April 19, 2024, 6:08 am | Read time: 5 minutes
It’s becoming increasingly rare to hear that cryptocurrencies have no value because no use is apparent. Especially since so-called Real World Assets (RWAs) are coming into focus, the practical value of cryptos is becoming clear to a growing number of users. TECHBOOK explores types and applications of RWAs.
Real World Assets–abbreviated as RWAs–bridge the gap from the crypto world to our real world and can clearly demonstrate their usefulness. This involves the tokenization of assets or investment goods. Tokenization refers to the representation of real economic objects or units on the blockchain.
RWA Tokens
The term RWAs can be defined narrowly or broadly. In a narrow sense, it refers to tokens that derive their value from a connection to a real economic asset. This can be, for example, gold, whose value is represented in tokens like Paxos Gold (PAXG) or Tether Gold (XAUt). Users must be able to rely on the token’s gold backing being one hundred percent. If this is the case, one of the advantages of RWAs becomes immediately apparent. Unlike gold bars, these tokens are transportable and globally available in seconds due to their digital nature.
However, the brightest stars in the RWA sky are not gold tokens but cryptocurrencies like Pendle (PENDLE). Here, for example, it is possible to trade future earnings. Or a token like Ondo (ONDO), where traditional financial giants like Morgan Stanley and BlackRock are involved.
Beyond the Mainstream
In addition to the well-known RWA tokens, other real economy assets are, of course, also being brought onto the blockchain. Particularly, the crypto broker Bitpanda from Austria has focused on tokenized real-world assets for years, such as tokenized commodities or stocks.
Even ETFs can be represented on the blockchain–or even newly created in principle. Bitpanda offers not only ETFs but also special RWA products, such as a token called Carbon, which essentially brings CO₂ certificates onto the blockchain. Or a product called Agriculture, which tokenizes a basket of agricultural commodities and makes it tradable as crypto.
If these ideas prove to be exceptionally successful in the next bull run, other market participants will follow suit. Then there will be a race for the most innovative tokenization concepts.
Here, cryptos could leverage their specific capabilities in decentralized finance (DeFi), such as leveraged lending, liquidity mining, farming, re-staking, and so on, to gain an edge over traditional commodity and financial exchanges in the race for investors.
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NFTs as RWAs
Not in the narrow sense, but in the broader sense, NFTs can also be considered RWAs. These are non-fungible, meaning unique and non-interchangeable tokens that certify a specific value on the blockchain. Such values can be anything: a particular photo, a digital artwork, a song, a podcast, a video, a film, a series, a game, access to an exclusive club, an internet domain.
Or the virtual part of an investment asset, such as a property, an investment fund, a racehorse, a Renaissance painting. Classic paintings have already been sold–in virtual shares. These parts are called Fractionalized NFTs. All this is made possible by the technology of tokenizing specific values.
Many new ideas and innovations are expected in the future. Tokenization is now also considered by major players in the investment sector as a new, highly promising segment of the economy, whose potential is still difficult to estimate.
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Stablecoins as Real World Assets
In the described logic of things, stablecoins like USDT, USDC, or DAI are essentially RWAs. They represent the value of a U.S. dollar on the blockchain. This distinguishes them from classic cryptocurrencies like Bitcoin or Ethereum, which do not derive their value from a connection to a representative of the real economy.
Stablecoins can theoretically represent any national currency. So far, however, besides the U.S. dollar, only a few other currencies, such as the euro or the Japanese yen, are represented. The latter play only a minor role. Stablecoins based on the U.S. dollar clearly dominate.
Cryptocurrencies that have a function in the real world but do not represent specific real values on the blockchain would not be considered RWAs. This would include VeChain (VET), for example. This cryptocurrency can make supply chains traceable but does not represent the delivered products. Therefore, it is not considered an RWA in the broader sense.
Artificial Intelligence and RWAs–Is There Something There?
Besides the blockchain, AI is the technologically dominant topic of our time. Accordingly, it stands to reason that RWAs will also interact with artificial intelligence. At least such possibilities are emerging. AI models themselves or underlying training datasets are real values that can also be represented and traded on the blockchain. It’s only a matter of time before this becomes a trend in the crypto sector. It will be interesting to see where the journey goes and how RWAs will perform in the near future.