RWA: The cornerstone to promote the next bull market in the currency circle

RWA tokenization can be a new hope for the cryptocurrency industry

Since the beginning of the bear market, the term Real World Assets (RWAs) has become increasingly common. The scope of RWA is wide, from tokenization of real assets to traditional financial instruments (TradFi) and even ESG-related assets. When intertwined with blockchain technology, traditional real-world assets can improve efficiency, increase transparency, optimize liquidity management and many other benefits, and ultimately achieve an inclusive society. By incorporating RWA into the cryptocurrency field, the development of centralized finance will be more diversified.

RWA’s Total Value Locked rebounded to a 7-month high of $750 million (source: fortunafi)

By combining tokenization with the cryptocurrency ecosystem, RWA leverages the benefits of blockchain to iterate on traditional financial instruments (TradFi) to enable innovation, including credit lending, income-based financing, corporate lending, mortgages, and other assets. Compared with the market collapse of DeFi or NFT in 2022, the market demand for RWA tokenized products has become stronger.

While tokenization is not a new concept, the path to RWA tokenization has steadily grown, providing avenues for people to use cryptocurrencies in familiar scenarios. One of the most successful examples of RWA tokenization is stablecoins – currently a $127 billion market. The innovation of stablecoins brings stability - which is beneficial against the volatility of cryptocurrencies, and also maintains the efficiency of managing capital - but manages capital in a new form of digital dollars.

In addition to stablecoins, the tokenization of real estate and traditional financial instruments (TradFi) is also a huge market. This huge market has attracted many players, such as startups, governments, and financial institutions, all of which are exploring the tokenization market for real estate and traditional financial instruments (TradFi). Tokenization can give real estate or traditional financial instruments (TradFi) greater flexibility in transaction size, transaction timeframe and transaction process. In addition, native features of blockchain such as programmability, immutability, and composability will give RWA tokenization a new paradigm.

By looking back at the history of RWA tokenization, we can find that when ICOs became chaotic, that was when security token offerings (STOs) entered the scene; and when DeFi and Layer 1 became more accessible to the public, tokens Token-as-medium can provide fractional ownership and income to a wider range of investors. Additionally, while DeFi is stuck in a niche market due to weak scalability and high entry costs, we can derive traditional financial returns from tokenized Treasury bills or RWA mortgages. Therefore, RWA is still in its early stages of development, but its value to cryptocurrencies is already evident.

Explore cutting-edge RWA applications

RWA tokenization is not limited to introducing hard assets and traditional financial services to the chain, there are more places worth exploring. For example, MakerDAO is increasing the application of RWA, which not only diversifies cash flow, but also helps financial institutions take advantage of the high capital efficiency on the chain to release liquidity. This is a breakthrough milestone in promoting new scenarios of RWA tokenization.

Another representative example is the derivatives DEX ProsperEx, which is also an early use case in the development of the RWA field. The DEX itself retains the inherent form of the derivatives DEX, which includes major derivatives such as on-chain perpetual contracts and on-chain options. Commodities trading model, and it introduces RWA assets such as stocks, bonds, etc. as trading objects, and can be further used for derivatives transactions.

ProsperEx will provide unique opportunities and market efficiency for derivatives traders. It is completely built on the chain and is based on two mainstream trading methods: peer-to-pool and peer-to-peer (order book), as well as the adoption of zero-knowledge proof technology. It provides services to all traders in a private and private manner, which is its advantage. At the same time, it also has the characteristics of expanding more trading functions. For example, in addition to trading FT assets, it will also support trading of a wider range of asset types such as NFT. ProsperEx is expected to provide an early reference for the development of DEX in the RWA field.

RWA tokenization creates ways for DeFi and traditional finance to communicate and interact to meet different usage scenarios. RWA’s market capitalization is much larger than the cryptocurrency market because the tokenization of RWA is a powerful catalyst for redirecting liquidity into cryptocurrencies and combats the weaknesses of decentralized economies. Using RWA as collateral is a popular concept in tokenization, and asset originators can use tokenized RWA to lend and borrow capital in DeFi. Not only that, users can also transfer the ownership or related rights of the underlying assets through tokenization. In this application, on-chain value and unlocking liquidity potential are the full expression of RWA’s tokenization potential.

