Comprehensive Real-World Assets Guide: RWAs🧵

👉 Disclaimer: All opinions of the author are their own

In this blog post, I will try to explain everything from scratch to you. In this way, even if you have no idea about the subject, I will help you learn about it. If there is something you do not understand, please do not hesitate to share it with me :)

This guide is a work in progress. There will be updates written in the future. If you find any errors or have feedback please write me.

Elif Hilal's Journey | Twitter | Linktree

Warning: This Guide is REALLY LONG, so it really takes a while to read. I care that you learn every single detail about RWAs and have knowledge in the industry. It is an honor to help community members who want to improve themselves in the blockchain space benefit from my Guide. Because all for one and one for all🫡

Real World Assets (RWAs): A Comprehensive Guide

Table of Contents

1. Introduction to real-world assets
2. Why do we need this?
3. Interoperability and CCIP
4. Enhancing security and trust through real-world assets
5. Simplifying complexity through real-world assets
6. Diversifying the DeFi ecosystem through real-world assets
7. Use-cases and examples
8. What’s the real purpose of crypto
9. Getting started with RWA’s
10. Additional readings

Introduction to Real World Assets👇

In this article, you will find detailed information about RWAs, my dear readers. 🎃

As we already know, real-world assets (RWAs), both tangible and intangible, have been revolutionizing the crypto universe lately. These assets, which include everything from real estate and commodities to securities and other financial instruments, are traditionally part of traditional financial markets and are regulated by various organizations.

In the world of programmable platforms, what gets traded are these nifty things called tokens.

But don’t mistake them for simple digital placeholders in a database. They’re way more advanced than that! Tokens actually combine the asset details you’d typically find in a conventional database with the rules and logic that dictate how that asset can be transferred. So, unlike traditional systems where one set of rules applies to all assets, tokens can be fine-tuned to meet the unique needs of each asset or even comply with specific regulations.⁷

Source : III. Blueprint for the future monetary system: improving the old, enabling the new

What’s super cool is that this dual functionality of tokens can be a game-changer in regulatory oversight. Imagine having tokens that come with built-in compliance features tailored to specific rules. We’ll dive deeper into how this can revolutionize supervisory and compliance frameworks later on 🪄

The scope of tokenization is expansive, encompassing a wide range of assets like artwork, luxury goods, wine, automobiles, carbon credits, and even financial instruments like treasury bills. Allan Pedersen, the CEO of Monetalis Group, highlights their efforts in tokenizing RWAs for use as collateral on MakerDAO, revealing that they have tokenized treasury bills worth $1.2 billion, which are now being used as collateral by Maker¹

MakerDAO Boosts U.S. Treasury Holdings by $700M to Back DAI Stablecoin With Real-World Assets

While the concept of tokenization isn’t novel, it’s currently experiencing a resurgence in popularity. Much like how NFTs gained mainstream attention years after their initial introduction, tokenization has been in existence since 2017 and is now gaining traction.

In the meantime, you can read the Guide I have prepared for you before to have information about NFTs and Dynamic NFTs.

NFTs and Dynamic NFTs (dNFT) Guide 📚🗽 (all about NFT’s)

Simply put, tokenizing real-world assets is a process whereby physical investments like property, precious metals, and collectibles are converted to digital tokens on the blockchain.

So why should we tokenize assets? 🧐

🦾 The need to tokenize real-world assets stems from the desire to modernize and optimize the way we interact with traditional investments. Here are some of the main reasons why tokenization is becoming more and more important:

• Enhanced Liquidity — Tokenization allows assets to be split into smaller, more affordable shares. This allows more people to invest, which effectively increases the liquidity of traditionally illiquid assets such as real estate or art. Many people have reservations about large investments, but tokenization provides more favorable shares.
• Reduced Costs: The blockchain eliminates the need for middlemen such as brokers, lawyers, and banks, significantly lowering transaction costs. BUT HOW? Let me explain how it works!🤩

🌲 Traditional System:

Various intermediaries like brokers, lawyers, and banks play crucial roles in conventional financial systems. Let me give you an example.

