Better than Yesterday #36: What is RWA? Part 2

In the previous part, we introduced the concept of RWAs and their significance in the evolving financial landscape. Today, let’s delve deeper into the various types of RWAs and their practical applications, especially in decentralized finance.

By understanding these categories and their uses, we can better appreciate the transformative potential of RWAs.

Types of real-world assets

Stablecoins

Stablecoins are designed to maintain price stability relative to designated assets, like currencies or commodities.

In real life, stablecoins are used for cross-border payments and function as banking infrastructure for those without access. They are increasingly popular worldwide.

Real estate

‍Tokenizing properties allows people to invest in real estate globally through fractional ownership of assets like housing units or commercial buildings.

Smart contracts can manage tenant payments and property expenses and distribute proceeds to token holders.

Commodities and precious metals

‍Tokenizing commodities facilitates new modes of investing in raw materials or precious metals.

Gold and other precious metals can be tokenized on blockchain so consumers can own physical gold digitally.

Art and collectibles 

Blockchain facilitates the creation, ownership, and transfer of non-fungible tokens representing one-of-a-kind artworks, collectibles, and antiques in the physical world. This grants digital provenance and preserves scarcity.

Tokenizing art also permits divisions of ownership; high-value art can be broken down into fractions, and investing costs are much lower and more accessible.

Books and music 

Cultural works like books, music, and films represent a large market for tokenization as digital files on blockchain.

The tokenization of cultural assets offers immense potential to revolutionize business models for creators and reshape media consumption globally.

Intellectual property

‍Artists, writers, and inventors can issue digital tokens representing shares in future revenues generated from their works.

Smart contracts can allocate tokens and recurring shares of licensing fees or sales to early supporters.

Vehicles

By tokenizing cars, boats, and planes, blockchain can handle seamless custody transitions for vehicles and track their provenance as they change hands.

Tokenization can also facilitate fractional ownership of luxury automobiles, yachts, and private jets, with their costs, usage schedules, and profits being split proportionately according to smart contracts.

Salaries and invoices

‍Blockchain applications are being developed to tokenize payroll and invoicing. This allows self-employed individuals and small businesses to use future income streams as collateral for loans or sell portions on secondary markets.

For example, employees could access earned but unpaid wages and freelancers could discount invoices in exchange for instant cash.

Such platforms introduce welcome flexibility and unlock capital that may otherwise be inaccessible for months.

Consumer goods

Tokenizing high-value consumer products like electronics and luxury items enables fractional ownership and a resale market. This could take various forms: consumers may earn tokens for device usage over time, trade partial ownership fractions, or auction pre-owned goods.

Brands benefit from additional ways to foster customer loyalty programs and retain asset value cycles within their ecosystems.

How are real-world assets being used in DeFi?

‍The growth of DeFi applications has created new opportunities to put real-world assets to work. By incorporating real assets, DeFi can mature into an inclusive financial system that bridges the traditional and crypto spaces, allowing DeFi to offer similar investments to traditional financial institutions. 

Lending and Borrowing

Some DeFi platforms allow tokenized real estate, art, commodities, and other assets to be used as collateral, typically at a loan-to-value ratio.

Borrowers receive stablecoins or other tokens, while lenders earn interest.

Index Funds

DeFi can enable passive exposure to baskets of RWA tokens within a single pooled investment, diversifying risk across different tokens and asset classes.

Asset Management

Autonomous funds protocols can deploy capital by trading RWA tokens, aiming to generate returns.

Less Risky Investments

RWAs grant DeFi access to alternative asset classes, not just crypto-related assets. Asset types linked to real estate, commodities, art, or other physical goods may introduce less volatility than crypto-native assets.

Navigating the Risks of RWA Tokenization

Tokenized RWAs also present some risks, mainly on the side of the custody of physical assets, which must be reliably done, and the connection to the outside world.

In addition, there’s scope for smart contract bugs and vulnerabilities. Finally, it isn’t enough just to issue an asset; there must also be good market liquidity or demand for it in order for it to thrive.

Conclusion

Real-world assets (RWAs) are transforming the finance landscape by bridging traditional and decentralized systems through tokenization. By enabling fractional ownership, enhancing liquidity, and introducing new investment opportunities, RWAs are paving the way for a more inclusive and innovative financial ecosystem.

However, navigating the risks and challenges associated with RWA tokenization is crucial to fully realizing its potential. As the DeFi space continues to evolve, the integration of real-world assets will play a significant role in shaping the future of finance.

About BSCS

BSCS - The fully decentralized protocol for launching new ideas. An all-in-one Incubation Hub with a full-stack Defi platform across all main blockchain networks. We provide exclusive services including IDO/INO Launchpad, Yield farming, NFT Auction, Marketplace, and BSCSwap.

BSCS operates on top of all main blockchain networks and is designed to offer maximum value to consumers and institutions.

BSCS platform uses the Sharing Economy Model for the purpose of profit-sharing, helping users to access DeFi platforms in the easiest, safest, and most cost-effective way. BSCS is the most convenient bridge to connect users and application products on all main blockchain networks.

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