The directional changes that are taking place internally in the RWA (real world asset) ecosystem are directly driven by:
1. The increasing adoption of blockchain technology to tokenize real assets.
2. The use of cryptocurrencies for payments or as utilities.
3. The growing demand for transparency and efficiency in financial markets.
4. The need for clear and consistent regulation for digital assets.
In addition, changes are also taking place in the way risk is assessed in financial markets, in order to better assess the risk associated with digital assets. Changes are also happening in the way portfolios are invested and managed, with the increasing adoption of decentralised solutions by more traditional investors, all of which is driving investment towards a new, more efficient and transparent financial marketplace. Let’s remember that real-world assets are those that have tangible value, and that are outside the digital world. These assets can include real estate, artwork, vehicles, machinery, and more. Blockchain is becoming a bridge between the traditional and the digital RWA´s, allowing a single tokenized asset (e.g. a building) to serve as collateral for a loan. An investment product by generating capital gains from exploitation or sale, as liquidity to create financial products (pools), or even as a risk counterparty in a decentralised protocol in the insurance industry. Blockchain technology is enabling the creation of tokens backed by real-world assets, allowing investors to buy and sell these tokens (RWAT) more reliably, as they represent ownership of a real-world asset on a blockchain, which in turn has multiple native qualities within a digital environment.
RWAT´s allow investors to access real-world assets that were previously inaccessible due to barriers to entry, such as high cost and lack of liquidity. In addition, RWAT´s can be used as collateral for loans in the world of decentralised finance, allowing investors to obtain funding without having to sell their real-world assets. RWA´s certainly seem destined to enhance the transformative capacity of DEFI´s, giving them more realistic and market-driven returns, and of course, bridging the gap between the traditional and the digital. This requires a number of thematic trends that favour this evolution of the ecosystem, as well as proper training and education in this area, because if we appreciate that RWA is a measure of the amount of capital that a bank must hold in reserve to cover the risks associated with its assets, in the context of defi, RWA can be used to measure the risk associated with the underlying assets backing the tokens in decentralised finance (defi). The ability to measure the risk associated with the underlying assets is important because it allows investors to make better decisions about where to invest their money, and RWA´s can also help regulators monitor the defi market and ensure that investors are protected against the risk of investment loss.
The bridge between tradfi and defi also presents some risks, I will list a few, as we are well on our way to understanding and building the whole environment:
1) The lack of regulation and oversight in the defi market, which means that investors may be exposed to a higher risk of fraud, market manipulation and the added difficulty of recovering their investments in the event that something goes wrong.
2) Another clear risk is the volatility of the cryptocurrency market, causing investors to experience large gains or losses in a short period of time (this can make investors more prone to impulsive and risky decisions).
3) Finally, I must mention the technical risks inherent in this new and emerging technology. There is only little education available and, above all, the vast majority of people outside this sector have zero interest in learning about it.
In summary, I would like to mention once again that everything has been based on the same point for many years now, “The tokenisation of real-world assets”, which is the transformation of a tangible asset into an intangible asset, where all its information is included and certified thanks to the credibility of the blockchain. Tokens allow investors to fractionalise the ownership of these assets, which means that they can buy a part of an asset instead of having to buy the whole asset. This makes investment in tokens more accessible to the general public. It normalises ownership, as the investor holds the digital representation of an asset that they know, such as gold, a flat or a work of art.