For example, if you want to buy a piece of real estate, what are the steps followed:

1- Brokers help you find the property and negotiate the deal. So you have to pay them a fee. (This is the case in Turkey and America, at least)
2- Lawyers handle legal matters such as contracts and property controls.
3-Banks facilitate the transfer of funds and can provide you with loans. Therefore, they also charge you some fee.

So, in summary, as you can see in the three items above, each of these brokers charges a fee for their services, which is added to the overall cost of the transaction. UNFORTUNATELY!

So, how does the situation work in the Blockchain System?🎯

When real-world assets are tokenized and placed on a blockchain, we see these steps:

• 🎰 Smart Contracts: You’ve probably seen this concept hundreds of times. These are self-executing contracts where conditions are written directly into the code. They can replace lawyers by automatically performing transactions such as the transfer of ownership when the conditions are met. (In another article, I explained the exceptions to this topic and upgradable smart contracts.)
• 🎲 Peer-to-Peer Transactions: Blockchain allows direct transactions between buyer and seller, eliminating the need for brokers. You can buy tokens representing asset ownership directly from the current owner or through a decentralized marketplace. Sounds great, right?
• 🎨 Automatic Compliance: Due to required compliance processes, traditional finance has additional administrative overhead. Smart contracts, on the other hand, can be programmed to comply with regulations, ensuring that the transaction complies with local laws without the need for legal review. Of course, knowing and applying the laws in this regard is necessary.
• 🎪 Decentralized Finance (DeFi): Financial matters such as loans can be managed through decentralized platforms, reducing the need for traditional banking services.

As an example, there are hundreds of web3 companies👇

1. MakerDAO: Provides decentralized stablecoins (DAI) and allows users to open collateralized debt positions.
2. Aave: A lending platform that enables users to earn interest on deposits and borrow assets.
3. Compound: Another decentralized lending platform where users can earn interest or borrow assets against collateral.
4. Curve Finance: Specializes in stablecoin trading and provides low-fee and low-slippage trades.
5. Yearn Finance: Automates yield farming strategies to help users optimize their earnings.
6. Synthetix: Allows for the creation of synthetic assets that track the value of real-world assets.
7. PancakeSwap: A decentralized exchange built on the Binance Smart Chain, known for its low fees.

I hope my explanations above are clear enough, but if you want to ask something or share ideas, please get in touch with me! 🪷

🎨 Okay, I should continue to write the main reasons why tokenization is becoming more and more important:

• Accessibility: Tokenization opens up investment opportunities to a global audience. Anyone with internet access can invest in tokenized assets, breaking down geographical barriers. You may be wondering why I wrote accessibility; let me explain🤗

Before Tokenization was possible, traditional investment barriers limited accessibility; one example is geographical limitations. [Ed. Note: This causes trouble for those who want to be citizens of the world like me hahaha 🙂]. Traditional investment opportunities often come with geographic restrictions. For example, investing in certain real estate markets or stock markets may require residency or citizenship in a particular country.

Another type of barrier for certain investments is their high minimum entry requirements, making them inaccessible to the average investor. Tokenization actually changes this situation.

🌍 Global Reach — Tokenization on a blockchain allows anyone with internet access to invest in an asset regardless of their geographic location. This is because blockchain networks are generally decentralized and accessible from anywhere in the world.

🧇 Partial Ownership — Tokenization allows assets to be split into smaller, more affordable tokens. This means you don’t need to buy an entire property or work of art; you can own some of it, which makes investing more accessible. This, in theory, makes a world of finance that is easily accessible to everyone regardless of their wealth, which makes me happy.

💸 Lower Costs — As I mentioned earlier, the absence of middlemen reduces transaction costs, which should make it financially easier for people to invest.

Tokenization removes these barriers, making it easier for a wider audience to participate in previously inaccessible investment opportunities. For this reason, tokenization is thought to increase accessibility in the investment world. We will see this more clearly in the future :)

Let me continue with “Efficiency” to write down the main reasons tokenization is becoming increasingly important.

• Efficiency: The blockchain allows for instant transactions at any time, making the trading process faster and more efficient than traditional methods restricted by business hours.
• Asset Interoperability: Tokenized assets can be easily integrated into decentralized finance (DeFi) ecosystems, offering new ways to generate income such as staking or providing liquidity. I especially recommend you to read my CCIP Guide on this subject :D

Interoperability 🎈

CCIP (Cross-Chain Interoperability Protocol) Guide🧵🛠️

Blockchain interoperability refers to the ability of blockchains to communicate with other blockchains.

