What are Real World Assets (RWAs)?

What is a Real World Asset (RWA)?

Real World Assets (RWAs) are (often physical) assets or financial products that exist in the real world but are recorded on the blockchain through tokenization. Examples include houses, commodities such as gold and silver, or loans. This does not mean that the object itself is placed on the blockchain. Instead, a digital token (cryptocurrency) is linked to the object or to the rights associated with it. In essence, holding the token gives the holder a right to the object or a claim on it. This link is established through legal agreements and parties outside the blockchain. However, because transactions and ownership transfers can be recorded on the blockchain, it becomes easier to determine who owns an asset, what its value is, and how transfers take place.

RWAs are an innovation within the crypto sector that reduces the gap between assets used in everyday life and crypto. They give everyday products more use cases when combined with crypto. One of the reasons for the emergence of Real World Assets is the limitations of the traditional financial system as we know it. Transactions can be slow and costs can become high due to the involvement of many intermediaries. In addition, certain assets are difficult for many people to access.

These problems can be partially addressed by RWAs, because blockchain technology makes it possible to transparently record agreements via smart contracts and automate settlement. This can make processes more efficient and, in some cases, reduce intermediaries, for example when paying out interest or other cashflows. At the same time, it remains important to realize that many RWAs still require off-chain parties and legal structures to enforce the link with the real asset, such as when buying or selling a house or taking out insurance.

Key Takeaways

• Real World Assets (RWAs) are assets or financial products from the real world that are made tradable on the blockchain via tokens, without the physical object itself being on-chain.
• Tokenization links an asset and the associated rights, such as interest, repayment, or ownership, to a token. The on-chain side is programmable, but the linkage remains dependent on legal agreements and off-chain parties.
• RWA projects exist in various forms, ranging from DeFi protocols that use RWAs as collateral (MakerDAO) to tokenized Treasuries (Ondo) and infrastructure or platforms for tokenization (Centrifuge, MANTRA).
• Key benefits include access to traditional yields, fractional investing, potential 24/7 trading, and more efficient settlement, although this often depends on liquidity and product conditions such as KYC.

How does the tokenization of Real World Assets work?

Tokenization is the process of recording an asset from the real world on the blockchain via a digital token that represents rights to or a claim on, or exposure to, that asset. This token can be bought, sold, or used on the blockchain under predefined conditions, just like other crypto tokens.

This process is used to link Real World Assets (RWAs) to digital assets and takes the following elements into account:

• The real asset, for example a government bond or a loan
• The rules and rights, such as who is entitled to interest, repayment, or ownership
• The link to a token that represents that right or exposure

Why would you do this? RWAs provide access to traditional investments via crypto infrastructure, while the on-chain components are programmable through smart contracts. This makes it possible to transparently define when interest is paid out, how much is paid, and under what conditions. In addition, assets can be made technically tradable quickly and on a 24/7 basis on the blockchain. Actual tradability still depends on liquidity and any restrictions, such as KYC or transfer rules.

The process explained

The tokenization of assets usually works as follows:

• A party selects an asset
  For example, short-term US Treasury bonds
• The asset is placed into a structure
  Often through a fund or a separate legal entity. This makes it clear what token holders are entitled to receive, such as interest or a right of redemption.
• A token is issued on a blockchain
  This token is the digital representation. Some tokens are freely tradable, others only for certain users, for example after KYC.
• Buying, holding, and possibly trading
  Users buy the token, hold it, receive interest in some cases, and may be able to sell it on.
• Interest, cashflows, and reporting
  The yield comes from the real world, such as interest on bonds. The project determines how that yield reaches token holders and records this via a smart contract.
• Redemption
  Many RWA tokens offer the possibility to redeem tokens for cash or an equivalent value, often subject to certain conditions.

