DeFiChain

<p>The world has changed immensely in the last decade. We can now do things we never thought possible. We can <a href="https://www.forbes.com/sites/jasonbrett/2022/07/28/new-bill-could-allow-americans-to-buy-coffee-with-crypto-tax-exempt/?sh&#61;6155a29d2c60" rel="noopener noreferrer nofollow">buy a cup of coffee with cryptocurrency</a>, or even use it to pay our rent. The same is about to happen to real-world assets: they will be tokenized and traded on the blockchain, shaking up industries old and new.</p><p>So what are the most common types of real-world assets (RWA), and what would happen if they were to be digitized and represented as tradable tokens? In this article we&#39;ll talk about what types of assets can be tokenized and the benefits this brings to their owners.</p><h3 id="tokenizing-the-tangible">Tokenizing the Tangible</h3><p>Before the emergence of the internet and blockchain, there was no need to talk of “real-world” X or Y. Everything, save for stocks and currencies, was physical. It was only once our lives became digital that it became necessary to differentiate between what was real-world and what was virtual.</p><p>Real-world assets, such as real estate and art, have been around for a long time. RWAs are the things that make up your life — your house, your car, your favorite baseball cap. They are tangible assets that we can touch and see, but they also have many problems.</p><p>For one thing, they are generally illiquid, which means it is hard to sell them quickly. Or they are geographically restricted — you can’t move your house from one country to another. Or you may have to go through middlemen who charge exorbitant fees when you sell something like an antique car or a piece of art.</p><p>Tokenization of real-world assets is an opportunity to solve – or at least ameliorate – these problems. Representing these assets onchain makes them more liquid and accessible. It also supports fractionalization, making these assets more accessible to people who could not otherwise afford them. You might not be able to afford a whole office development, but if you can buy a fraction of one, you can still enjoy the upside to real estate.</p><p>The idea behind RWA tokenization is simple. You take something like real estate or gold and sell it as a digital token on a blockchain network. That way, you can buy and sell these tokens just like you would buy and sell any other cryptocurrency on an exchange. But unlike cryptocurrencies, which are only virtual representations of value, <a href="https://cointelegraph.com/nonfungible-tokens-for-beginners/asset-tokenization" rel="noopener noreferrer nofollow">tokenized assets</a> actually contain value because they are backed by physical assets.</p><h3 id="pros-and-cons-of-tokenizing-rwa">Pros and Cons of Tokenizing RWA</h3><p>There are some risks involved in tokenizing real-world assets, it should be noted. Some of these are regulatory-related, while others come from the technology itself, such as security issues. In many countries, there are restrictions on which investors can trade particular assets. While this can be programmed into tokens at a blockchain or platform level, such restrictions can dramatically reduce available buyers and sellers, doing away with much of the benefits of tokenization in the first place.</p><p>If implemented properly, however, tokenizing RWAs can potentially yield a number of benefits. Take property for example:</p><ul><li>Investors can invest in real estate without having to actually buy it, which lowers the barrier to entry. They can also sell their shares in the property whenever they want.</li><li>Owners get more liquidity because there is no need for intermediaries anymore; investors can buy and sell shares in property directly with one other through smart contracts.</li><li>People who normally wouldn’t have access to this kind of investment opportunity due to geographical restrictions, such as being able to buy property abroad, can participate.</li><li>Once RWAs are tradeable on a blockchain, they can be incorporated in many DeFi-Applications, adding additional opportunities with your investment</li></ul><p>Many of these benefits don’t just apply to real estate, it should be noted. The same holds true of IP; now you can purchase a single song or a fraction of the catalogue of a music artist you like. And why stop at royalties? You could also tokenize corporate debt, consumer goods, and credit notes. Anything that exists in the real-world which there is demand for can be recreated digitally and traded as a token.</p><h3 id="conclusion">Conclusion</h3><p>The benefits of RWA tokenization are clear: it offers increased liquidity for owners and increased access for buyers. Tokenization also reduces geographical restrictions on where you can buy and sell an asset, because it allows you to trade via blockchain rather than through middlemen or brokers. Finally, it provides greater security for transactions because no one can change the terms of your deal once it’s been agreed upon via smart contract.</p><p>There are some hurdles that need to be overcome before we can start tokenizing everything from our houses to our cars. But for real-world assets that already have a well-established market – metals; wine; property; art – recreating them onchain is relatively straightforward.</p><p>It took years for the internet to reach critical mass, and the same was true of Bitcoin. Thus, while the tech is already in place to tokenize real-world assets, it will likely be a few years until we see the full potential of this <a href="https://www.sifma.org/resources/research/fact-book/" rel="noopener noreferrer nofollow">$127 trillion</a> market. If even 1% of those assets are tokenized, it would dwarf DeFi and make blockchain the world’s most precious financial network.</p>

The Value of Tokenizing Real-World Assets

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