The foundation of blockchain interoperability is cross-chain messaging protocols, which enable blockchains to read data from and/or write data to other blockchains.

🛠Cross-chain messaging protocols make it possible to build super-cool decentralized apps (dApps) that work seamlessly across various blockchains. Unlike multi-chain dApps, which are like separate islands each running on their own blockchain, cross-chain dApps connect these islands, allowing them to talk to each other. This way, you get a unified app that can interact with different smart contracts on multiple blockchains. It’s like having a universal remote for all your smart home devices but for dApps!².

— Navigating the Rulebook: One of the biggest hurdles for financial institutions keen on diving into the world of RWAs on public blockchains is the murky waters of regulation. While some places like the EU and Japan are ahead of the curve with clear guidelines, others like the U.S. are still figuring things out.

— Playing by the rules: To stay on the right side of the law, those who issue tokens have to add some extra steps, like Know Your Customer (KYC) and Anti-Money Laundering (AML) checks.

— Who are you, really?: Before stepping into the world of RWA tokenization, institutions need strong identity verification methods. Solutions that protect privacy, like Decentralized Identifiers (DIDs), are pretty much a must-have.

— The web of chains: The blockchain universe is ever-expanding, and institutions need to be able to connect to multiple chains to make the most of RWAs. Upcoming tech like the Cross-Chain Interoperability Protocol (CCIP) is making this easier by allowing systems to talk to each other across different blockchains.

— Show me the money: RWAs are tied to real-world assets, so how do you know they’re legit? Oracle services like Chainlink’s Proof of Reserve are solving this by providing on-chain evidence of off-chain assets, like TrueUSD for example.⁶

Based on a Bain & Company survey of senior executives at financial institutions, the majority report that regulation and legislation around Web3 is not mature enough. (source)

Recently, SWIFT published an updated report about their recent collaboration with #Chainlink & 12+ of the largest financial institutions on using CCIP for blockchain interoperability.

Working with more than a dozen major financial institutions and market infrastructures and Chainlink, a leading Web3 services platform, Swift has successfully demonstrated that it can provide a single point of access to multiple networks using existing, secure infrastructure, thereby significantly reducing operational challenges and investment required for institutions to support the development of tokenised assets. (Swift)

In Swift’s post, interoperability is highlighted as a crucial element for the success of Real-World Assets (RWAs) in a tokenized form. Let me explain why:

👉🏻 Seamless Integration: Interoperability ensures that RWAs can be easily integrated into various financial systems, both traditional and emerging. This is vital for the assets to be widely accepted and utilized.

👉🏻 Reduced Operational Challenges: A single point of access to multiple networks, as demonstrated by Swift, simplifies the operational aspects. This makes it easier and more cost-effective for institutions to support RWAs.

👉🏻 Global Reach: Interoperability allows for a seamless flow of value across different platforms and geographical locations. This is particularly important in a global financial landscape. (I already mentioned this above)

👉🏻 Facilitating Regulatory Compliance: With interoperable systems, it’s easier to implement uniform compliance and supervisory features across different platforms. This is crucial for meeting regulatory requirements specific to RWAs.

👉🏻 Unlocking Full Potential: For tokenization and RWAs to realize their full potential, they need to be easily accessible and transferable across different platforms. Interoperability removes barriers, making the assets more liquid and functional.

👉🏻 Future-Proofing: As new technologies like Central Bank Digital Currencies (CBDCs) emerge, interoperability ensures that RWAs can easily adapt and remain relevant.

Source: Chainlink⁸

👉 CCIP connected existing Swift infrastructure to multiple public and private blockchains⁴.

Tom Zschach, Chief Innovation Officer at Swift, said: “Interoperability is at the heart of everything we are doing at Swift to facilitate the seamless flow of value across the world in the face of increasing fragmentation. For tokenisation to reach its potential, institutions will need to be able to seamlessly connect with the whole financial ecosystem. Our experiments have demonstrated clearly that existing secure and trusted Swift infrastructure can provide that central point of connectivity, removing a huge hurdle in the development of tokenisation and unlocking its potential.”⁹

Swift Interoperability Report

If you want to read the full report, you can find it below👇

results_report_swift_interoperability_experiments_final_310823.pdf

(I’ve been waiting for this statement from Swift for a long time; frankly, this is one of the most exciting news of this year. I look forward to seeing what will happen with CCIP shortly 🤸🏿‍♀️ )

Another benefit of tokenization is ownership.

