What is Real World Assets (RWA) in Cryptocurrency?

Decentralized finance has provided an easy way to enter the cryptocurrency landscape through innovative approaches to conducting financial transactions. As more people turned to DeFi to earn lucrative returns, they eventually fell victim to the sharp decline in DeFi TVL. Following the collapse of FTX exchange and Luna, token values ​​fell sharply due to inflationary pressures caused by poor tokenomics of various tokens.

With many DeFi participants leaving DeFi in search of better opportunities, the spotlight on crypto real-world assets, or RWAs, has become more prominent. Market participants believe that real-world assets are more sustainable and offer higher returns by taking advantage of the opportunity to tokenize a variety of assets. Let’s take a closer look at the importance of real-world assets, or RWAs, in the cryptocurrency landscape through some popular examples.

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Understand the meaning of RWA in cryptocurrency

The first assumption that comes to mind when reading “physical assets” is that it represents all physical assets in the real world. Interestingly, the meaning of real assets in cryptocurrency remains the same despite the variations in technology. RWA is a tokenization of physical and traditional financial assets such as cash, bonds, credit, or stocks. Tokenization of real-world assets opens up new opportunities for accessing, exchanging, and managing physical assets. The ideal real-world asset for cryptocurrency tokenization should have significant value with universal recognition.

Real-world assets represented on the blockchain through tokenization also offer the potential for future economic benefits. Integrating real-world assets into blockchain and DeFi ecosystems is a revolutionary change in the asset management space. Tokenization can help represent physical assets on a blockchain network, allowing people to buy, sell, or trade them on digital platforms with ease and increased security. The convergence of traditional assets with significant economic value and blockchain technology can improve the liquidity and accessibility of assets.

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Exploring the usefulness of RWA in the cryptocurrency ecosystem

Cryptocurrency and real-world assets in the blockchain environment create new opportunities to attract more market participants. The answer to “What is a cryptocurrency real asset?” highlights the advantages of liquidity and accessibility. Real assets or tangible assets of traditional finance are important components that contribute maximum to global financial value. Any investor can utilize these tangible assets to strengthen their diversified portfolio. Cryptocurrency market participants can create powerful portfolios by adding different types of real-world assets.

Investors have faced several challenges in accessing traditional assets, including liquidity issues, geographic barriers, and regulatory restrictions. For example, traditional assets such as real estate require high initial investment costs. On the other hand, you can also find assets like bonds that command a lot of money even in the smallest units. It is also important to note that you cannot find instant liquidity with traditional real assets. You can’t immediately sell your property and turn it into cash.

RWA tokens in cryptocurrencies offer an effective solution to problems associated with traditional assets that can provide significant financial value. Cryptocurrency RWA tokens offer the benefit of fractional ownership, allowing people to purchase a portion of a bond or real estate. It can help reduce the initial investment required for these assets, which in turn can encourage more people to participate in the new market. Tokenizing real-world assets on the blockchain also enables universal accessibility to assets by removing jurisdictional barriers.

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Real Assets Suitable for Cryptocurrency Tokenization

The only examples of tangible assets discussed here are real estate and bonds. The RWA cryptocurrency list includes a wide range of assets representing the spectrum of utility. It is important to note that real-world assets can be physical or digital assets that have intrinsic value outside of the blockchain and cryptocurrency ecosystem. Tokenization allows these assets to be introduced into blockchain and cryptocurrency environments. Tokenization helps create digital twins of assets on the blockchain, making them useful for new opportunities for trading, investing, and ownership.

The first example of a real-world asset becoming a cryptocurrency token will draw attention to stablecoins. Stablecoins represent fiat currencies, such as the U.S. dollar, on blockchain networks and have been used as a liquid alternative to traditional currencies. Tokenization of real-world assets also focuses on financial assets, digital assets, and physical assets. Financial assets such as stocks, shares, securities, insurance, and government bonds are the most important candidates for tokenization. Additionally, digital assets such as intellectual property, digital content rights, and datasets can be tokenized on any blockchain.

The most interesting category of real-world assets suitable for cryptocurrency tokenization are real-world assets. Tokenization of tangible assets, including raw materials, real estate, music, art, precious metals, and agricultural products, can transform investing. Tokenized real-world assets will play an important role in bridging the gap between the real world and the cryptocurrency environment.

