Benefits of RWA Tokenization

2.3 Benefits of RWA Tokenization

RWA tokens offer a myriad of benefits over their traditional counterparts, mainly owing to the transparency and interoperability of the blockchain.

Efficiency

A single point of entry for transaction data increases trust and provides a dependable source of ownership. As an immutable ledger, the blockchain network serves as the one source of truth for everyone involved and enables frictionless settlement and post-trade reconciliation.

The assets can be traded globally on a 24/ 7 basis, with much lower barriers to entry.

Cost Reduction

Autonomous protocols that execute themselves help to automate much of the transfer process, lowering reliance on middlemen such as lawyers, brokers, and banks while also eliminating human mistakes.

Transactions become faster, less dangerous, and much less expensive as manual labour is reduced.

Compliance/Transparency

Since the tokenised assets are represented on chain, transparency and auditable asset management are ensured, which decreases overall systemic risks, as the amount of leverage and risk in the entire system can be more accurately determined.

Complex compliance requirements can be written into smart contracts for real-world asset tokens at the protocol layer. This further minimises the risk of human error from a compliance aspect, as participants can just rely on the auditable computer code instead of performing separate compliance verifications for each transfer.

Liquidity

The fractionalisation of assets that were traditionally illiquid or difficult to access paves the way for innovative ownership models and financial products.

Markets like real estate, private credit investments, pre-IPO shares, and carbon credits can be disrupted by RWA tokens.

For example, RWA tokens enable 1000 owners to each own a piece of a famous painting, and any 1 of the 1000 can trade their token without having to undergo legal intermediaries or needing permission from other 999 fractional owners.

Accessibility

Tokenised RWAs can broaden the potential user base of certain asset types by enabling easier access through blockchain-based applications and allowing a broader set of users to utilize assets that would otherwise be unavailable to them through fractional ownership.

The true value of tokenised RWAs can be gleaned when assets like real estate, art, and collectibles are brought on-chain. These are not very liquid markets traditionally, but once asset ownership is moved on-chain, transfers can be executed in a much more convenient manner.

Ownership can also be conveniently fractionalised and split amongst multiple investors, all of which can be transparently tracked on-chain by all parties instead of having to rely on legal papers issued by any centralized governing body. Therefore, RWAs may eventually even replace and encompass legal items such as loans, invoices, contracts, royalties, and guarantees. In early stage Blockchain start-ups today, this is already beginning.

The tokenisation of real-world assets presents a massive opportunity for the re-platforming of finance into a more secure, transparent, and efficient backend infrastructure stack that solves critical conflicts of interest and risk management and cost challenges associated with traditional financial infrastructure.