Few ideas in financial technology have generated more excitement than tokenized real-world assets, which sit at the intersection of traditional finance and blockchain. Known as RWAs, these innovative digital assets make it possible to bring traditional assets such as commodities, bonds, real estate and oil revenues onto the blockchain.
In doing this, RWAs can help to improve liquidity in what have traditionally always been illiquid markets, increase global accessibility, boost transparency and lower trading costs. They promise to transform some of the most inefficient, trillion-dollar markets by revolutionizing the way investors trade them.
So let’s take a closer look at three of the most mature projects making waves with RWAs.
Blocksquare: Radical Change In Real Estate
With a number of mature marketplaces already up and running, Blocksquare is aiming to boost the efficiency of traditional real estate through the concept of fractional ownership, enabling anyone to become a property investor.
Blocksquare provides the infrastructure needed to tokenize almost any physical property, so it can be represented on a blockchain as digital tokens, which can be owned by thousands of individuals. This is what’s known as “fractional ownership”, where a property is split into 100,000 tokens, with each one representing a 100,000th of a share. These tokens can be bought and sold freely on a decentralized marketplace without intermediaries.
The tokens also generate revenue for holders, as each one entitles the owner to receive a proportional share of the revenue generated by the property it represents. Blocksquare enables properties to be tokenized through its Spring protocol, which converts real estate assets to digital tokens in a way that’s compliant with local regulations.
Blocksquare also offers a white-lable platform for real estate firms to create their own tokenized real estate marketplace, so they can list different tokenized property investments that anyone can buy or sell. The lack of middlemen in these marketplaces dramatically lowers the cost of trading property, as it can be done instantly in just a couple of clicks.
Another key component of Blocksquare’s ecosystem is Oceanpoint, which is a DeFi platform that enables property owners to secure financing for their real estate projects from a global community of investors. Tokenized assets can be aggregated to create a correlated USD stablecoin, which is used to fund the physical development of listed projects.
The native BST token powers Blocksquare’s ecosystem by enabling features like staking, governance, and access to marketplace incentives. While tokenized properties are always bought and sold in stablecoins such as DAI, BST plays a vital role behind the scenes. When users stake BST via Oceanpoint, it is converted into sBST— granting governance rights in the Blocksquare DAO and earning rewards in the form of BST over time. Additionally, BST is used for discounts on Blocksquare products. All revenue generated from BSPT (property tokens) held by the Oceanpoint DAO—acquired through various real estate tokenization activities across the ecosystem—is used to buy back BST, which is then either redistributed through the protocol or burned to reduce supply.
Centrifuge: Alternative Financing For SMBs
One of the oldest and largest RWA protocols around, Centrifuge offers small and medium-sized businesses an alternative source of funding, while providing stable returns to the investors who back them.
Centrifuge enables SMBs to tap into the capital locked in their businesses by tokenizing real-world assets so they can be used as collateral to secure a loan. For instance, any invoices or bonds, or real estate or future revenues can be tokenized through its platform, and used as a deposit to secure a short-term loan with favorable interest rates.
Its stated goal is to build a transparent, trustless and completely accessible financial system that connects borrowers to lenders, so they can engage with each other over a peer-to-peer network. It means there are no intermediaries or additional fees to worry about. This is what enables it to reduce the cost of borrowing.,
What started off as a simple credit protocol has since expanded, with Centrifuge partnering with a number of top DeFi platforms to enhance its services and capabilities and offer additional yield-generating opportunities for investors. For instance, through its partnership with MakerDAO, it has created a “proof-of-portfolio” protocol that enables investor’s portfolios to be independently verified. This paves the way for more diversified and stable yields backed by real-world assets.
Investment opportunities can be found through Centrifuge’s decentralized marketplace, which provides the tools for asset owners to mint NFTs that are linked to the physical collateral they put down. These can then be used to secure loans via a number of liquidity pools, each with its own repayment terms. Investors can explore these liquidity pools and invest in the ones that best suit their investment goals and risk tolerance.
Pendle Finance: New Opportunities For Yield-Bearing Assets
Pendle Finance is all about tokenizing and trading future yields, and stands as a brilliant example of the almost unlimited composability provided by blockchain technology.
Using its platform, investors can separate the ownership of their assets from the future yield they generate by splitting them into “Principal” and “Yield” tokens, then use these tokens to engage in more sophisticated investment and liquidity strategies. The Yield tokens will accrue interest over time, with the exact rate determined by factors such as the cost of capital, or how much lenders charge for lending capital.
Pendle Finance has also created an automated market maker-powered marketplace for trading both Principal and Yield tokens, in addition to a digital asset known as vePENDLE, which is a vote-escrowed derivative of the PENDLE token that allows holders to participate in protocol governance.
With this, users must stake their PENDLE tokens to participate in governance. For each token staked, they’ll receive an equivalent amount of vePENDLE, which allows them to vote on proposals. The beauty of this system is that only those who are most invested in the platform are given the opportunity to have their say on its future, hopefully creating a better alignment between the interests of those users and the platform itself.
Pendle Finance paves the way for some extremely sophisticated investing strategies. For instance, an investor who anticipates a correction in the price of a token might think that the lower price will result in a short-term increase in demand for that asset. If that happens, he or she might assume it will temporarily boost the token’s yield prospects. They can capitalize on this by shorting the corresponding Principal token, while going long on the Yield token, generating a much better return than if they only shorted the asset on the traditional spot trading market.
Expect More Growth As RWAs Mature
The above protocols are just three examples of how real-world assets and DeFi promise to transform the way investors engage with traditional financial assets. RWAs will enhance accessibility and create new opportunities for millions of investors globally, introducing new mechanisms for yield generation that simply couldn’t exist without blockchain.
Nobody knows how long this transformation will take to play out, but the technology is maturing by the day, in lockstep with regulatory frameworks that continue to evolve as a result of growing institutional interest. Many believe that the most innovative RWA projects will enjoy incredible growth in the coming years, as they provide novel value propositions for investors of every stripe.
