Synopsis
The market value of on-chain real-world assets (RWAs) has surpassed $12 billion, with potential to reach $16 trillion by 2030. RWA tokenization allows fractional ownership of high-value assets like real estate and commodities, enhancing liquidity and access. India is making strides in this space, particularly through GIFT City.
A recent Binance Research report revealed that the market value of on-chain real-world assets (RWAs) has surged past $12 billion. In 2022, Boston Consulting Group (BCG) predicted that the tokenized asset market could skyrocket to an astounding $16 trillion by 2030. Over the past few months, RWA tokens have been steadily gaining momentum, signaling a major shift in market sentiment. Real World Asset tokenization or RWA Tokenization, a groundbreaking use case of blockchain technology, might still be in its early phase, but its potential is immense.
What is RWA and why is the world becoming increasingly bullish on RWAs, and where do we stand in this rapidly evolving landscape? Does it have any relevance in the Indian context? This article will answer some of these questions.
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At its core, RWA tokenization is a pioneering approach to ownership that harnesses the power of blockchain technology. RWAs refer to tokenized, on-chain versions of tangible and intangible non-blockchain assets, for instance, real estate, bonds, commodities, etc.
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In simple words, tokenization is the process of turning real-world assets into digital tokens using blockchain technology. It allows people to own smaller, more affordable portions of high-value assets, making them accessible to more individuals. Assets like real estate, art, commodities, and intellectual property can be tokenized, which helps improve liquidity, transparency, and access. This digital transformation is seen as a way to modernize traditional financial markets and make them more open to everyone.
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Historical Context and Emerging Categories
While tokenization represents a groundbreaking innovation, it is not entirely new. Digital representations of assets predate blockchain, with examples like ETFs and REITs providing fractional ownership in commodities and real estate.
Blockchain technology has taken tokenization to new levels by providing improved transparency, security, and efficiency. This technology guarantees transparency in all transactions and reduces the risk of fraud or manipulation. Additionally, it offers 24/7 access, promoting financial inclusion. RWA token users can buy and sell their assets around the clock, without being limited to the regular office hours of traditional exchanges.
Key categories within the RWA space include tokenized US Treasuries, private credit, commodities, stocks, real estate, and other non-US bonds. Furthermore, emerging categories like air rights, carbon credits, and fine art demonstrate the expanding scope of tokenization.
Institutional Adoption and Infrastructure
A notable growth driver in the RWA space has been the increased participation of institutional and traditional finance players. BlackRock’s BUIDL tokenized Treasury product has emerged as the category leader, while Franklin Templeton’s FBOXX stands as the second-largest tokenized Treasury product. WisdomTree has further diversified its offerings with tokenized equity products and “Digital Funds.”
The foundational infrastructure for RWAs encompasses smart contracts, oracles, identity & compliance solutions, and custody solutions. Oracles play a particularly critical role by ensuring that on-chain representations accurately mirror off-chain, real-world data. They also facilitate the initiation of on-chain actions based on off-chain legal agreements.
Vision for the Penetration of Tokenization in India
The penetration of tokenization in India holds transformative potential, particularly for individuals in rural and remote regions. Imagine a farmer from a small village in Uttar Pradesh being able to invest in tokenized shares of a solar power plant in Rajasthan. With fractional ownership, he can diversify his income by participating in renewable energy infrastructure without requiring significant upfront capital or advanced financial knowledge. Similarly, a college student from Assam can invest in a tokenized portion of a thriving tech startup in Bengaluru, gaining access to high-growth investment opportunities traditionally reserved for institutional investors and becoming part of India’s burgeoning tech ecosystem.
Tokenization can democratize access to high-value assets across various industries. For example, a fisherman in Kerala could own a small stake in a cold storage facility in Gujarat through tokenization. This would provide him with an additional income stream while benefiting from logistics and supply chain sectors that directly impact his business.
By breaking down barriers to investment, tokenization empowers individuals from diverse backgrounds and locations to grow their wealth while contributing to India’s broader economic growth. Although significant work remains to fully realize this potential, progress is evident. India is making strides in the RWA tokenization space, with GIFT City emerging as the country’s first regulated platform for RWA tokenization. This development not only highlights the growing recognition of tokenization’s potential but also positions India as a key player on the global stage, paving the way for a more inclusive and dynamic economic future.
(The author is Co-Founder, CoinDCX & Okto)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
