July 19, 2023

What are Real World Assets in Crypto?Why do we need RWA?

In the sphere of finance, we stand on the precipice of an astounding, all-encompassing metamorphosis, rendered plausible by the emergent field of decentralized finance. A closer examination will unveil how this trend is steadily extending its reach beyond the confines of the cryptographic sphere, assimilating conventional financial structures that, in turn, show no opposition to tokenization. Discourse and speculation around the disintegration of boundaries between the two are on the upswing. The quandary, therefore, is why the decentralized finance sector appears to have hit its theoretical nadir? When shall the financial revolution transpire, and what part will Real World Assets play in this grand narrative?

The difference between a DeFi and a TradFi

Decentralized finance (DeFi) encompasses the financial mechanisms constructed atop blockchain networks.

From the annals of history, it is evident that traditional financial systems (TradFi) have perennially evolved within a framework of certain control, regulations, and an interplay with the service sphere, thereby broadening the spectrum of participants involved in financial dealings. Real-world asset transactions are frequently characterized by the involvement of third-party entities such as banks and intermediaries, among others. This provides a modicum of security and conventional stability, yet the trade-off is the inefficiency of transactions and a decrease in their simplicity and convenience. The very raison d’être of decentralized financial systems is to attenuate or entirely eliminate these intrinsic limitations of TradFi.

How Tokenized Real World Assets Work?

Real World Assets, or “RWAs”, are assets that have a physical existence but are tokenized and transitioned online for utilization within the DeFi sphere.

The procedure necessitates the selection of an appropriate asset, which could include:

– Real estate
– Automobiles
– Enterprises
– Precious metals such as gold
– Government bonds
– And other types of tangible and intangible assets

The next step is to transpose, or tokenize, the asset from the tangible realm to the blockchain network, mirroring current practices, albeit on paper and in traditional registries.

Tokenization can be conceptualized in three stages…

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