Unlocking the Power of Real-World Assets with Blockchain

Blockchain technology, often synonymous with cryptocurrencies, has evolved far beyond that purpose and use case. A transformational development has emerged: tokenizing real-world assets. This application brings tangible assets, such as real estate, art, commodities, and more, into the digital realm, and enhances existing tangible and intangible assets by providing new investment opportunities and enhancing liquidity. We'll explore the concept of real-world assets on blockchain technology, their advantages, the differences between digital and real-world assets, and adoption projections.

Real-world assets (RWAs) are tangible (physical) assets and intangible assets that hold intrinsic value. These can encompass a wide range of assets, including real estate properties, precious metals, artworks, commodities, machinery, financial instruments, and more. Traditionally, these assets have been subject to lengthy transaction processes, limited liquidity, and fragmented ownership structures. Blockchain technology has opened the door to new possibilities for these assets. Many are already leveraging blockchain technology today to improve access to financial assets. As an example, as of July 2023, Provenance Blockchain has more than $8B in real-world financial assetvalue locked on-chain.

The application of blockchain technology to real-world assets involves the process of tokenization. Tokenization refers to the conversion of an existing asset into digital tokens represented on a blockchain. Each token represents a specific fraction of the asset's value or ownership rights. By creating digital tokens, real-world assets can be traded, transferred, and managed more efficiently and transparently.

Blockchain's key features, such as immutability, decentralization, and security, provide numerous benefits for real-world assets. Transactions conducted on blockchain are recorded in a tamper-resistant and transparent manner, reducing fraud and ensuring a trustworthy system. Additionally, blockchain enables fractional ownership, making it possible for multiple investors to hold stakes in valuable assets that were previously out of reach due to high costs. Taking this one step further, a blockchain purpose-built for financial services, such as Provenance Blockchain introduces critical protocol-level capabilities that removes friction to onboarding and managing real-world financial assets on blockchain technology.

As mentioned earlier, this is where a digital token represents an existing real-world asset. These digital tokens may coexist with their traditional counterpart or may be backed by a traditional asset, often physical, and inherit their value and characteristics. Tokenized assets bridge the gap between traditional finance and the digital world, unlocking new investment opportunities and liquidity.

In contrast, blockchain-native assets are born on a blockchain, and are purely digital assets that live their lifecycle on blockchain technology. Cryptocurrencies like Bitcoin and NFTs (non-fungible tokens) are prime examples of blockchain-native assets. They do not represent ownership of any physical asset but serve as a medium of exchange, store of value, or utility within the blockchain ecosystem. Financial institutions are beginning to create financial assets on blockchain technology. A prime examples are the USDF Consortium’s USDF, which represents tokenized bank deposits, Apollo Global Management’s Digital Origin Partner’s fund, which is blockchain-native, and Exodus’ private equity, which in 2021 completed the first ever Reg A+ capital raise where the equity stake was represented by a token.

The market value of real-world financial assets is over $500T. As of July 2023, there are $0.3T in blockchain-native and tokenized real-world financial assets. The adoption of blockchain technology in various industries has been steadily growing, and the tokenization of real-world assets is expected to follow suit. Several studies project this number to grow into the tens of trillions of dollars by 2030. One report in particular, a collaboration with BCG, projects asset tokenization alone to reach $16T by 2030.