Ownership of Real World Assets: Read, Write, Own, Tokenize
Since the inception of the web, we have transitioned through various paradigms: web1 (read), web2 (write), web3 (own), and what lies beyond? Perhaps web4 (tokenize)? The evolution of blockchain technology seems to be heading in this direction.
In fact, Real World Assets (RWAs) can also be tokenized, similar to financial assets (Figure 1), through a novel and, as yet, potentially disruptive concept of ownership fractionalization.
Blockchain technology, with its smart contracts and fungible/non-fungible token standards, has made this trend toward wealth democratization or, more precisely, the broadening and diversification of trading with increased liquidity possible.
It is estimated that by 2023, tokenized assets will increase from 31 billion USD in 2022 to 16 trillion USD by 2030 (Figure 2).
Moreover, 95% of institutional investors believe that RWA tokenization will revolutionize the financial market through Blockchain Impact (Figure 3).
Interoperability and scalability are the key factors determining the evolution of blockchain innovation toward mass adoption.
If the scalability and interoperability goals set by various blockchain ecosystem participants are achieved and pursued, we may indeed witness positive developments in the democratization of the financial market and the evolution of blockchain technology and WEB3.
Key Concepts Paving the Way for Mass Adoption and New WEB3 Evolutions
But let’s proceed systematically; we have introduced several concepts that may deserve further analysis and exploration:
- Real World Assets (RWAs)
- NFTs (ERC-721, ERC-1155, ERC-5169 – Smart NFTs)
- Ownership Fractionalization
Real World Assets (RWAs) refer to all tangible and intangible assets in the physical and non-physical world, including real estate, intellectual property rights, bonds, luxury and consumer goods, equities, carbon credits, energy, insurance, artworks, and why not? Data? etc..
NFTs, or Non-Fungible Tokens, represent unique, non-interchangeable assets, and they adhere to various standards, with the primary ones being:
- ERC-721 – Unique Non-Fungible Tokens that can differ in some characteristics within the same smart contract.
- ERC-1155 – Multi-tokens that combine non-fungible and fungible functionalities.
- ERC-5169 Smart NFTs – Executable and programmable, offering great promise for gaming and WEB3, with animations and functionality like any program.
Ownership fractionalization occurs through tokenization, where assets are represented by tokens in fractions or parts.
Fractional ownership involves shared ownership of an asset, virtually held through tokens, as an immutable blockchain record. For example, someone who owns a fraction of real estate cannot physically enjoy it but can benefit from trading operations on that asset.
The concept of ownership fractionalization implies the financialization of all tangible and intangible assets, bridging traditional finance with both the digital and physical worlds.
Scalability is the ability of a system to increase or decrease in scale based on various parameters. The blockchain technology and all its associated innovations, such as DeFi, Web3, NFTs, SmartContracts, CBDC, Crypto Economy, GameFI, Dapps, and RWA Tokenization, would remain the domain of a select few and those who have had the time resources and educational opportunities to enter this world without a qualitative leap in scalability.
This leap should, in turn, involve a quantitative increase in the number of transactions per second (TPS), and all blockchains are gearing up for this significant step through the experimentation of innovative technological solutions that are not only interesting to industry insiders but applicable in various fields as well. Just to name a few: Zero Knowledge Proof (ZKP), Directed Acyclic Graph (DAG), Bullshark, Chainlink CCIP, danksharding.
For the blockchain revolution to truly take a major step toward mass adoption and enter our lives, it needs to become scalable and user-friendly, with low entry barriers, much like smartphones have become an integral part of our lives for almost everyone, often without pondering over how they work or how their implementation is possible through the sciences of telecommunications and mobile computing.
Another entry barrier could be excessive fragmentation and lack of communication between different platforms within the blockchain ecosystem.
Interoperability is precisely the ability to exchange information, transfer, and swap assets between one blockchain and another. This can happen through various methods: digital asset exchange, where assets are exchanged in parallel, or arbitrary data exchange, where transactions on one platform also involve other platforms.
It can be implemented through various methodologies that we’ll briefly mention here: Cross-authentication, API Gateway, Oracles.
Benefits of RWA Tokenization: No Intermediaries in Real World Asset Transfer
The primary benefit of tokenization in RWA transfer lies in eliminating intermediaries and third-party involvement, minimizing administrative expenses, and transcending international borders and customs barriers (Figure 4).
RWA tokenization encompasses all the other benefits associated with blockchain technology, including decentralization, disintermediation, enhanced security, transaction speed and convenience, data transparency, transaction immutability, non-reversibility, transaction programmability and automation, along with new advantages like diversification in investment nature, the creation of new jobs and specialized professions in this field (e.g., developers, legal consultants, business brokers, RWA asset managers, data providers, analysts, marketers, trading platform and wallet providers, cybersecurity professionals, and even owners themselves).
What Does Wealth Democratization Through Real World Asset Tokenization Mean?
We can illustrate this concept with a widely used symbolic example, such as the tokenization of timeless artworks like Leonardo Da Vinci’s Mona Lisa or Michelangelo’s David.
It means that, through tokenization, each of us could one day claim ownership of a portion of a great, timeless work, by fractionally dividing ownership (a common heritage). While we may not physically possess these artworks in our homes, even with a high token share, we can participate in a significant cultural heritage and identify with the ethos of a people or civilization.
One can also invest in more affordable assets, such as wines, Stradivarius violins, robots, aircraft, and high technology, with only the constraints of one’s portfolio.
Perhaps RWA tokenization will enhance investment stability, trust in development prospects, and the latest developments in blockchain technology. While the value of Bitcoin or NFTs may not always skyrocket, it is much less likely that RWAs, such as DOC products and timeless artworks, will actually lose their value.
A new path is opening up for the Internet of Value…
1. More on the article:
2. Boston Consulting Group, ‘Relevance of on-chain asset tokenization in ‘crypto winter’
3. Accenture, ‘How your T+1 program could help pave the way to T+0’
4 . Tokenization Playbook Rohas Nagpal