RISKS INVOLVED IN TOKENIZATION OF REAL-WORLD ASSETS (RWA) - Part 1
1. Regulatory Compliance:
Regulatory risk is one of the most important risks involved in tokenization of RWA. So many regulatory authorities are there for trading finance products. From Europe to the US to Australia different regions have different authorities. Protocol that brings RWA in Blockchain needs to comply accordingly to different geographies. This is one of the toughest ask for a tech company.
2. Market Liquidity:
Have been hearing from so many quarters that tokenizing RWA in itself would bring customers whereas in reality it is not.
The demand for these products depends on so many factors viz., Understanding the product, nature of the products and right mix of the product to attract liquidity towards that specific product. This is easier said than done.
3. Smart Contract & Tech Risks:
The use of smart contracts introduces the risk of vulnerabilities and bugs. Blockchain products are totally dependent on code. In Blockchain, Code= Contract. If and when there are severe bugs then the entire product collapses. Blockchain technology is still in its nascent stage, and adopting it by common man is a tall ask. Apart from this there are scalability issues and interoperability challenges for a product.
4. Valuation Challenges:
Identifying pricing and valuation for tokenization is an herculean task. In most of the products it’s not possible to understand the market value of a product. The parameters to ascertain market value are simply not found with Tokenized products.
5. Market Perception:
Perception in acceptance of tokenized assets is still a tough challenge. This could have a tremendous impact on the value of tokenized products. How the market perceives plays a pivotal role in driving prices of a product. Creating perception is important for holding prices of a product to create value for stakeholders involved in the project.