Written by. Bohyeon Park š°
Disclaimer: This post is for informational purposes only, and the author is not liable for the consequences arising from any investment or legal decision based on the information contained in this post. Nothing contained in this post suggests or recommends investing in any particular asset. Making any decisions based only on the information or content of this post is NOT advised.
Table of Contents
- Introduction
- RWA Protocols
2.1 ELYSIA
2.2 Centrifuge
2.3 MakeDAO - Closing
We will attached the link of part 2 after publishing the article.
Introduction
As mentioned in a previous article (click to the article), Real World Assets (RWAs) can be tokenized into various sections. Tokenization refers to converting RWAs into blockchain assets using specific token standards such as ERC20, ERC721, etc., creating on-chain assets. Entities seeking to tokenize their assets must undergo a sequential verification process to ensure the preservation of asset value when digitized. To ensure that the value of assets are preserved in the network, it should either contain applicable laws linked to tokenized assets so that the contract remains in effect or have well-organized architecture that could maintain value.
In the real world, there are standardized processes that everyone must follow, and intermediaries are responsible for ensuring compliance, even though there is a possibility of data manipulation. For instance, when purchasing real estate, buyers need to fill out forms to acquire the property from the seller, and real estate agencies act as intermediaries to verify the transactionās validity. This process is essential for establishing contracts and confirming ownership.
However, when transitioning to the blockchain, there is no universal standard for tokenization and proof of ownership. Various RWA protocols have emerged recently, but each protocol has its unique approach to tokenizing assets and verifying ownership. Unfortunately, not many protocols disclose their methods to the public, and users often need to invest considerable effort to fully comprehend their operations.
One of the key challenges in the world of decentralized finance (DeFi) lies in verifying the ownership and value of real-world assets. Many protocols tackle this challenge head-on through a meticulous serialized process, providing a robust mechanism to validate asset token issuance and approval.
In this article, we will explore Proof of Ownership by introducing specific protocols and their approaches to verifying ownership while maintaining transparency within their systems.
RWA Protocols
I will handle protocols one by one and today in this article, We will dive deep into first protocol called ELYSIA.
Second and Third protocol, Centrifuge and MakerDAO perspectively, will be handled in the next article.
ELYSIA
What is ELYSIA?
ELYSIA is a decentralized autonomous organization (DAO) intended to provide the technology and incentives for the digital transformation of real estate assets. Elysia tokenizes real world assets to digital assets by applying blockchain technology. They create digital representations of real estate assets and support market participants contributing to the issuance, distribution, pricing, and exchange of these digitalized real estate assets.
As I mentioned above, thereās no standard of tokenization so Elysia DAO proposes protocol standards to migrate real estate assets to the Ethereum network and other public blockchains. The process for real estate assets to be tokenized and traded on the blockchain are described in the diagram above.
The Elysia protocol structured its governance organized that it can give digitized assets legal power to have value themselves.
As shown in the diagram above, tokenized real estate assets are created by core component divided into four components ā issuance, distribution, liquidation, and oracle ā all in conjunction with the designed game rule.
There are five groups consisting of Elysia DAO which are Token issuers, Offline governance, Online governance, Developer Groups, and Agencies. Each has its roles and they serve their role to maintain the governance and give their token legal value.
Let me briefly introduce each role for you.
1ļøā£ First, Token Issuers
: Property owners who are looking to digitalize their assets. Only the owners qualified by governance could tokenize their assets.
2ļøā£ 3ļøā£ Second and Third, Offline & Online governance
: Responsible for the approval of asset tokens.
4ļøā£ Fourth, Developer Groups
: Groups who contributes to the development of the Elysia protocol.
5ļøā£ Last, Agencies
: Groups who contributes to the protocolās core components (issuance, distribution, liquidations, pricing) to maintain and secure the entire system.
Agencies are largely divided into four ā Oracle Nodes, Bond Buyers, Law Firms, Debt collectors(Liquidators). We will look into details later if needed.
Elysia DAO generates smart contracts on the Ethereum network to allow issuers to associate the data and value of their real estate assets to create unique representations in a form of tokens. Once approved by the governance body, the tokens can be transferred to the secondary market for sale and redemption.
Proof of Ownership
How they can verify its ownership and shares is the most important part for DeFi protocols with Real-World assets. We will focus on Proof of Ownership, not the whole protocol that we only go through certain process.
As you can see the Elysia Ecosystem above, to understand how Elysia proves ownership, we must explore the components of Tokenization and Price Oracle in the Elysia Ecosystem. Token issuers can issue real-world assets using the Onboarding Dapp and Onboarding Dapp is developed on the mechanism of ELYSIA core components protocol (it is an open source).
Letās dive deep into Digital Asset Issuance. Like I said earlier, Asset token issuers can issue asset tokens through the Onboarding Dapp using the Issuance Core Component.
Then How can they verify if the assets are valuable enough to be tokenized and keep preserving their value?
They have serialized process to verify these as follows:
- Data verification and asset token issuance of offline governance
: offline governance will verify the data of spot asset and if it is done, then they will issue the digital tokens. - Data verification and asset token approval by online governance
: Online governance will verity the data of spot asset again and if itās done, they will approve the token issuance by offline governance. - Deliver Asset Token to Asset Token Issuer
: Once step 1 and step 2 are finished, the digitized tokens will be delivered to asset token issuers. - Data monitoring by Active Participants
: Active participants in the Elysia community will continuously monitor the data of spot assets.
Now with these steps, Elysia proves the ownership of asset by designing structures with legal effectiveness aspects.
When token issuers who have the spot assets want to issue digital tokens, they are required to sign a binding contract with the offline governance group. Issuers will be obligated to transfer the property whenever the token holder decides to return the tokens. Here, for legal effectiveness, offline governance group and asset token issuers must enter into a legitimate contract. Validated physical assets are transferred to corporations as needed. That is, The ownership will shift from token issuers to ELYSIA DAO and the ownership will be handled by DAO.
ELYSIA divides tokens into two types, Asset bond tokens and Asset derivative tokens, and the process of proving the ownership varies depending on type of token. To summarize, if it is an asset bond token, asset bond tokens must be generated within the decentralized systems to have legal effectiveness so they should have several contracts to have real value and proper owership even in the form of asset bond tokens.
Then how ELYSIA verify the derivatives like shares and sales indicator?
They use Digital Asset Price Oracle to preserve tokensā value. Each asset class has individual oracle nodes running and the oracle is one of the blockchain technology that cannot be manipulated so that they can verify the derivatives.
To sum up, Elysia has its own ecosystem which is well-structured that they can prove the ownership and verify indicators used in deciding price of tokens. They employ a method in which the corporation owns the real asset, and the buyer of the RWA token becomes the owner of the corporation and thus owns the real asset. Also the community and qualified experts verify tokens so that they can prove the value of the assets to be tokenized.
Second protocol, Centrifuge will be handled in the next article soon. We will attach the link after publishing the article.
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