As we have seen in the cryptocurrency market, RWA has unlimited potential and can be a necessary tool to unlock value and enhance the sustainability of the ecosystem. In Finance took the first steps to develop a trust-minimized tokenization model, exploring solutions for maximizing the flexibility of tokenized RWA and bridging Web2. By building a tokenization model on top of ERC-3525, the In Finance trust-minimized tokenization model breaks through the limitations of ERC-721 and 1155 solutions while also adding additional investment flexibility for users.

ERC-1155 v.s. ERC-3525

Imagine a world where everyone could invest $100 in real estate, have the discretion to manage RWA NFTs and be able to trade freely on a DEX like ProsperEx without worrying about security issues. And this is where RWA NFTs have a huge advantage over traditional investments. Large data capacity and high visibility make NFT the best medium for identity on the RWA chain. Therefore, DeFi and NFT infrastructure are extremely important for the expansion of new applications of RWA NFT.

D3X, a new decentralized NFT exchange, aims to provide ultimate liquidity for NFTs through a full set of trading infrastructure. In any case, for NFTs, improving liquidity is an essential task. Therefore, by supporting NFT projects to enter the customized liquidity pool of the integrated platform, including NFT AMM, incentive distribution, NFT release, etc., D3X provides a channel for instant trading of RWA for RWA NFT, and also enables new users to maintain RWA risk exposure. and obtain relevant rights and interests at the same time, including token rewards provided by D3X.

RWA: Overcome challenges and move forward with courage

Although RWA tokenization has unlimited potential, it still needs to overcome a series of difficulties at this stage.

A major issue with RWA tokenization is the execution and coordination of on-chain and off-chain processes. Unlike DeFi lending protocols, where liquidation is fully automated and managed by code, liquidation of RWA collateral (at least partially) must be handled off-chain, usually through the legal system. This in turn creates complications for the debtor and creates legal complications for the agreement in which the RWA is used as collateral.

In addition, the valuation and liquidity of RWA tokenization may be affected by market dynamics and investor sentiment, which are not always directly related to the intrinsic value or performance of the asset. And this will bring volatility and uncertainty that are different from, or more than, traditional assets.

Furthermore, the legal and regulatory framework governing the tokenization of RWA may not interface seamlessly with the digital realm. The market also needs to resolve issues related to jurisdiction, property rights and enforceability to protect and ensure the legality of tokenized assets.

Marlboro, a researcher at 3WW3 (Web3 Research Institute in Asia, Africa and Latin America), believes that the world is currently in a stage of lack of investment targets. As the U.S.-China rivalry intensifies, many ordinary investors want to be able to invest in emerging market countries. However, this vision is often elusive due to high barriers to entry, lack of effective channels, and foreign exchange controls.

Currently, the stock and real estate markets in emerging countries such as Vietnam, Indonesia, and India are increasingly favored by investors. This is because the rapid economic growth and huge market potential in these regions have provided many multinational capital investors with generous returns. However, due to the lack of direct investment channels, ordinary investors cannot benefit directly.

The blockchain can realize the tokenization of RWA and bring it to the global investment market, so as to enrich the investment targets in the cryptocurrency world and allow more non-encrypted native users to participate in the cryptocurrency trading market, thereby bringing Web3 More new users and funds will slow down the overall bull and bear fluctuations caused by Bitcoin's four-year cycle.

All in all, the scope of RWA has been expanded as never before. RWA tokenization is inherently far better than traditional financial instruments because it can improve liquidity, cost-effectiveness, transparency and many other aspects. Although the development path of RWA tokenization is rugged and complicated, there are still many practitioners working tirelessly to achieve the goal of RWA tokenization benefiting society.

Backed by value other than cryptocurrencies, RWA allows for the introduction of new types of collateral in DeFi. Users can easily obtain on-chain investments in traditional financial instruments such as real estate or Treasury bills through cryptocurrencies, and receive income generated outside the blockchain, or hybrid income. However, the differences between cryptocurrencies and real money present certain challenges. And if these challenges can be overcome, RWA's prosperity will eventually come.

Overall, RWA tokenization can be a new hope for the cryptocurrency industry due to its native diversity and solid value foundation. In addition to technology, by educating the market with real and reliable evidence that can prove the significance of RWA tokenization, regulation, technology, tools and consumer behavior also need to be synchronized to keep up with the pace of RWA tokenization.