Aptos RWA sector. Black Rock.
Basic definitions. Asset tokenization process. How Aptos Labs, in partnership with Black Rock, lay the foundation for a new financial system.
Introduction.
Asset tokenization is currently becoming a new mainstream trend in the modern economy. It opens up additional investment opportunities for people without access to banking services. Tokenization is closely related to information technologies such as smart contracts, cryptography, and blockchain technology. These technologies are capable of fragmenting assets, digitizing them into tokens or digital certificates (rights) of ownership, which have real market value. Asset tokenization applies to almost any object, including real assets (real estate, commodities, currencies, securities, intellectual property), digital assets (governance rights in DAOs, cross-network assets, etc.), and gaming assets (skins or in-game currencies). And it involves significant amounts of money. For instance, tokenizing just real assets (which currently amount to over $867 trillion USD) could transform the crypto industry market into a modern driver of economic growth.
Basic characteristics of asset tokenization.
Tokenization is the process of transforming the accounting and management of assets, wherein each asset is represented as a programmable digital token. The essence of tokenization lies in creating
digital counterparts of real assets for the purpose of efficient, cost-effective, and secure handling. Programmable tokens can represent a small fraction (share) of any real asset. This allows for increasing market capitalization through tokenizing fractional ownership of both liquid and illiquid assets, such as real estate, securities, intellectual property, or artworks, which traditionally require higher capital investments.
Asset tokenization opens up wide opportunities for its users. Compared to non-tokenized assets, it allows:
- Attracting additional liquidity by expanding the circulation of underutilized illiquid assets.
- Increasing accessibility for small and medium-sized groups of investors to money and capital markets.
- Providing greater transparency regarding rights to real assets and ownership history.
- Enhancing transaction efficiency by reducing operational costs, including management, issuance, and potential intermediation.
- Gaining access to the DeFi ecosystem, enabling the enhancement of the financial market’s potential through the fragmentation and composability of tokenized assets.
In the works of most authors, the drawbacks of asset tokenization are often analyzed. The most significant issue highlighted in these works is associated with transaction anonymity and user confidentiality (including their wallets), which may allow various criminals and fraudsters to participate in the tokenization process. These authors argue that asset tokenization processes should always be actively accompanied by KYC/AML procedures, full customer and wallet identification, as well as centralized regulation of customer transactions and all financial services they use. Currently, this problem is being addressed by restricting the circle of investors capable of converting their assets into digital form, the governance rules of which belong to a narrow circle of stakeholders.
Modeling the process of asset tokenization.
Modeling the process of asset tokenization involves a step-by-step assembly of components necessary for implementing this process.
The first step is to define the asset that we intend to tokenize. These assets can include commodities (gold, grain, oil), real estate properties (buildings, land), currencies, securities (stocks, bonds, derivatives), works of art (paintings, antiques), loans (loans, swaps), intellectual property, or company brands.
The second step involves determining the type of token we intend to create. In doing so, we need to consider factors such as:
- Token standard (ERC-20, ERC-721, ERC-1155, etc.);
- The quantity of tokens to be created;
- The mechanism for managing these tokens and other user settings related to token parameters and rules of token interaction.
All of this is algorithmically encoded in smart contracts, which dictate the sequence of decisions based on pre-defined criteria, without requiring the involvement of intermediaries (humans).
The third step is to decide on the selection of a third-party auditor (oracle) who can transmit necessary information to the blockchain, which is stored outside the distributed network. This information must guarantee that the number of issued tokens corresponds to the value of the underlying assets held off-chain. In this regard, any projects involving tokenized assets can utilize the decentralized Chainlink Proof of Reserve (PoR) verification service, integrated into their protocols, to ensure the transmission of more objective information onto the blockchain network.
The attentive reader undoubtedly noticed one missing step — the legal aspects of tokenization. From my side, I can say that this is due to the vast amount of data, describing which in the context of this article would be quite problematic. The text would become too cumbersome. In short — it’s very complex and requires a pinpoint examination of jurisdictions.
Aptos RWA sector. Partnership with BlackRock. User’s perspective on ecosystem development.
After a substantial introductory part, it will be quite easy for us to delve into Aptos team’s plans in developing the RWA sector of their blockchain, and additionally present a series of theses and facts to bolster the argument that the renowned company BlackRock is directly interested in the development of RWA, including through the Aptos blockchain.
