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One of the key trends often mentioned by analysts and experts, including us on the Coin Bureau team through our video on trends for the cryptocurrency sector in 2024, is the tokenization of real-world assets.

This could easily become the next industry trend in 2024 and many people see RWA tokenization as the next logical step in the digital evolution. With the whole thing that is stated obtainable, it's time for us to get to the factor by way of analyzing what they may be, why they're critical and the blessings and risks they entail. In addition, we can take the opportunity to leaf through a crystal ball and discover what the future holds for this contemporary generation.

We may also communicate about numerous initiatives within the region that are running on the tokenization of belongings in the real world. Who is aware of, maybe one among them will become the subsequent family name that helps usher inside the subsequent wave of cryptocurrency fans.

What are (RWAs) Real World Assets on the blockchain?

How do real-world assets appear on the blockchain? These two concepts seem contradictory, but that is not the case.

Real world asset tokenization development can be represented on the blockchain through tokenization . We're not proposing to build a replica of your house in a metaverse like Decentraland or The Sandbox. Rather, it is about digitizing the paperwork and legal aspects that come with owning property and putting the information on the blockchain. At its most basic level, it means that physical properties will be represented by a digital token. This facilitates the transfer of ownership, and it is also possible to trace the provenance of a good online with relative ease, if the appropriate permissions are given.

Simply put, tokenization is about everything related to ownership of a real-world asset. In this way, using blockchain technology the transfer of assets between two parties can be demonstrated.

Does that mean that everything I own can be tokenized? Technically, yes. But it makes more sense to tokenize objects that have value on the secondary market. An album of photos from my childhood probably won't be of much value to anyone but ourselves (unless hackers want to use them to create new identities, but that's a topic for another day). On the other hand, a collection of rare stamps or old coins and banknotes could have value for those who collect them. There are two types of real-world assets for your consideration, some of which are obvious:

Physical assets

  • Real Estate
  • Works of art
  • Raw materials 

Non-physical assets

  • Treasury Bonds
  • Debt
  • Actions
  • Investment opportunities

Asset tokenization

ERC-3643

RWA tokens have an ERC-3643 standard, just like ERC-20 and NFTs with ERC-721. This is a public token, as opposed to earlier private token standards, wherein eligibility as a token holder is established by predetermined requirements contained in a smart contract.There is an additional component known as UNCHAINED, a decentralized identity framework, similar to a KYC procedure within the blockchain, that verifies the identity of the token holder. This set of standards enables the issuance, management and transfer of RWA tokens between peers.

Token issuers can also track ownership as it passes from one holder to another. Imagine the time, hours, fees and paperwork (not to mention trees) that insurance companies will save when all the information they need can simply be pulled from a database. Long waits to process claims could very well be a thing of the past.

This makes sense because you may not care who has a photo of a monkey, but the law does care if a house is being used as a meth lab, since the liability could fall on the owner, not to mention the repairs that come with the destruction of the place as a consequence. We need some guarantees for an orderly transition that allows real-world assets to move to on-chain digital infrastructure. Tokenization standards also help promote its usability. Just take a look at what ERC-721 did for NFTs and ERC-20 for DeFi.

If you are inquisitive about mastering approximately this token popular, experience free to test out the whitepaper. The original proposal is also available as public reading material for those who want to delve deeper into the code.

When it comes to tokenizing a real-world asset, the general outline is as follows:

  • Select the asset you want to tokenize. Tokenizing something that has some degree of secondary market demand would be a smart idea.
  • Select a dApp that has tokenization capabilities available to you. Transaction fees will vary depending on which blockchain it is on, so keep that in mind.
  • Using real-time data from the oracle, the dApp/tokenization provider collaborates with an oracle provider to validate and preserve the asset's value over time.
  • Once these steps are completed, the token can be issued.

Advantages of RWA tokenization

An important aspect that tokenization brings to real-world asset ownership is partial or fractional ownership. This type of ownership is already starting to gain acceptance in the art world with artwork NFTs sold to art enthusiasts who want to own a piece of Banksy or Andy Warhol. Fractional inventory ownership is not unusual nowadays, so it is only a depend of time earlier than fractional asset possession is at the desk.

Another gain of tokenizing actual-global belongings is that it permits retail investors to get right of entry to funding contraptions historically reserved for establishments and the ultra-wealthy. The hole among the haves and the have-nots has in no way been greater.

This is partly because capital attracts capital. The more money you have available, the more ways you will have to use it to get even more. For normal people, the ways to raise capital are limited. Tokenization allows the possibility of owning some fractional share which, with enough accumulation, can attract decent sized capital in the long term.

Small businesses can also benefit from tokenization. Small business owners who want to expand have limited resources in their immediate environment that they can draw on. Tokenization can be a valuable way to raise capital to fund your businesses. Investors can be from anywhere in the world. Credit profiles can be developed within the chain, similar to the credit history that banks require to guarantee loans. In this case, however, the credit history is available to anyone with permission to view the data, so business owners do not need to establish credit histories with multiple parties.

Conversely, investors may have the option to invest in other companies in another country if they wish. Currently, the only way for investors to invest in another country is through Government Bonds issued by that country or by purchasing ETFs in specific sectors chosen by asset managers. If, for example, you have visited a good neighborhood as a tourist or have been lucky enough to spend some time in a community in a foreign country, and you want to continue investing in that community, tokenizing the community's businesses allows you to invest in them. . This is useful in regions where corruption is widespread and many official investments from abroad do not necessarily return to the community, but instead end up in the pockets of some government officials.

Issuers of tokenized RWAs can set conditions on whether the asset can be sold, perhaps even including what types of investors are preferable based on the nature of the asset in question. While programmability is not a feature that users (only issuers) want in CBDCs, it might be useful for tokenized RWAs.

Other advantages are:

  • Transparency
  • Efficiency
  • Ease of transfer of ownership

Disadvantages of asset tokenization

Asset tokenization is, simply put, another way to invest and make money. Its effects on raising an economy's productivity are indirect and, in certain situations, possibly negligible. These are some risks to take into account before jumping in:

  • Fractional ownership

  • Regulatory issues and legal risks

  • Operational and market valuation risks

  • Oracle Risk

  • Security risks

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