• Ownership Control: Tokenization can provide more granular control over ownership, allowing for more flexible and creative financial arrangements, such as fractional ownership.

In conventional ownership models, you usually possess an asset in its entirety or not at all, such as a property, a piece of art, or corporate stock. This approach is inflexible, offering limited options for sharing or partitioning ownership.

When an asset is tokenized, it’s divided into smaller units, or “tokens,” each representing a fraction of the asset’s total value.

These tokens are then recorded on a blockchain, providing several advantages:

👉 You can own a part of an expensive asset, making it more accessible.

👉 Tokens can be easily traded or sold, offering quick liquidity.

👉 Tokens can have different rights, like voting or dividends, allowing for tailored ownership experiences.

👉 Smart contracts automate aspects like profit distribution, simplifying management.

In summary, tokenizing real-world assets on the blockchain offers a more democratic, efficient, and transparent form of investment, making it an attractive option for both investors and asset owners.

The Bank of America recently called RWA tokenization a “key driver of digital-asset adoption.” According to their report, the tokenized gold market has captured over $1 billion in investment. There’s also a growing demand for tokenized U.S. Treasury bonds, with the combined market capitalization of tokenized money market funds nearing $500 million, according to data compiled by CoinDesk.³

3Demand for Tokenized Treasury Bonds Soars as Crypto Investors Chase TradFi Yield

Right now, the future looks bright for tokenization with global business advisory firm Boston Consulting Group forecasting that the market for tokenized assets could mushroom to $16 trillion by 2030.👇

Enhancing Security and Trust through Real-World Assets (RWAs)

In the digital realm of decentralized finance (DeFi), where assets are often intangible and purely cryptographic, there’s an inherent skepticism among many potential users. The abstract digital nature of these assets, combined with the occasional news of smart contract vulnerabilities, can deter many from venturing into DeFi.

Real-World Assets, when tokenized, bring a tangible dimension to the DeFi space.

• 🪩 Tangible Backing: RWAs offer a physical asset as security, providing assurance to token holders even if the digital space faces issues.
• 🪩 Audit and Verification: RWAs go through thorough checks before tokenization, ensuring the digital token is both legitimate and trustworthy.
• 🪩 Reduced Volatility: Unlike many volatile crypto assets, RWAs are more stable as they’re tied to real-world markets, making them a safer investment option.
• 🪩 Legal Recourse: RWAs come with legal protections, offering token holders a way to resolve disputes, unlike purely digital assets.

In essence, the integration of RWAs into the DeFi landscape introduces a layer of palpability and structure, addressing some of the trust and security concerns that potential users might have. As the bridge between the tangible and digital worlds, RWAs can play a crucial role in making DeFi more accessible, secure, and trustworthy.

Simplifying Complexity through Real-World Assets (RWAs)

The DeFi ecosystem, with its myriad of protocols, platforms, and financial instruments, can be a maze for newcomers. The intricacies of smart contracts, yield farming, liquidity pools, and more can be overwhelming, even for those familiar with traditional finance.

Real-World Assets, when introduced into the DeFi space, can act as a bridge, making the ecosystem more relatable and less intimidating.

Here’s how RWAs can simplify the complexity:

💎 Relatable Concepts: RWAs like real estate or art are easier to understand, making DeFi more approachable.

💎 Clear Value: The straightforward value of tokenized RWAs contrasts with the complexity of other DeFi instruments.

💎 Intuitive UX: Platforms for RWAs often have user-friendly interfaces, easing the learning curve for newcomers.

💎 Easier Education: The tangible nature of RWAs simplifies educational content, speeding up user onboarding.

💎 Lower Perceived Risk: The real-world backing of RWAs can attract a broader range of investors.

