The Rise of Real-World Assets in the Crypto World

Real World Assets (Real World Assets or RWA) allow traditional financial instruments to be represented on the chain as tokens, democratizing access to a wider user base, albeit with KYC regulation and procedures.

Tokenization is redefining property and investment, making sectors such as real estate, art, luxury goods and fashion more accessible and dynamic. This technology not only allows for new ways to invest and own assets, but it also offers unprecedented transparency and security through the use of blockchain. As the adoption of tokenization continues to grow, we're likely to see even more innovation in these and other sectors in the coming years.

The beginnings of the RWA

RWAs in crypto refer to the tokenization of tangible assets that exist in the physical world, which are brought to the chain. They also include the increasing issuance of capital market products on the chain, where digital securities are tokenized and offered to retail customers. Examples of this are real estate, art, raw materials and even shares that users can purchase through authorized platforms.

• Stablecoins: One of the first forms of RWA are stablecoins. These tokens, which represent a digital version of fiat currencies, have made it possible to maintain a stable exchange unit in a volatile environment. Since 2014, companies like Tether and Circle have launched stablecoins backed by real-world assets, such as bank deposits, short-term promissory notes, and even physical gold.
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• Platform Loans: In recent years, platforms such as Maple, Goldfinch and Clearpool have allowed institutions to borrow based on their creditworthiness, without the need for physical guarantees. Despite initial challenges, such as defaults related to the collapse of Luna, 3AC and FTX, active loans have returned to growth, reaching $439 million by the end of 2023, driven by demand in emerging markets.
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• Tokenized Treasury Bonds: As DeFi yields declined in 2023, tokenized Treasuries became an increasingly attractive option. Platforms such as Ondo Finance, Franklin Templeton and OpenEden saw explosive growth, with the total market value of these bonds increasing by 782%, from 104 million dollars in January 2023 to 931 million at the beginning of the year.

The current RWA landscape

From stablecoins to real estate, the RWA sector has evolved into a diversified ecosystem that includes securities, carbon credits and works of art.

• Fiat-Backed Stablecoins and Commodities:
  • Stablecoins are now issued on diverse networks, representing different types of currencies and backed by guarantees beyond traditional bank deposits. Although the market capitalization of fiat-backed stablecoins peaked in March 2022 at $150 billion, the figure has adjusted to 133.6 billion in early 2024. USDT dominates this market, with a 71.4% share, followed by USDC and DAI.
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• Commodity-Backed Tokens:
  • Commodity-backed tokens, such as gold, silver, and uranium, represent a smaller share of the market compared to fiat stablecoins. Tether Gold (XAUT) and PAX Gold (PAXG) lead this segment, representing 83% of the market capitalization of tokenized precious metals, with a total valuation of $1.1 billion as of February 1, 2024.

How is this trend of alternatives structured

While tokenized Treasury bonds are designed to provide a stable and secure investment with modest returns, on-chain loans offer the opportunity to earn higher returns in exchange for taking on more risk. Both systems use a token structure to democratize access to these investments, but they target different types of investors with different risk appetites.

• Tokenized Treasury Bonds: In this case, an authorized fund manager creates a money market fund that buys treasuries and repurchase agreements. These assets are held securely in a custodian, and investors buy tokens that represent a part of this fund. The returns come from the interest generated by the Treasury bonds in which the fund invests. Investors can redeem their tokens to withdraw their share of the fund at any time. It is a system where fund security and stability are paramount, and participation requires compliance with certain regulations, such as KYC. The risk is relatively low, as Treasury bonds are considered a safe investment.
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• Chain Loans: On the other hand, chain loans offer the possibility of obtaining higher returns, but with a greater associated risk. Funds loaned to companies or individuals, evaluated by delegates rather than fund managers, lenders receive LP tokens that represent their participation in the fund. As borrowers repay their loans, returns are distributed among lenders (Investors), who assume the risk of default.

Tokenized products

In recent years, tokenization has revolutionized the way we interact with a wide range of assets, from property to art, luxury goods and fashion. This innovative technology is transforming traditional sectors, making them more accessible and democratizing ownership.

Tokenized properties

The tokenization of real estate allows properties or the cash flows they generate to be represented as tokens on the blockchain. This not only increases the liquidity of these assets, but also allows them to be divided into smaller fractions, making it easier for investors from all over the world to participate in the real estate market, without the need to acquire a complete property. Companies like RealT have led this change by offering fractional investments in real estate. By converting paper deeds into tokens, investors can purchase shares represented by “RealTokens”, which are an indirect representation of ownership in the underlying asset

On the other hand, Reental has firmly entered this new scenario, and with more than 3 years in the market, it has already marked great milestones. We have revolutionized the way people invest in real estate, making it more accessible, secure and efficient through tokenization. Our platform offers a unique value proposition: the possibility of investing in real estate from as little as 100€, with fully passive monthly dividends, fully managed by Reental, and with the possibility of liquidity in your investment. Not only does this democratize access to the real estate market, but it also provides investors with the peace of mind that their investment is backed by tangible assets in a market they understand and trust.

