The most eye-catching topic in the blockchain space in 2023 is undoubtedly the tokenization of real world assets (RWA). This concept is not only hotly debated in the Web3 world, but is also highly valued by traditional financial institutions and government regulators in many countries, and is seen as a strategic development direction. For example, authoritative financial institutions such as Citibank, JPMorgan Chase, and the Boston Consulting Group have successively published their own tokenization research reports and actively promoted related pilot projects.

At the same time, the Hong Kong Monetary Authority made it clear in its 2023 annual report that tokenisation will play a key role in Hong Kong's financial future. In addition, the Monetary Authority of Singapore (MAS) has joined forces with many financial giants such as the Financial Services Agency of Japan, JPMorgan Chase, DBS Bank and many other financial giants to launch an initiative called "Project Guardian" to tap into the huge potential of asset tokenization.

Although the topic of RWA is gaining momentum, I have observed that the understanding of RWA is divided in the industry, and the discussion around its feasibility and prospects is quite controversial.

On the one hand, there is an argument that RWA is nothing more than market hype and does not stand up to in-depth discussion;
On the other hand, there are also people who are confident in RWA and optimistic about its future.

At the same time, articles analyzing different perspectives on RWA have sprung up.

Through this article, I hope to share the cognitive perspective of RWA, and have a more in-depth discussion and analysis of the current situation and future of RWA.

Limited to personal cognition, the content of this article is a personal point of view, if you have any questions, please feel free to point out and discuss.

Key takeaways:

Crypto's RWA logic mainly revolves around how to transfer the income rights of income-generating assets (such as U.S. bonds, fixed income, stocks and other assets) to the chain, put off-chain assets on the chain to mortgage to obtain the liquidity of on-chain assets, and move various real-world assets to the chain for trading (such as sand, minerals, real estate, gold, etc.), reflecting the unilateral demand of the crypto world for real-world assets, and there are many obstacles in compliance.
The future development direction of Real World Asset Tokenization will be a new financial system using DeFi technology built on the Permission Chain promoted by traditional financial institutions, regulators and central banks and other authoritative institutions, and to achieve this system, it is necessary to have a computational system (blockchain technology) + non-computational system (such as a legal system) +On-chain identity system and privacy protection technology + on-chain fiat currency (CBDC, tokenized deposits, fiat stablecoins) + perfect infrastructure (low-threshold wallets, oracles, cross-chain technology, etc.).
Blockchain is the first technical means to effectively support the digitization of contracts after the development of computers and networks. Therefore, it can be said that blockchain is essentially a platform for digital contracts, and contracts are the basic expression of assets, and tokens are the digital carriers of assets after the formation of contracts.
As a distributed system maintained by multiple parties, blockchain supports the creation, verification, storage, circulation and execution of digital contracts and other related operations, and solves the problem of transferring trust. And as a "computational system", blockchain can meet the demands of human beings for "repeatable processes and verifiable results", so DeFi has become a "computational" innovation in the financial system, replacing the "computational" part of financial activities, automatic execution can reduce costs and increase efficiency while also achieving programmability, but the "non-computational" part is based on human cognition part of the blockchain can not be replaced, so the current DeFi system does not cover credit. Credit-based unsecured lending has not yet been implemented in the current DeFi system, due to the lack of an identity system for expressing "relational identity" on the blockchain and the lack of a legal system to protect the rights and interests of both parties.
In the traditional financial system, the significance of Real World Asset Tokenization is to extend the benefits of distributed ledger technology to a wide range of asset classes to achieve exchange and settlement by creating digital representations of real-world assets (such as stocks, financial derivatives, currencies, equity, etc.) on the blockchain.
Financial institutions have adopted DeFi technology to further improve efficiency, using smart contracts to replace the "computational" part of traditional finance, automatically executing various financial transactions according to predetermined rules and conditions, and enhancing programmability. Not only does this reduce labor costs, but it also opens the door to a potentially promising financial system by providing innovative solutions to financing challenges, especially for small and medium-sized enterprises (SMSEs) in certain contexts.
With the increasing attention and recognition of blockchain and tokenization technology in the traditional financial field and governments of various countries, as well as the continuous improvement of blockchain infrastructure technology, blockchain is moving towards the road of integrating with the traditional world architecture and solving the real pain points in the real world application scenarios, providing practical solutions for the actual scenarios, rather than being limited to a "parallel world" isolated from the real world.
In the future, there will be multiple different jurisdictions and regulatory systems in the licensing chain pattern, cross-chain technology is particularly important to solve the problems of interoperability and liquidity fragmentation. In the future, on-chain tokenized assets will exist on public blockchains and regulated permitted chains operated by financial institutions, and through a cross-chain protocol similar to CCIP, tokenized assets on any blockchain can be connected to achieve interoperability and achieve interoperability of 10,000 chains.
At present, many countries around the world are actively promoting the legal and regulatory framework related to blockchain. At the same time, the infrastructure of the blockchain, such as wallets, cross-chain protocols, oracles, various middleware, etc., are rapidly improving, the central bank digital currency CBDC is also constantly being applied, and the token standards that can express more complex asset types are also constantly emerging, such as ERC-3525, coupled with the development of privacy protection technology, especially the continuous development of zero-knowledge proof technology, and the increasing maturity of the on-chain identity system, we seem to be on the eve of large-scale application of blockchain technology.

Research report on the future blueprint for the tokenization of RWA assets

Key takeaways:

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