Solve an example of RWA in DeFi

The best way to understand the importance of real-world assets in blockchain and cryptocurrency is through examples. Tokenized real-world assets have the ability to bring fundamental change to the DeFi landscape. Decentralized finance has proven that on-chain finance can be an ideal solution to improve economic and financial activities. At the same time, it has not been able to accommodate the different types of assets that could benefit from blockchain technology.

We are seeing that real-asset cryptocurrency projects are gaining more attention due to their potential to expand the digital asset ecosystem. Bringing traditional real-world assets into the digital asset ecosystem builds the foundation for a new financial system. The new financial environment can provide better liquidity and transparency while reducing systemic risk. The total value of real-asset tokens at the end of 2023 was nearly $5 billion.

One of the most notable examples of a DeFi protocol embracing real-world asset tokenization is MakerDAO. DeFi protocols represent a new approach to creating financial assets by leveraging the real-asset collateral of the DAI stablecoin.

stUSDT is another popular example of a DeFi RWA, contributing over $1.4 billion in TVL. It works as a money market fund solution that allows users to earn passive income by staking USDT on the platform. The most interesting highlight of stUSDT is the RWA DAO, which manages user asset investments.

Ondo Finance is the next notable example of real-world asset tokenization in DeFi. The platform invests in highly liquid, multi-billion dollar exchange traded funds and helps stablecoin holders earn returns on their assets. It is the second largest RWA protocol in DeFi with a TVL of up to $220 million.

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Examining the Benefits of Blockchain and Cryptocurrency Real Assets

Another important aspect in understanding the importance of RWA in cryptocurrency focuses on the benefits of RWA. Hints of various benefits can be found in the design of crypto RWA tokens that leverage blockchain technology. Tokenizing real-world assets using blockchain can help transform traditional markets through a variety of interconnected benefits. The tokenization process helps improve efficiency while ensuring trust through fractional ownership of high-value assets. You can access and trade real assets at any time of the day without relying on a traditional broker.

Tokenized RWA provides faster, global transactions without the limitations of international borders and regulations. The consensus mechanism of blockchain technology helps reduce reliance on third-party clearing agents, such as traditional clearinghouses. Additionally, blockchain’s public and immutable ledger offers promising improvements in terms of compliance and transparency. The distributed ledger of blockchain technology facilitates clear provenance by providing full visibility into asset ownership tracking and transaction activity.

Smart contracts can play an important role in automating regulatory requirements and compliance checks. Using smart contracts with tokenized real-world assets promises tremendous benefits while also making compliance and tax reporting simpler. The benefits of greater transparency and compliance show that RWA in cryptocurrencies reduces costs and simplifies administration.

The most promising advantage of tokenizing real-world assets on the blockchain is that it ensures improved liquidity. Tokenizing traditionally illiquid assets such as real estate, bonds, and securities improves liquidity. The advantage of fractional ownership of real assets ensures that investors can sell their shares without worry. Fractional ownership of tangible real-world assets in the form of RWA tokens also creates a new secondary market. New markets can provide asset owners and investors with democratic access to different types of investments along with profitable opportunities.

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final thoughts

Tokenization of real-world assets on blockchain is one of the most promising applications of blockchain technology. The introduction of DeFi has brought many traditional assets to the blockchain and cryptocurrency ecosystem. With the advent of RWA in cryptocurrency, we could witness real-world tangible assets being transformed into noteworthy cryptocurrency tokens. Real assets in the blockchain and cryptocurrency environment will create new markets that can welcome more investors.

Tokenization of real-world assets, such as real estate, music licenses, digital content rights, or works of art, can offer many benefits. Tokenized real-world assets allow you to enjoy the value of fractional ownership, better liquidity, and transparency in asset management. Learn more about cryptocurrency asset tokenization to understand the value of real-world assets for the future of finance.

*Disclaimer: This article should not be considered, and is not intended to provide, investment advice. The statements made in this article are not investment advice and should not be taken as such. 101 Blockchain is not responsible for any loss suffered by anyone relying on this document. Do your own research!