Bringing real world assets on-chain.
The tokenisation of RWAâs has become an increasingly hot topic.
Find out how it works đ
Tokenization stands out as a fascinating facet of the blockchain ecosystem, representing the conversion of assets or utilities into digital tokens. Real world assets (RWA) involve the tokenization of tangible assets with clear monetary value, such as gold, real estate, and carbon credits, into tradable digital formats.
RWAs have found immense utility in the decentralized finance (DeFi) sector. The integration of RWA in DeFi is often lauded as one of the best examples of traditional finance assets blending with DeFi.Â
How Do RWAs Work?
Before jumping into RWAâs utility in DeFi, letâs look at how they work. Specifically, how do we ensure that RWAs are legitimate tokens of the real-world assets they are representing? The entire process can be broken down into three phases: off-chain formalization, information bridging, and RWA protocol demand and supply.
Off-chain formalization
Before a real-world asset can be integrated into a digital ledger, its value, ownership, and legal standing must be unequivocally established in the physical world.Â
Information bridging
In this phase, we go through the tokenization process, wherein the asset's information is turned into a digital token. Data about the assetâs value and rightful ownership are embedded within the tokenâs metadata. Due to the blockchainâs transparency, anyone can verify the tokenâs authenticity based on the metadata.
RWA protocol demand and supply
In the last step, which is all about demand and supply, DeFi protocols that focus on RWAs come into play. They have two functions: first, they help bring new RWAs into existence, which means they help make more of these digital assets available. Simultaneously, they also work to get investors interested in buying and trading these assets.Â
RWAs are an exciting development for DeFi, potentially broadening its capabilities and audience.
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