Let’s start with the classic stage of project analysis — investors and partners (we won’t list everyone, only those somehow related to the implementation of RWA and BlackRock):
- Coinbase — since October 2023, announced support for the Aptos network infrastructure and the ability to delegate Aptos tokens through its platform (validator commission 8%). Coinbase itself is a custodian for BlackRock.
- Franklin Templeton — similar to BlackRock but with fewer assets under management. Direct investments in Aptos Labs.
- Ondo Finance — a BlackRock partner, a strategic partner of Aptos Labs, a registered FinCEN (USA) provider of financial services.
- Pyth Network — a decentralized blockchain oracle that collects high-quality real-time data on prices of various assets, including cryptocurrencies, exchange commodities, and fiat currencies.
- Securitize — a platform for issuing security tokens, with direct investments from BlackRock jointly with Aptos Labs.
For readers: A security token is a token with special characteristics that correspond to the definition of a financial instrument or other investment asset according to the requirements of the applicable legislation of the relevant jurisdiction.
Interim summary: Upon examining the list of investors and partners from publicly available sources, we have identified companies that play a key role in the successful implementation of RWA on the Aptos blockchain: an oracle, a provider of financial services, institutional investors, and a platform for creating security tokens. This aligns entirely with the first part of this article, which is dedicated to describing the tokenization process.
Let’s specifically address BlackRock. Any major business diversifies its investment areas, and the same applies to the mentioned investment company, which manages over ten trillion dollars. Based on the list of investors and partners provided, you can clearly see that BlackRock invests in various directions, and Aptos is not the only blockchain within its sphere of interest. However, the number of business intersections between the world of major finance represented by BlackRock and the Web3 world represented by Aptos is impressive.
Thala Labs. Aptos Fungible Asset Standard. The US Treasury Bond Market.
The future core of RWA in the Aptos ecosystem will be a project called Thala. Thala is a decentralized financial protocol based on the Move language (it has its own token THL). In a brief article, you can read about the planned soon-to-be introduction of USDY (a product of Ondo Finance) into Thala’s AMM pools. The USDY token itself is 99% backed by short-term US Treasury bonds and 1% by bank deposits. In turn, the Thala project is already minting its stablecoin Move Dollar (MOD), backed by on-chain assets (with plans to integrate RWA as collateral for MOD).
If the previous paragraph didn’t impress you, where it was mentioned that we’ll gain access to the largest and most liquid market on the planet — the US Treasury bond market, I can recommend an article about the Aptos Fungible Asset Standard. In this brief article, it explains the standard that allows for the tokenization of commodities, real estate, in-game currencies, and any financial instruments — all of which will be available on our beloved Aptos.
Let’s go back to Aptos and Thala. As we’ve previously noted in this article, Oracles are required for RWA. I’m only aware of two oracles associated with Thala:
- TWAP Oracle (Time-Weighted Average Price) developed in-house;
- The previously mentioned Pyth Oracle. It launched on Aptos, and on May 3, 2024, it introduced thAPT token quotes with a remarkably intriguing note: “Stay tuned for thAPT integrations!” Additionally, we can supplement this paragraph with a link to older news from January 18, 2024 — “New Pyth Data Provider: Thala,” where you can read thoughts from both the co-founder of Thala Labs and the Director of the Pyth Data Association.
In conclusion, regarding the Thala project, it’s worth noting its incubation project Echelon, which is focused on the realm of on-chain lending protocols. Undoubtedly, lending protocols will become an integral part of RWA. However, at the moment, I haven’t come across any specific news within the Echelon project related to tokenization. We’ll continue to closely monitor the project’s Twitter for updates.
Let’s sum up.
In addition to analyzing the NFT market in the previous article, we’ve also explored another direction — RWA. I’ll briefly go over the main points for those who prefer to read only the conclusion:
- According to the current theory of asset tokenization, the Aptos team is building a technological foundation for implementing RWA in its ecosystem. This technological foundation includes projects for creating security tokens, oracles, financial service providers, and a DeFi ecosystem.
- In addition to the technological infrastructure, a crucial aspect is the client base that provides assets for tokenization. Here, major companies such as BlackRock, Franklin Templeton, and Coinbase stand out.
I recommend subscribing to my Medium and Twitter to keep track of the development of the RWA ecosystem. Tokenization is a relatively new trend, so it’s essential not to rely solely on one article and to maintain a continuous understanding of this area.
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