What makes us different? In Reental, we integrate the traditional real estate market with new DeFi trends. Tokenization represents a significant evolution in the investment world, offering a unique combination of accessibility, liquidity and profitability, automating and making all processes more efficient. But if we go beyond these traditional differentiators, there are additional features that make Reental a prominent option. The transparency we offer makes it possible to execute and automate a multitude of functions in an unambiguous and clear way.

In addition, our platform improves access to additional financial benefits, such as collateralization, which allows you to use your token as collateral to request a loan, boosting the liquidity of your asset without having to sell it, and being able to increase your returns to figures that are around 30%. With Reental, you can reinvest capital with a single click and make use of compound interest, thus increasing the return on a real estate asset by double, reaching figures even higher than 20%.

In short, tokenization transforms real estate projects into financial products, increasing their potential for profitability without sacrificing the security of the underlying asset. With Reental, you are investing in the future of the real estate market, combining the best of the traditional world with the technological innovations of the blockchain.

Tokenized art and collectibles

Art and collectibles have also benefited from tokenization. Luxury goods such as works of art and collectible cards can be fractionated and converted into tokens, which can then be easily traded between collectors globally.

For example, Courtyard.io is a platform that allows users to own and trade collectible cards on the blockchain, while physical items are kept in secure and secure vaults. In a similar way, Freeport facilitates investment in fractional works of art in the form of security tokens on the Ethereum blockchain, offering iconic pieces such as the works of Andy Warhol.

Tokenized luxury and fashion items

Tokenization has also found its way into the world of luxury goods and fashion. Digital equivalents of expensive products, such as watches and bags, can be created in the form of tradable tokens. Watches.io allows owners of luxury watches to tokenize their watch by creating an NFT that digitally represents the physical watch, but before that, the watch must be authenticated and secured in a vault.

In terms of fashion, tokenization has allowed pieces to be converted into NFTs, giving them a unique identity and verifiable ownership. RTFKT, for example, merges fashion and video games through the use of NFTs and blockchain, creating items such as sneakers and digital clothing that can be exchanged for physical goods. 9dcc, on the other hand, combines luxury physical fashion with NFT technology, allowing customers to decide between storing their purchases to preserve their value or actively using them.

Looking to the future

As blockchain technology continues to evolve, the tokenization of real-world assets will continue to grow, especially in the fiat-backed stablecoin sector. Although there are challenges in terms of diversifying the investor base and regulations, participation of large financial institutions is helping to overcome these obstacles and to promote trust in this emerging technology.

Regenerative Finance (ReFi)

Regenerative finance (ReFi) is emerging as a new approach that seeks to address social and environmental problems using blockchain. Protocols like Toucan are tokenizing carbon credits, while other projects are using technology for marine conservation and renewable energy.

Milestones achieved in the industry

In recent years, large financial institutions have begun experimenting with issuing capital market products directly on the blockchain, marking important milestones in the industry:

1. 2021: The Beginning of Bond Tokenization
   • Societe Generale released a €5 million medium-term note on the Tezos blockchain, marking one of the first major steps towards the tokenization of securities. Not only was this a success in and of itself, but it also spurred the development of “Forge,” a regulated subsidiary that offers crypto services such as asset structuring and custody.
   • The International European Bank (EIB) issued a two-year bond of €100 million on the Ethereum blockchain, with the support of big names such as Goldman Sachs and Santander. What's notable here is that the funds were transferred using digital currencies issued by central banks (CBDCs).
   • Renental is born: Reental's first tokenized property is launched in Seville, with funding in record time. Allowing investors to acquire fractions of real estate with a minimum affordable investment.
2. 2022: Expansion and Diversification
   • KKR tokenized a portion of its $4 billion fund to offer to individual investors through the Avalanche blockchain. This allowed investors to trade their shares after a one-year lockout period.
   • BNP Paribas used technology to issue tokenized bonds for EDF solar energy projects, although these bonds were eventually converted into traditional bonds.
   • UBS London issued $50 million in tokenized debt securities, offering these instruments denominated in U.S. dollars to high-net-worth individuals in Hong Kong and Singapore.
   • Rabobank issued €40 million in commercial paper on blockchain, a significant step towards the tokenization of financial instruments in Europe.
   • Reental is consolidating itself as a leader in the investment of tokenized real estate projects in the Spanish-speaking market, exceeding 10 million euros managed in tokenized assets.
3. 2023: Consolidation and New Opportunities
   • ABN LOVE launched a digital bond of €450,000 on a public blockchain for a medium-sized customer, demonstrating that even the smallest bonds can be tokenized and issued through blockchain technologies.
   • Siemens issued a one-year bond for €60 million on the public blockchain, using Polygon. This bond was purchased by major banks such as DekaBank and DZ Bank, consolidating trust in blockchain for financial products.
   • The Government of Hong Kong issued a tokenized green bond for HKD800 million, showing how even government institutions are adopting this technology for sustainable projects. This bond was liquidated and offset using a tokenization platform developed by Goldman Sachs.
   • Reental introduces the option of using tokens as collateral for loans, improving liquidity and maximizing investor returns on the platform.