What is RWA (Tokenization of Real-World Assets)?

RWA, or the tokenization of real-world assets, is an innovative approach that leverages blockchain technology to convert physical or tangible assets into digital tokens. This process enables fractional ownership, increases liquidity, and makes investments accessible to a broader audience.

Tokenization of real-world assets (RWA) refers to the creation of digital tokens on a blockchain that represent ownership rights or shares in physical assets, such as art, real estate, gold, or cars.

The tokenization of various real-world assets is part of a broader trend in the blockchain industry, which is estimated to have a potential market worth hundreds of trillions of dollars, according to Chainlink (https://chain.link/education-hub/real-world-assets-rwas-explained). It makes these assets accessible to global investors.

The tokenization process involves several key steps:

1. Asset Selection: Identifying the asset to be tokenized (e.g., a piece of artwork, a plot of land, a building, a gold bar, and more).

2. Token Creation: Converting ownership rights into digital tokens on a blockchain, using standards from various blockchains. For example, on the Ethereum blockchain, standards include ERC-721 and ERC-1155 for unique assets (NFTs) or ERC-20 for fractional shares.

3. Smart Contracts: Utilizing smart contracts to automate token management, including the transfer of ownership rights and the distribution of profits.

4. Fractional Ownership: Dividing the asset into parts, allowing multiple investors to own shares and lowering the entry barrier for investment.

This model is particularly useful for assets with limited liquidity (such as real estate or artwork), as tokenization makes them more liquid and accessible to a wide range of investors and speculators. RWA tokenization enhances the liquidity of hard-to-sell or expensive assets and provides the opportunity to own portions of various assets. This diversifies investment portfolios and reduces the entry threshold for many new potential investors.

RWA spans multiple sectors, including real estate, commodities, financial instruments, and luxury goods. Below, I’ll provide several detailed examples (this is not hidden advertising; I haven’t assessed the reliability or profitability of the projects chosen as examples—they were selected randomly):

1. Art — one of the most discussed sectors for tokenization, particularly due to the potential for fractional ownership and increased liquidity.

- Sygnum Bank and Artemundi: In 2021, Sygnum Bank tokenized Pablo Picasso’s painting "Fillette au beret" (1964), enabling 50 investors to purchase 4,000 tokens representing fractional ownership. The painting was valued at CHF 4 million, and the tokens were available only to professional and institutional investors through a regulated Swiss bank (https://www.sygnum.com/news/sygnum-bank-and-artemundi-tokenize-a-picasso-on-the-blockchain). The sale in 2023 brought token holders approximately 20% profit, demonstrating strong potential for returns.

- Maecenas and Andy Warhol: In 2018, the Maecenas platform tokenized Andy Warhol’s "14 Small Electric Chairs," raising $1.7 million for 31.5% of the painting, valued at $5.6 million. The auction attracted over 800 participants from 56 countries, primarily from Asia and Europe, and utilized cryptocurrency for payments (https://blog.maecenas.co/blockchain-art-auction-andy-warhol).

2. Real Estate — arguably one of the most popular examples of RWA. The potential for tokenization is enormous, though many early projects turned out to be scams. A key issue, which has been partially resolved, is how the legal transfer of property rights will occur, which is critical for investors.

- Propy: A platform that facilitates the purchase, sale, and tokenization of real estate, allowing investors to own shares in properties (https://propy.com). For example, a house could be tokenized into 1,000 tokens, each representing 0.1% ownership.

- RealT: Tokenizes rental properties, enabling investors to earn rental income by dividing ownership into tokens (https://realt.co). This makes real estate investment accessible to those who cannot afford to buy an entire property or wish to speculate on potential price increases.

3. Gold — I haven’t studied the tokenized gold market in depth. The examples provided are random:

- PAX Gold (PAXG): Each token represents one troy ounce of gold stored by Paxos Trust Company, allowing investors to own gold in digital form (https://www.paxos.com/pax-gold).

- Tether Gold (XAUt): Similarly, each token corresponds to one troy ounce of gold backed by physical gold, simplifying trading (https://gold.tether.to).

The list of examples for the use of real-world asset tokenization will be expanded.

RWA tokenization is already transforming the investment landscape, making markets more inclusive and efficient. According to McKinsey forecasts, the market for tokenized assets could reach $2 trillion by 2030, underscoring its vast potential (https://www.mckinsey.com/featured-insights/mckinsey-explainers/what-is-tokenization).

This article will be updated further...