Real-world assets (RWAs) have emerged as one of the most exciting trends in crypto.
Over $25 billion worth of these assets have reportedly already been brought onchain, (excluding stablecoins), and it’s estimated that the market for RWAs could grow to $16 trillion by 2030.
This guide will walk you through real-world assets, from which assets are being tokenized and how it all works, to their pros and cons and how Magic Eden enables you to discover and trade them.
Real-world assets (RWA) are tangible and intangible assets that exist in the physical world, have intrinsic value or whose existence is backed by legally recognized instruments under regulatory frameworks. The ownership rights of these assets are represented onchain through tokenization.
The list of potential RWAs on the blockchain includes bonds, stocks, real estate, intellectual property, fine art, invoices, treasury bills, carbon credits, commodities and more.
When their ownership rights are tokenized on the blockchain, these assets become programmable and tradable like crypto, and can be owned in smaller units.
Using smart contracts on blockchain and token standards, the ownership right of real-world assets is transformed into digital tokens that can be transferred online and stored in digital wallets.
The process of tokenizing RWA often includes a company, institution or consortium of service providers buying the asset in the traditional market. Often, the same entity becomes the custodian of the asset and then issues tokens onchain that represent transferable ownership rights of the asset.
Part of the responsibility of the custodian of the tokenized RWA is to make sure the asset remains secured as the tokens representing its ownership are traded in the market. In essence, the asset is held on behalf of those with the tokens.
After being tokenized, a real-world asset usually gains the following properties:
Tokenization allows for ownership rights of RWA to be fractionalized or divided into multiple smaller and cheaper units. This is especially useful for those who don’t have large amounts of capital at hand but still want to invest in a property or asset that traditionally can only be bought as an entire unit, such as an apartment
Investors from around the world can easily access these fractional parts of a RWA on exchanges and other markets where they are made available to be traded.
Typically anyone with access to the chain has access to the RWA. However, there are exceptions where investors are also expected to meet legal thresholds in specific jurisdictions.
Just like the crypto industry that operates 24/7, tokenized RWAs offer more flexible trading hours than conventional financial markets, which typically close at set times. This works well even within existing regulatory requirements.
A wide range of assets can be tokenized. Let’s take a look at some of the most exciting ones:
Tokenizing real estate makes it possible that even very small investors can participate in projects that would otherwise be only available to large investment companies and institutional investors. Through fractionalization, a private investor can, for example, purchase a small piece of ownership of an apartment.
Oil, gold, silver, and other commodities can also have their digital representation on the blockchain through tokenization. This exposes them to the liquidity available on blockchain networks. Tokenized commodities provide investors and traders with more portfolio diversification opportunities.
Financial instruments like bonds, stocks, investment funds, government debt securities and similar assets can be tokenized to acquire onchain liquidity and returns. The tokenization of these assets can be done by banks and investment firms individually or through federations and decentralized anonymous organizations (DAOs).
Through fragmentation of ownership rights, investors can get their hands on a piece of a famous painting, sculpture, rare collectible like wines or even high fashion items. This makes those assets more liquid and accessible to a wider market.
Similarly, intellectual property (IP) can be tokenized and IP rights, such as patents, copyrights or trademarks, can be turned into digital tokens on a blockchain platform. As such, they become liquid, valuable and accessible to a broader market.
RWA tokenization has lots of benefits as well as a few potential challenges, although it is apparent that the opportunities far outweigh the challenges.
Tokenized real-world assets are gaining popularity because they offer opportunities that were previously unavailable for many of these types of assets.
Tokenizing RWAs can make previously hard-to-access asset classes available to a wider group of investors. It removes once undefeatable accessibility barriers and provides more opportunities for both investors and asset issuers, thanks to fractionalization
Tokenized RWAs bring traditionally illiquid assets, like real estate, fine art or private debt, into the crypto market that operates around the clock, by converting ownership rights into digital tokens. This way, they increase opportunities for investors and asset issuers.
Thanks to tokenized RWAs, traders and investors can spread out across more assets with different risk profiles. In particular, they can get exposure from both onchain and offchain markets. What’s more, asset issuers can tap into a much broader, global investor base as their assets are no longer constrained by geographical boundaries or securities exchange hours.
RWAs can integrate into decentralized finance (DeFi). Here, they can work as collateral, additions to vaults or become incorporated into other protocols to provide new yield-generation opportunities that previously didn’t exist for many of these type of assets.
With their growing adoption, RWA tokens will continue to offer increasingly more opportunities to traders. On Magic Eden, you can discover, mint and trade many of these assets simply by connecting your wallet to the marketplace.
Join Magic Eden today and explore the possibilities offered by tokenized RWAs.
Real-world assets encompass a wide range of tangible and intangible assets whose ownership rights are tokenized on the blockchain. In the physical world, they are usually backed by legally recognized instruments under a regulatory framework. Once tokenized, they can be traded onchain.
Examples of tokenized RWAs include gold (PAX Gold, Tether Gold, Matrixdock Gold and others), silver (Kinesis Silver, Silver Token etc.) and stocks (Nvidia), just to name a few. Additionally, Sygnum tokenized Picasso’s Fillette au béret painting, creating 4,000 tokens from it and selling them to more than 50 investors at $1,110 apiece.
Creating an RWA token begins by selecting the real-world asset to be tokenized, determining the token type (fungible or non-fungible), the standard to use (like ERC20 or ERC721) and other fundamental aspects. Then, it’s time to choose the public or private blockchain on which to issue the token(s), verify the assets backing them, deploy the smart contracts on the chosen chain and mint them.
Real-world asset tokenization may appeal to banks as they offer a massive opportunity for migrating finance to a more secure, transparent and efficient backend infrastructure (i.e., the blockchain) that could resolve challenges associated with traditional financial infrastructure.
According to recent data, the market is expanding rapidly, and over $25 billion worth of these assets have been brought onchain. Other research suggests the market for tokenized RWAs could grow to $16 trillion by 2030.
The information provided on this website is provided for general educational purposes only and is in no way financial or investment advice. Certain information may have also been provided to us or prepared by third parties; these materials are provided for convenience and are not an endorsement by Magic Eden. Magic Eden is not liable for any errors, changes or amendments to such information, including any actions taken in reliance on such information.