Diversifying the DeFi Ecosystem through Real-World Assets (RWAs)

The DeFi landscape, while innovative, has often been criticized for being too insular, with many platforms and protocols catering primarily to crypto enthusiasts. The introduction of RWAs can expand the horizons of DeFi, bringing in a fresh wave of assets, participants, and opportunities.

1. Expanding Asset Classes: RWAs bring tangible assets like real estate and art into DeFi, attracting diverse investors.
2. New Financial Products: Tokenized RWAs enable DeFi platforms to create innovative financial products like property-backed loans or decentralized REITs.
3. Attracting Traditional Investors: The familiarity of RWAs can draw traditional investors into DeFi, leading to an influx of capital and expertise.
4. Enhancing Stability: The inclusion of stable RWAs like real estate can add a stabilizing factor to the volatile DeFi market.
5. Cross-Industry Collaborations: Tokenization fosters partnerships between DeFi and traditional industries, opening new markets and enhancing credibility.

Are you still with me, my dear readers? If so, you’re my favorite! It’s a really long Guide, sorry for that 📝

📌 Several noteworthy Real World Assets (RWA) initiatives are making significant strides in this arena:

• MakerDAO, a prominent DeFi project, has recently forged a partnership with Huntingdon Valley Bank (HVB), facilitating mortgage loans for commercial real estate properties through their platform.

MakerDAO Opens $100M DAI Loan to Huntingdon Valley Bank

• OndoFinance emerges as a Defi protocol within the RWA sector, facilitating the tokenization of US government bonds, conventional bonds, and cash equivalents.

DeFi Protocol Ondo Finance Sets Up Tokenized Corporate Bonds With Over 8% Yield on Stablecoins

• Matrixdock serves as a premier gateway to tokenized real-world assets. Their integration of Chainlink Proof of Reserve (PoR) enhances transparency and engenders heightened levels of trust. (PoR is one of my favorite products.)

Matrixdock integrates Chainlink PoR to enhance on-chain transparency

• RealT Tokens are effecting a transformation within the Real World Assets landscape! With RealT, you gain the ability to tokenize and invest in real estate, art, and various other avenues, unlocking new vistas for diversification and passive income.

RealT, Inc.

• The foundation behind the Avalanche blockchain will purchase $50 million of tokenized assets minted on the network!

Avalanche Foundation Commits $50M to Bring More Tokenized Assets to Blockchain

These examples are just the ones that come to mind, RWAs are not limited to that :)

📌 What’s the Real Purpose of Crypto?

My dear readers, consider for a moment that cryptocurrency could be more than just a collection of highly speculative technologies🤔 What if cryptographic technologies created an enhanced digital system with the potential to make our world a better place? From what I have seen talked about on online crypto communities, that is a vision many in the crypto community share, even if the current narrative often focuses on its speculative aspects.

So, how can we elevate cryptocurrency beyond its reputation as a high-risk, speculative technology?

✅ In my personal opinion, the answer may lie in tokenizing real-world assets — think properties, precious metals, or even stocks. By converting these tangible assets into digital tokens, we can unlock a new realm of possibilities. This could be a game-changer, making all assets more accessible, liquid, and easily tradable.

✅ Imagine a world where you could invest in a piece of an art masterpiece or own a fraction of a skyscraper, all through cryptographic technology. The implications are vast, especially considering the enormous amount of capital in traditional markets. By bridging the gap between the physical and digital worlds, we could democratize investment and introduce a new layer of utility and value to cryptographic technologies and infrastructure. This could be the catalyst that propels crypto from a niche interest to a global force for good.

Getting Started with RWAs 💃🏿

My guide is almost finished, are you still with me? Are you still reading my dear friend?

Whether you’re an institution looking to diversify your investment portfolio or an individual intrigued by the potential of Real-World Assets (RWAs), getting started in this space can be both exciting and challenging. This step-by-step guide aims to simplify the process for you.

—Step 1: Understand the basics

• Familiarize yourself with what RWAs and tokenization are. Make sure you understand the benefits, risks, and regulatory landscape.

— Step 2: Identify your objectives

• Your objectives will guide your actions in the subsequent steps. When you want to take a step, think about why you want to take that step.
• There is a Guide on this where I explain the steps to make an NFT project successful, I hope you like it. 🕶

📌 What Are the Steps That Make an NFT Project Successful? ✅

— Step 3: Choose the Type of RWA

• Decide on the category of RWA you’re interested in, such as real estate, commodities, or intellectual property.

