NEWSLETTER
Disclosure: The views and opinions expressed herein are solely those of the author and do not represent the views and opinions of the crypto.news editorial.
The recent improvement in bitcoin price has given the market many reasons to be happy. This year and last, the market has surprised us with an unexpected rally at the beginning of the year. Traders and investors hope this will become an annual tradition. But while the consequences of this are almost universally positive for the digital asset sector, other areas offer real disruptive potential.
Compared to bitcoin's positive price movement, the growth of real-world asset (RWA) tokenization is a paradigm shift in the way we think about all assets. And it's an opportunity that's not limited to direct blockchain participants. Both traditional and decentralized finance will equally benefit from this trend, as more than 2% of the global money supply is expected Be on web3 by 2028 via stablecoins.
However, stablecoins are just a primitive version of what asset tokenization could mean in the real world. We will see more and more real-world asset types come on-chain as the market lends itself to other forms of tokenization. This process will spark a new wave of innovation in defi and open new markets for TradFi.
Getting bored is also important
Cryptoassets are the first use case for what is possible with digitally represented value. There is no limit to the value types that can be represented in the string. In addition to the broad applicability of tokenized assets, they offer faster settlements, greater access, and lower transaction costs.
Tokenized Treasuries are a great example of this emerging trend. They have quickly become an investment of approximately $850 million. market, with TradFi companies like Franklin Templeton, the same company that recently filed for an eth ETF, taking the lead with a market share of $332 million. Meanwhile, defi projects like Ondo Finance also give way to a short-term US government bond fund representing $153 million. It happened in part due to declining defi yields and some investor interest in early 2023 for more traditional financial instruments such as bonds.
For some, this may ultimately seem boring, but boring is also important. In the best case scenario, digital assets can provide value to multiple types of investors, including the most conservative sectors. Treasury bills are just the first foot in the door.
Tokenization and its benefits
Basically, tokenization is about digitally representing value on the blockchain. Many real-world assets would benefit from its improvements.
Distribution. Being fully digital means that tokenized assets are accessible to more investors through more channels. This includes all those we have started to get used to in crypto: CEXs directly accessible to users, DEXs, a more traditional broker model, and pure peer-to-peer exchanges. Being fully digital means that tokenized assets can benefit from fractionalization, which divides assets into smaller pieces that are more affordable and liquid for retail investors.
Composability. Tokenizing real-world assets allows them to benefit from defi's infinite composability. They become financial components that developers can creatively combine as part of an open, programmable financial system. In the past, this creativity only applied to native crypto assets like utility tokens, stablecoins, and NFTs. Now you can also shape real-world assets.
As more assets are tokenized, improved distribution and composability will enable new on-chain financial instruments. It also points to new defi protocol designs backed by real-world assets, perhaps overcoming the need for overcollateralization.
The possibilities are endless and tremendously exciting. The only limit now is the developer's imagination. Tokenization opens up real-world assets to creative defi combinations, driving new financial instruments and protocol innovations.
What RWAs could unlock in the coming months
This reinvention and digitization of real-world assets will broaden the horizons for TradFi and Defi market participants. We can imagine protocols that create financial possibilities for stocks, bonds, real estate or carbon credits in ways unheard of for physical institutions.
These on-chain representations of a growing number of real-world assets will have a strong impact on financial markets in general. For TradFi, this will mean more liquid, accessible and programmable assets. For defi, this will lead to the availability of new, more reliable assets, as well as significant improvements in the usefulness of decentralized applications.
For everyone, it means a more open and accessible financial system. Now, isn't that what this entire industry has been waiting for for the last decade?
