Chintai RWA Tokenization Transforms Traditional Markets
Tokenization Is Not A New Concept
The origins of tokenization go back to 1602 and the first modern stock issuance by the Dutch East India Company in Amsterdam, followed by steady expansion of markets for trading shares around the globe. Today, Tradeweb reported in 2022 a total annual worldwide common stock trading volume of $21.2T, averaging $1.02T daily volume. The stock market is an innovation that democratized investment access to a much wider range of investors, raising unprecedented amounts of capital and fueling massive economic growth.
Today, Real World Asset (#RWA) tokenization is the next innovation that will similarly transform capital markets. Many illiquid assets, real estate for example, are especially ripe for disruption. How much disruption is possible? The market value of tokenized assets is projected to be $28.7tr by 2030.
How RWA Tokenization Transforms Markets
RWA tokenization leverages the concept of fractional asset ownership, a driving force behind the transformation of traditional capital markets. Fractional assets increase liquidity in markets that have traditionally been illiquid. Fractional assets fuel the democratization of investments by finally expanding access to retail investors who are currently prevented from participating in traditionally illiquid markets due to high minimums and other barriers caused by major inherent inefficiencies. For example, a companion article illustrates how commercial real estate can be fractionalized using Chintai’s platform, opening investment to a far larger pool of retail investors, broadening their portfolios with assets hitherto unavailable to most investors.
Besides solving the illiquid asset puzzle through fractional token issuance, Chintai’s RWA platform offers even more critical technology to support market transformation. The highest efficiency gains possible for RWA issuers are attainable using Chintai’s one-stop regulatory-compliant blockchain for tokenization and trading of RWA. Any asset class can be tokenized and subsequently traded, including equities, bonds, real-estate and carbon credits, just to name a few (think: Coinbase). Business partners can optionally stand-up their own branded portals for dynamic issuance and trading using Chintai’s extensive white label services (think: Shopify). Chintai’s high-performance exchange using Automated Market makers (AMM) and automated compliance (Sentinel) both play a critical role in Chintai’s RWA market transformation.
Moreover, unlike others, Chintai’s platform operates entirely on-chain. Others use partial chain implementation with L2 dependency, placing most actions off-chain to avoid protocol limitations and other serious design flaws. Chintai manages the entire tokenized asset lifecycle on-chain, from issuance and trading through maturity. As Chintai’s website states:
If the entire lifecycle of a digital asset isn’t entirely on-chain, then there’s no reason to use a blockchain in the first place.
The end goal of the platform is to significantly lower barriers to entry for both issuers and investors. The long-term impact on traditional finance will be significant as investors reshape how they think about asset ownership and investment.
Tokenizing Illiquid Assets
Illiquid assets are difficult to turn into cash. Barriers exist in traditional markets, high minimum investment requirements for example, due to antiquated, inefficient platforms and processes. Retail investors are intentionally excluded from investment opportunities in favor of just a few wealthy clients. This situation creates significant opportunities for RWA tokenization. Several illiquid assets are well suited for fractionalization. The bulk of Chintai’s issuer pipeline focuses on illiquid asset classes. Tokenization of illiquid assets significantly expands the scope of what retail investors can own and trade, accelerating the rate of investor democratization.
Illiquid assets are categorized as being tangible or intangible. Here is a sampling of tangible and intangible illiquid assets, also sub-categorized as either a security or non-security asset.
Tangible Assets:
- Real Estate and Real Estate Funds: Security
- Collectables: Antiques, Jewelry, Watches, Rare Books, Vintage Cars and Fine Wine: Non-security
- Storage Facilities
- Refineries
- Transportation Vehicles
- Equipment/Machinery
- Furniture
- Inventories
- Crude oil and Gas: Securities
Intangible Assets:
- Private Equity: Non-security, not publicly traded in regulated markets
- Hedge Funds
- Private Debt: Non-security, not publicly traded in regulated markets
- Infrastructure Investments
- Carbon Credits (Offsets): Non-security
- Production Rights (Extraction of oil, natural gas, etc.): Security
- Exploration Rights (Oil, natural gas): Security
- Intellectual Property
- Research & Development
- Software Licenses
- Trademarks
- Patents
- Copyrights
- Brand Names
- Domain Names
- Company Goodwill
- Franchises
- Licensing Agreements
- Royalties
- Customer Lists
- Subscription Rights
- Digital Art
- Non-Fungible Tokens (NFTs): Security; recent 2023 SEC ruling against Impact Theory, LLC determined their NFT issuance was an unregistered offering of a security.
Tokenizing Liquid Assets
Liquid assets convert to fiat quickly. Examples include money markets, stocks, short-term bonds and gold. Let’s examine common stock, a highly liquid asset class with $1T daily trading volume. RWA platforms can certainly tokenize stocks, but there isn’t much institutional demand for regulated stock tokenization.
Why?
Tokenizing liquid assets like stocks presents challenges for RWA blockchain platforms. In contrast to heavier demand for tokenizing illiquid assets, why does liquid asset demand remain comparatively low? Traditional financial institutions have spent the past century optimizing their stock trading platforms and business processes, both of which are highly efficient today, offering cheap and extremely liquid trading. For issuers and investors, the clear advantages offered by RWA tokenization platforms for illiquid assets still do exist, but those advantages diminish when matched against highly efficient traditional infrastructure servicing liquid assets.
Despite this, various unregulated DeFi protocols will nevertheless attempt to tokenize stocks without proper licensing or Know-Your-Customer (KYC) compliance, issuing tokens considered to be securities by regulators while ignoring all the consequences and illegal activity that follow. We all know how this ends once regulators take notice.
Transforming Markets With Chintai Nexus
The phased launch of Chintai Nexus began on 31-January, 2024. By March, 2024, the entire Chintai RWA tokenization platform will be fully engaged in its transformational mission. By solving the illiquid asset puzzle through fractionalization, with clear efficiency gains during issuance — up to 70% — RWA tokenization is disrupting established financial platforms. Recent moves into the RWA space by JP Morgan, BlackRock, Coinbase and other major players validates this, further confirmed by recent preliminary discussions between Chintai and JP Morgan. Joint marketing agreements are also underway, including an agreement with Ernst & Young pending final approval.
Nexus demonstrates Chintai’s dedication to democratizing investor access to traditionally private investments, expanding access to a far greater pool of investors than ever before. Beta testing is about to begin, with an expected January, 2024 public opening.
Financial institutions are beginning to acknowledge the inevitability of RWA, with a few players just starting partial pilots in 2023. To date, the bulk of retail investors remain unaware of the opportunities before them. However, a growing number of investors are experiencing the RWA “light-bulb” moment as each realizes the transformation is already underway. Momentum is building and awareness is growing, which means 2024 will be the year of RWA mass recognition.
Acknowledgement
Thanks to James Lewis for his insightful comments in the Chintai FAQ regarding RWA marketplace transformation and investor democratization.
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