Real World Asset (RWA) protocols offer a groundbreaking opportunity to tokenize tangible assets like real estate, art, or stocks. This innovation allows for greater fluidity and accessibility to markets traditionally isolated, contributing to improved transparency and reduced fraud risks. Integrating these real assets into the blockchain ecosystem facilitates new financing and investment forms and provides concrete guarantees to investors.
Despite optimistic forecasts, like those from Citi and Boston Consulting Group, predicting massive valuation of RWAs through tokenization, the market has shown signs of stagnation. Major categories such as private credits have seen a decrease in value, questioning growth estimates like Deloitte's prediction that RWAs will reach $544 billion by 2025. Today, the RWA market stagnates around $5.5 billion.
Tokenization of RWAs, despite its promises of efficiency, transparency, and "stock split" (equivalent to the division of a stock's nominal value in French), faces real challenges. For instance, the "stock split" of assets like stocks is already common practice in traditional finance. Moreover, the benefits of tokenization may not justify the high costs associated with setting up new systems and transitioning to blockchain technology.
The real appeal of tokenization lies in bringing liquidity to typically non-negotiable assets. Currently, most of these assets, like real estate, private equity, or art, are indeed illiquid, hindering investors from freely exchanging them. The devaluation due to this illiquidity is significant, reaching up to 30% of an asset's total value, according to a study by Damodaran.
So, why has traditional finance not managed to make these real-world assets (RWA) liquid? Currently, exchanges are the only platforms where RWAs can be traded, but they operate within a complex system, choked with financial intermediaries, leading to high costs. As a result, only assets with a market capitalization over $500 million are generally tradable on the stock market, leaving other assets in illiquidity.
In comparison, the advantages offered by Decentralized Exchanges (DEX) are clear. Operating entirely through algorithms, without human intervention, DEXs have already handled billions in transaction volume. They offer the same functionalities as traditional exchanges, but without listing fees. With the addition of liquidity pools, these platforms have the potential to bring significant liquidity to these previously little-traded assets for the first time.
Tokenization can transform assets like startup shares, traditionally inaccessible and illiquid, into assets tradable on DEXs. Usually, without blockchain, investors remain committed to their startup investments for at least ten years. However, with blockchain adoption, they now have the opportunity to trade their startup shares at any time, 24/7. This innovation democratizes access to startup investments, allowing investors from all backgrounds to participate and trade these assets flexibly.
RealT is an innovative platform based in the USA that uses blockchain to tokenize real estate. Each property is incorporated into a dedicated LLC (equivalent to a SARL in France), and tokens representing shares of these LLCs are sold on RealT's site. Token holders thus become co-owners of the LLC and receive weekly rents, with an average annual yield of 10%. Sold at about $50 each, these tokens offer a new form of real estate investment, with a resale option on DeFi platforms or directly to RealT. The concept of real estate tokenization opens exciting prospects, although it remains subject to traditional risks of the American real estate market.
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