Examples of Real World Assets projects

Since the rise of Real World Assets (RWAs), a number of RWA crypto projects have emerged. Below are some of the most well-known RWA crypto projects and what they do:

• MakerDAO (Maker): The well-known governance platform MakerDAO uses RWAs, such as credit or bond exposure via legal structures, as collateral to support DAI (stablecoin). It applies RWAs as a core component of the DeFi protocol rather than as a standalone token.
• MANTRA: Builds infrastructure for the tokenization of RWAs with a focus on compliance and institutional usability.
• Ondo Finance: Ondo offers tokens that provide exposure to short-term US Treasury bonds. Its product OUSG is presented by Ondo as a token that offers access to short-term Treasuries, including 24/7 minting and daily interest accrual.
• Maple Finance: Maple is a platform focused on credit and yield through on-chain structures. In overviews, Maple is described as a lending platform that channels capital through secured, on-chain lending structures, with both KYC requirements and permissionless access options.
• Centrifuge: Centrifuge positions itself as a platform that provides infrastructure for tokenized real-world assets, offering an ecosystem to tokenize, manage, and invest in RWAs.
• BlackRock BUIDL: One of the world’s largest asset managers, BlackRock, has launched a tokenized fund called BUIDL on Ethereum. The announcement states that BUIDL gives qualified investors the opportunity to earn US dollar yields by subscribing via Securitize.

Advantages of Real World Assets

Real World Assets (RWAs) offer several advantages for both companies and investors:

• Access to traditional yields via crypto
  Instead of relying solely on crypto volatility, investors gain exposure to interest and cashflows from the real world, such as through Treasuries or loans. This means value is driven by more than just supply and demand, but also by factors such as business performance.
• Fractional investing One of the limitations of traditional investing is that you often need to purchase an entire asset. Through tokenization, it becomes possible to buy a fraction of an asset, for example 0.1 share, which lowers the barrier to entry.
• 24/7 tradability Many traditional markets have opening hours. On-chain tokens can move continuously because the blockchain never stops. This does depend on what was decided during the tokenization process.
• Faster settlement
  Blockchains can automate transaction settlement, making processes more efficient, cheaper, and faster.
• Programmability
  Thanks to the programmability of smart contracts, automatic interest accrual and distributions can be defined in a smart contract, as well as rules that prevent a token from being sent to non-whitelisted wallets.

Disadvantages of Real World Assets

In addition to the benefits, there are also several disadvantages and risks associated with RWAs:

• Reliance on off-chain parties There is usually an issuer, manager, custodian, or fund structure involved. If that party fails or commits fraud, the token can run into problems. This also means that there is still a degree of dependence on third parties, something fully on-chain investments can avoid.
• Legal complexity A token is only truly valuable if the rights are legally well defined. What exactly do you have: ownership, a claim on cashflows, or only price exposure?
• Limited liquidity
  Even if a token is technically tradable, it can be difficult to sell if there are few buyers.
• Data and valuation are not always transparent
  For Treasuries, pricing information is relatively straightforward, but for private credit or real estate, valuation is more complex and less frequent.
• Rules and restrictions Many RWA products operate with KYC and restrictions on who can buy or sell. This makes them less open than many people expect from crypto. In addition, a token may fall under MiCAR or under MiFID II if it is classified as a financial instrument, depending on the legal qualification.
• Smart contract risk As with DeFi, bugs, hacks, errors in contracts, or operational mistakes can have an impact on RWAs.

Final thoughts

RWAs demonstrate how blockchain can be used for more than just crypto. They make it possible to digitally represent assets and financial products from the real world and, in some cases, make them easier to transfer. In theory, tokenization leads to more efficient settlement, greater transparency, and a lower barrier to investing, for example through fractional ownership and by partially automating processes such as interest payments with smart contracts. At the same time, it is important to understand that RWAs are not yet or may never be fully on-chain. Their value and enforceability ultimately depend on the underlying asset, the legal structure, and the parties that form the bridge between blockchain and the real world.

The core trade-off is therefore clear. RWAs can make traditional markets more accessible and efficient, but they also introduce new risks, such as dependence on custodians and issuers, legal uncertainty, limited liquidity, and differences in regulation. For investors and companies, the greatest opportunity lies in well-structured, transparent products where ownership rights, reporting, and redemption are clearly defined.