What are RWAs (real-world assets)?

What are RWAs?

Real-world assets (RWAs) is a term for the market of “real-world” assets issued as tokens on a blockchain. RWAs include real estate, property rights, artworks, jewellery and metals, and traditional financial instruments in capital markets.

The concept entails tokenising existing assets to bring value into decentralised-finance applications, reduce costs or improve the efficiency of capital management in traditional markets.

What falls under RWAs?

The RWA market is not yet fully formed, but categories of projects aligned with the broader tokenised real-world asset trend have already emerged.

Centralised stablecoins. Popular coins such as USDT from Tether and USDC from Circle are, by nature, RWAs. Issuers lock fiat currencies and sovereign or corporate securities on their accounts as backing. They then issue stablecoins, a form of tokenisation.

Private credit. One participant in this sector is the DAO MakerDAO, issuer of the DAI stablecoin. In mid-2022 the organisation opened a $100m token credit line for America’s Huntingdon Valley Bank. As collateral the bank pledged off-balance-sheet loans. The USDC issuer has also made inroads, launching Perimeter, an open-source protocol that serves as a foundation for building tokenised lending markets.

Government bonds. This sector includes firms that issue stablecoins backed by a country’s treasury bonds. For example, Ondo Finance issues the USDY stablecoin against short-term US Treasury securities. Also in this bucket is Mountain Protocol, which launched the USDM stablecoin on Ethereum. It, too, is backed by treasury bonds, delivering a passive yield of 5% a year.

Tokenised securities. A pioneer here was the cryptocurrency exchange Bitfinex. In September 2021 its subsidiary Bitfinex Securities, focused on the RWA market, began operations. In October 2023 it issued its first tokenised bond with a three-year maturity and a 10% coupon. 

Institutional investors have taken note. The largest bank in the UK, HSBC, plans in 2024 to offer clients custody for tokenised securities. In October 2023 the conglomerate JPMorgan launched Tokenized Collateral Network (TCN), a service for converting shares into digital assets. Financial giants BlackRock and Barclays were involved in its development.

Real estate. In January 2023 the conglomerate Société Générale borrowed $7m in DAI from MakerDAO. As collateral it posted mortgage bonds worth $40m governed by French law.

Certificates of carbon credits. The market for “green” certificates gained popularity in 2022. For example, KlimaDAO, in which billionaire Mark Cuban invested, offered crypto users carbon credits. In theory, rising prices for such certificates should have prompted polluting firms to curb emissions. In practice, it is a very undeveloped market, rife with fraud.

Art and collectibles. This segment is represented by the NFT market. In 2021 several companies and investors moved value on-chain by tokenising paintings by famous artists. Swiss crypto-bank Sygnum issued a series of NFTs based on Pablo Picasso’s “Girl in a Beret”, splitting it into 4,000 tokens. And Tron founder Justin Sun bought paintings by Picasso and Andy Warhol for $22m with the intention of tokenising them via the JUST NFT Fund.

Precious metals. Participants in this area of the RWA market include issuers of stablecoins backed by physical precious metals. Examples include tokens from Paxos or XAUT from Tether.

What are the prospects for the RWA market?

The chief bullish argument for tokenised real-world assets is the size of the underlying markets—hundreds of trillions of dollars in untapped liquidity. As of 2020, the real-estate market alone was valued at more than $326trn. At least a sliver of it is expected to migrate to blockchains.

By late November 2023, according to Rwa.xyz, the total value locked in RWA protocols stood at $4.5bn, with $571m in loans issued. Since November 2021 the loan sum has grown by more than 6,700%, from $8.5m.

Even so, if institutional forecasts are any guide, the main growth spurt is yet to come. Analysts at Coinbase reckon a “tokenisation boom” will arrive in the next year or two. Forecasts put the RWA market at between $5trn and $16trn by 2030, according to Citigroup and Boston Consulting, respectively.