Megatrend RWA tokens? What is behind the new hype

What are RWA tokens?

As the name suggests, RWA (real world assets) include a wide range of tangible and intangible assetsthat exist in the real world. For example, physical real estate, precious metals, raw materials, securities or even intellectual property. Tokenizing these assets refers to the digital representation of the rights to a portion of these real assets on a blockchain. For example, the right to a portion of the profits generated. As a result, these tokens can be bought, sold or traded easily and securely on digital platforms.

This fusion of traditional assets with digital technology aims to increase their liquidity and improve accessibility and transparency for a wider range of investors. For many investors, owning their own property as an investment property, for example, is unaffordable — but shares of it are certainly affordable. In addition, tokenized assets can be used as collateral in decentralized financial protocols (DeFi) to borrow or carry out other financial transactions.

The tokenization process for real assets involves several steps. First, a suitable asset is identified that could potentially benefit from blockchain technology. Regulatory approvals are then obtained to ensure that the tokens are legally recognized. A suitable blockchain network is then selected to represent the asset.

Digital tokens are then created and issued, which represent the shares in the asset. These tokens contain information about the underlying asset and are logged on the blockchain, ensuring transparency and security.

However, there are still challenges in the RWA segment. These include unclear regulatory guidelines for tokenization and trading with RWAs as well as operational challenges in managing and securing the supported assets.

What RWA examples are there?

Real-world assets are no longer a “marginal phenomenon” of the financial markets and could continue to gain significantly in importance in the coming years. A Boston Consulting Group Report estimates that up to 16 trillion US dollars of RWAs could be tokenized by 2030 thanks to blockchain. Since the beginning of the year alone, capital in RWAs on blockchains has grown by over 1,583%.

The pioneers in this relatively young market include Tether, MakerDAO and Ondo Finance. According to the RWA reports from 2024 The majority of the RWA market is currently occupied by stablecoins, which are pegged to the US dollar. Tether (USDT) has a market share of 71.4%, followed by USDC and DAI.

For example, MakerDAO's DAI is pegged to the US dollar. It is backed by a portfolio of Ethereum-based assets, including tokenized real-world assets. By using real-world assets as collateral, DAI is able to maintain its stability and value even during volatile market conditions.

The report also highlights the currently dominant RWA market segments:

• USD-pegged assets dominate fiat-backed stablecoins and make up 99% of the inventory.

• Commodity-backed tokens reach a market capitalization of 1.1 billion dollars, with gold being the most popular commodity.

• Tokenized treasury products grew by 641% in 2023 and are now worth over 861 million dollars.

• Demand for personal loans is largely concentrated in the automotive sector, which accounts for 42% of all loans.

With the advent of rising interest rates, the tokenization of government bonds has also become a popular application of real-world assets. This is because RWA enables investors to gain direct access to bond markets and benefit from the returns on these investments — all without the usual hurdles such as traditional banking regulations.

How can investors benefit from the RWA trend?

Given that tangible assets are often a “rock of strength,” especially in volatile markets, they should be included in any investor's diversified portfolio. RWAs make it possible to invest in asset classes that were previously difficult to access, too complex or even unreachable for many private investors. For example, real estate or private equity. By introducing new trading options, they also increase liquidity in DeFi sector. But how can you benefit from the RWA trend as an investor, and what needs to be considered?

The first step is to become familiar with tokenization platforms that offer RWA investments. Investors should also take a close look at the credibility and track record of the platforms and the issuers of the token investments. This includes reviewing the platform's security measures, the transparency of transactions, and the legal structure of the tokenized assets.

It is equally important to understand the asset being offered, i.e. to assess the market value, the potential for appreciation and the associated risks. Investors should also consider the liquidity of the token asset, its tradability, and potential restrictions on token transferability.

What effects could RWA have on the financial market?

However, regulating digital assets is a challenge for both national authorities and international organizations. On the one hand, it is important to protect investors from fraud and market manipulation, and on the other hand, the innovative power of this technology should not be hampered. In Germany, with the Electronic Securities Act (eWpG) A significant step has been taken to integrate digital assets into the existing financial system. This law allows the issuance of electronic securities based on DLT or blockchain technology and thus creates a legal basis for the tokenization of traditional financial instruments. In parallel, with the introduction of Markets in Crypto-Assets Regulation (MiCAR) created a comprehensive regulatory framework for crypto assets and related activities.

In any case, the tokenization of real-world assets (RWAs) is one of the biggest market opportunities in the blockchain industry with an enormous market size. Because in theory, anything that has value can be converted into tokens and brought onto the blockchain. Real-world assets can have an impact on various sectors, where they change investment methods and market dynamics — and democratize the financial market, as RWA also gives private investors access to asset classes that were previously difficult to reach.