— Step 4: Research Platforms and Technologies

• Look into various platforms that facilitate the tokenization of RWAs. AND, consider factors like security, user interface, and fees.

— Step 5: Consult Legal and Financial Advisors and Register and Complete KYC/AML

• Before making any moves, consult professionals to understand the legal and financial implications.
• Most platforms will require you to complete Know Your Customer (KYC) and Anti-Money Laundering (AML) checks. You have to make sure to have your identification and financial documents ready.

— Step 7: Stay Updated

• The world of RWAs is ever-evolving. Keep yourself updated with news, changes in regulations, and emerging trends. The best advice I can give you here is to constantly improve yourself 👑

— Step 8: Review and Adjust Strategy

• Periodically review your objectives and performance. Make adjustments to your strategy as needed.

Additional Readings:

• Tokenized Real-World Assets (RWAs): Scaling DeFi to a Global Level
• Real-World Assets: Bringing Real-World Value to DeFi

Real-World Assets: Bringing Real-World Value to DeFi

• Institutional Defi

The main idea of this article is to introduce the concept of Institutional DeFi, which is a new way of doing finance that uses blockchain technology and smart contracts to make financial services more open, transparent, and accessible. The article discusses the potential benefits of Institutional DeFi, such as cost savings and new business opportunities, as well as the challenges that need to be addressed, such as regulatory compliance and customer safety.

💫 This topic has been attracting my attention lately. I have read the article from beginning to end, and I would like to share with you the important notes I took.

🌴 Institutional DeFi, short for “Decentralized Finance,” is like a fresh breath of air in the financial world. It uses the magic of blockchain technology and smart contracts to make financial services not just available to a few, but to everyone. Imagine a world where you don’t have to go through layers of bureaucracy to access financial services; that’s what Institutional DeFi aims to achieve.

🌴 The beauty of Institutional DeFi is that it’s not just a buzzword; it has real-world benefits. For those who issue financial products, investors, and even established financial institutions, this could mean saving a ton of money. Plus, it opens the door to new business avenues that were previously unimaginable.

🌴 Now, you might be wondering, “Is this safe?” Great question! For Institutional DeFi to win hearts and minds, it needs to be as secure, if not more secure, than traditional financial systems. These systems have been built with layers of security measures that have been tried and tested for years. So, DeFi needs to meet or exceed these standards to gain widespread acceptance.

🌴 If you’re a business pondering over how Institutional DeFi will affect you, scenario analyses are your best friend. These are basically “what-if” games that help you understand how DeFi could impact your current operations and financial standing. It’s like having a crystal ball, but backed by data!

🌴 Last but not least, if you’re a firm looking to dive into the world of Institutional DeFi, you’ve got to have a game plan. Focus on what your customers really want, identify the types of assets that can be easily transitioned into this new system, and make sure your offerings are irresistible. In simple terms, know your audience, pick the right products, and make your DeFi services too good to ignore.

• Relevance of on-chain asset tokenization in ‘crypto winter’

What Is Blockchain Interoperability? | Chainlink

• MakerDao Coindesk News¹
• Blockchain Interoperability²
• Tokenization of Real-World Assets a Key Driver of Digital Asset Adoption: Bank of America³
• Swift Report⁴

Swift unlocks potential of tokenisation with successful blockchain experiments | Swift

• Tokenization of Real World Assets⁵⁶
• III. Blueprint for the future monetary system: improving the old, enabling the new⁷
• Chainlink⁸
• Swift Report⁹

You can join our groups to be informed about training and events!🤗
- Sign up for my meetups in Meetup (Turkish) and Meetup (English)
- And don’t forget to join our Telegram channel (english), and Telegram Channel (turkish)

Chainlink Turkiye: Connected Smart Contracts | Meetup

Chainlink Boston: Connected Smart Contracts | Meetup

🌻👻 I hope the contents of my articles are beneficial to you. 🧑‍🎤👩🏼‍🎤 Do not hesitate to contact me 😉🎄 That's me, Elif Hilal! 🔮 Thank you for reading my articles and blog posts.

👉 Disclaimer: All opinions of the author are their own