An Introduction to Real-World Assets—RWAs.
With hundreds of trillions of dollars locked up within a nightmarish maze of paperwork, regulations, jurisdictions, taxation frameworks, and pricing and administration complexities, entrepreneurs, tech labs, developers, institutions, and blockchain foundations are in a race to prove efficiencies, dislodge intermediaries, and bridge TradFi and DeFi via real-world assets—RWAs.
But what are RWAs?
What’re the interesting opportunities and problems to be solved?
Who are the players making progress?
What are the mechanisms and moving parts?
How might one join the race?Â
These are some of the questions we’ll explore every fortnight.
What Are RWAs?
Real-world assets (RWAs) is a term coined in DeFi to help differentiate tokenized financial assets from utility tokens and cryptocurrencies. While there isn’t a single standard definition, they’re essentially physical and intangible assets represented on a distributed ledger—typically on a blockchain as a token—that have value in the real world.
RWAs may include tangible assets such as real estate, receivables, precious metals, fiat currency, and artwork or intangible assets like patents and copyrights or even financial instruments, such as stocks, bonds, and derivatives.
These assets comprise the majority stake of value in the global financial system with many being traditionally illiquid. Emerging players are racing to tokenize them while testing real-world legal enforcement structures and mechanisms that allow on-chain events to be adjudicated in real-world courts. They're attempting to make illiquid assets investable while bringing much needed forms of collateral to DeFi debt markets in order to marry yield-seeking investors to underserved or efficiency-hungry borrowers.
Simply put, traditional assets often struggle to find efficient forms of liquidity while highly liquid DeFi has a collateral problem so RWAs offer a bridge between worlds with sufficiently large incentives to entice forward facing participants to attempt a cross that's fraught with regulatory, security, and loss risks.
