuring there are no bumps in the road to future prosperity. By combining a healthy concoction of regulatory compliance, risk management, community engagement, and robust technological infrastructure, RWA protocol management becomes a breeze.
By taking RWA protocols like Blocksquare and Zivoe as guiding examples of well-managed structures, it is possible learn the best practices to overcome technical barriers and ensure effective risk management. Prepare for the worse, hope for the best, and only success will remain.