The idea of tokenizing real-world assets, such as real estate, commodities, private equity and credit, bonds, and art, has been gaining momentum since 2018. As of 2023, there's a marked increase in interest surrounding tokenized Real World Assets (RWAs), according to Nansen’s research.
Mathew McDermott, the head of the digital asset unit at Goldman Sachs, recently discussed how tokenization was one of the key areas the bank was focusing on due to its potential. Larry Fink, Blackrock’s CEO, even predicted that tokenization is the future of markets.
But why is there a recent surge in the interest surrounding RWA tokenization?
In this article, we’ll explore the benefits of creating physical-backed assets, the types of assets brands can turn into RWA tokens, the challenges associated with it, and how brands can solve them.
- Real-world asset tokenization presents brands with the opportunity to tap into the illiquid and locked economy.
- Converting physical assets into digital tokens offers benefits like improved liquidity, operational efficiency, and additional revenue streams.
- Brands can convert a variety of physical assets into RWA tokens, including real estate, commodities, IP, art & collectibles.
Benefits of Real-World Asset Tokenization
RWA tokenization offers numerous advantages that enhance liquidity, and accessibility for brands. We’ve listed the most important ones below.
- Improved liquidity: Tokenization enhances liquidity in the RWA market by enabling fractional ownership. It breaks down assets into smaller, tradable fractions, allowing smaller investors to participate and diversify their portfolios, reducing risk concentration.
- Operational efficiency: RWA transactions often involve multiple intermediaries, complex ownership transfers, and paperwork, causing delays, especially in international transactions. Tokenization, powered by smart contracts, eliminates these issues.
Smart contracts automate settlements when predefined conditions are met, like payment completion. They also handle compliance, dividends, and other operational tasks, reducing costs and minimizing human error, ultimately streamlining asset management and cutting operational expenses. - Generate additional revenue: When a brand or creator sells an asset, they typically don't benefit from appreciation in asset value or any subsequent resales. However, by tokenizing RWAs, brands can set up royalty mechanisms and tap into new revenue streams. This ensures that brands can earn a percentage every time the asset is resold in secondary markets without incurring additional expenses.
All in all, RWA tokenization enables brands to tap into global markets, increase liquidity, save operational costs, and create additional revenue. But exactly which assets can brands offer as tokenized RWAs?
Types of Real World Assets That Can Be Tokenized
Nearly all virtual and physical assets can be converted into tokens on the blockchain. Here, we've listed some applications of RWA tokenization for brands:
Art and Collectibles
Tokenizing real-world assets (RWA) in the art and collectibles market not only boosts liquidity but also levels the playing field, making it more accessible to a broader range of participants. Additionally, it improves transparency and provenance tracking, reducing the risk of counterfeit or stolen items.
For instance, Four iconic Warhol pieces, obtained in part from renowned art collectors, will soon be accessible as shares through security tokens. These tokenized lots are set to have an initial price range spanning from $250 to $860, making it more inclusive for individuals with limited financial resources to invest in the world of art.
Real Estate
RWA tokenization improves transparency, streamlines transactions, and expands access to global investors, fostering greater efficiency, liquidity and inclusivity in the real estate sector.
Imagine a commercial building worth $1 million. With RWA tokenization, the owner can tokenize the property into 1,000 tokens, each representing a $1,000 share of the property. Investors from any country can then purchase these tokens and become fractional owners of the building as long as it's regulated.
Rental income and property value appreciation can also be distributed proportionally to token holders, providing a more accessible and liquid way to invest in real estate.
Intellectual Property
While tokenizing IP is still in its nascent stages and comes with its challenges, it offers brands a novel way to manage, monetize, and protect their intellectual assets in the digital age.
For starters, tokenizing IP can automate royalty payments, ensuring creators or brands receive their dues without intermediaries, delays, or disputes.
Additionally, brands can tokenize their IP rights such as patents, copyrights, trademarks, etc., making it easier to identify and take action against counterfeit products.
For example, by tokenizing the rights to use their logo, a fashion brand can issue digital tokens to manufacturers or retailers. Each token can represent a specific right or license to produce a certain number of items featuring the logo. This way, the brand can control and limit the production of its merchandise and curb the production of counterfeit items.
Commodities
The tokenization of commodities offers several advantages. Apart from improving liquidity and removing middlemen which ultimately reduces costs, tokenization also improves transparency and traceability in commodity supply chains.
By recording commodity transactions on a blockchain or distributed ledger, every step of the supply chain can be tracked in a secure and immutable manner.
This not only helps in preventing fraud and ensuring the authenticity of commodities but also provides consumers with a clear view of the origins and handling of the products they purchase, which is particularly important for industries like agriculture and food where traceability is crucial.
Challenges Associated with RWA Tokenization
The tokenization of Real World Assets (RWAs) holds great promise in revolutionizing traditional finance and investment sectors. However, its path to widespread adoption is rife with challenges. We’ve listed some of them below:
- Regulatory compliance: Navigating the diverse regulatory landscape across different regions poses a formidable challenge for real-world asset tokenization. Each jurisdiction may have distinct rules, from securities laws to tax regulations, creating a complex compliance web.
Ensuring full adherence to these regulations demands considerable legal expertise, resulting in significant time and financial investments. - Security concerns: The digital nature of RWA tokens exposes them to cyber threats. So, it’s important to have stringent measures in place to prevent theft and tampering of assets. In addition to this, it’s also essential to safeguard the physical assets the tokens represent to prevent unauthorized access, fraud, and loss.
- Integration with traditional systems: Real-World Assets (RWAs) are typically managed within established financial and operational frameworks. Merging these conventional systems with emerging blockchain platforms presents complexities. The differences in technology, data formats, and operational procedures can create hurdles in achieving seamless integration.
Tokenize Your Brand’s Real World Assets With Dibbs
Dibbs, as a leading Tokenization-as-a-Service platform, solves the challenges associated with tokenization and helps brands convert physical items into digital tokens without needing to build the associated infrastructure from scratch.
We also verify the authenticity of your physical assets and store them in a secure vault. Our platform also comes with built-in regulatory compliance features, ensuring that tokenized assets meet legal standards.
So, if you’re looking to tokenize your RWA, expand your audience base, and generate additional revenue streams, schedule a demo with us today.
