Original author: Jason Jiang
Original source: Ouke Cloud Chain Research Institute
RWA and asset tokenization are becoming one of the most watched use cases of blockchain and Web3 technology globally. Many countries and regions such as Hong Kong and Singapore are actively promoting relevant practices and layouts. Ouke Cloud Chain Research Institute has been paying close attention to the development of RWA since April this year, and published in In Hong Kong, we found a Web3 track worthy of long-term attentionThe article first proposed that RWA will become the most anticipated application direction of Web3 in Hong Kong.
Recently, the signed article The key to RWA does not lie in Web3 technology by Jason Jiang, a researcher at Ouke Cloud Chain Research Institute, was published in the Hong Kong media. The article believes that the key factor in the tokenization of RWA lies not in the technical level of Web3 but in the underlying assets. At present, the assets that can be tokenized are more in the hands of traditional institutions, so the initiative of RWA narrative is not in the hands of Web3. .
The following is the text of the article:
The tokenization of real world assets (RWA) is becoming one of the most watched use cases of blockchain and Web3 technology globally. Whether it is Singapore Token 2049, Shanghai Wanxiang Blockchain Summit, or every corner of the world filled with Web3 atmosphere, RWA is the hottest topic, and there is almost no one.
As market liquidity continues to tighten, it would be very moving to think about if trillions of assets in the real world could really be transferred to the blockchain network for circulation. But can these beautiful ideas be realized? Can it bring the imagined disruptive changes to the encryption market?
RWA cannot change Crypto
RWA usually refers to real assets that can be represented and marked with value on the blockchain. Valuable assets such as commercial real estate, precious metals, stocks and bonds, and carbon emission rights can all be considered RWA, as long as they can be properly tokenized and accounted for. There are currently two main ways to tokenize RWA. The first is to tokenize assets that exist in the physical world on the chain, and have a third-party custodian manage the assets off-chain; the second is to natively Tokenization of digital assets. This type of asset itself is a token issued on the chain and does not represent any off-chain assets, such as green bonds issued directly on the chain in the form of tokens.
Both paths currently have some successful practical cases, but no matter which path is achieved, the author believes that the key factor in RWA tokenization at this stage is not the technical level but the underlying assets (after all, blockchain technology has been born for more than ten years). Years ago, assets on the blockchain have also been discussed for a long time). At the level of tokenized underlying assets, we currently need to consider many issues, such as which assets can be tokenized, which assets need to be tokenized, and how to manage the underlying assets after tokenization. Taking the frequently cited BCG report as an example, they believe that real assets such as real estate, cars, stocks, metals, and art can be put on the chain, and conservatively predict that the value of tokenized assets will reach US$16 trillion in 2030. This sounds attractive, but who owns these assets? Can they all be successfully tokenized? The answer is probably no.
If we regard various crypto-asset-related projects as Web3 (of course, Web3 is not equal to crypto-assets), then most of the real assets that can be tokenized on the market are actually in the hands of the so-called Web2 technology and financial institutions. . This means that the initiative of RWA narrative at this stage does not lie with Web3, but depends more on Web2 institutions to see whether they have enough motivation to change the status quo and put the assets in their hands on the chain and tokenize them. But this is not easy for Web2 organizations, and the reason is easy to understand: any new technology that attempts to migrate traditional assets/business to a new area usually fails quickly because the incremental value it creates is not large enough, but the cost The cost is often very high. Same goes for RWA.
——This may also reveal a more cruel truth to some extent: At this stage, attempts to use Web3 technology to subvert Web2 may be just idealism, because vested interests in the Web2 world still occupy the real world. Many of the core and most basic resources in Web3 are exactly what are needed for the development of Web3. But without enough new benefits, it is impossible for vested interests to complete their self-revolution.
Even so, the crypto market is still looking forward to more institutions participating in RWA. Although crypto-native projects such as Maker DAO, Frax Finance, and Matrixdock are also actively exploring RWA, the shock brought by these innovations may not be as direct as an RWA research report from Goldman Sachs, Citigroup, and other institutions. While the crypto world is trying to subvert Web2 with Web3 technology, it is also looking forward to attracting more Web2 institutions to participate: In the previous DeFi Summer, Web2 institutions brought an institutional cow to the crypto market by directly injecting liquidity. .
But in today’s RWA narrative, Web2 institutions may not be able to bring the expected changes to the encryption market again. Even though some exploratory traditional financial institutions have joined the RWA track at this stage, their explorations and attempts do not seem to be directly related to the crypto world: their tokenized real assets cannot interact with crypto assets. , and cannot directly bring new liquidity to the encryption market. So don’t expect institutional deployment of RWA to bring the next bull market to the crypto market. The RWA narrative is beautiful, but the underlying logic of this narrative is not based on cryptographic soil. RWA and tokenization have now far exceeded the scope of the crypto market. Therefore, RWA led by Web2 institutions (more of a proxy for traditional assets) Monetization) cannot directly change the crypto market.
So is RWA still valuable to the crypto market? Of course there is. The reason why RWA has received widespread attention and expectations from all walks of life is that it can bring three changes to real assets: increasing liquidity, simplifying transaction processes, and eliminating financial intermediaries. Among them, the elimination of financial intermediaries is the most unique aspect of RWA. This does not mean that increasing liquidity and simplifying transaction processes are not important, but since 1970, with the continuous changes in financial instruments, through asset securitization and asset informatization we have actually been able to increase asset liquidity and simplify In the transaction process, only eliminating intermediaries is something that traditional financial institutions have never done before or have never thought of doing.
But this is clearly the advantage of the crypto market:
Paying attention to crypto-native RWA practices, using the most Crypto logic to reconstruct real-world assets, and using technology to give RWA irreplaceable functions are the opportunities for the encryption industry. Through this more thorough tokenization of RWA, the crypto industry must not only transform existing assets, but also create new assets based on existing assets, and even create new businesses and business models.
Isn’t this what the encryption industry originally expected and is best at?
Don’t flatter, but don’t underestimate RWA either
There have been many research reports and articles about RWA recently, and one sentence among them is impressive: “The reason why RWA can become a trillion-level narrative is largely because it is still too far away from being realized, so there is enough left. imagination space. This statement is not so positive, but it is very realistic.
Take U.S. bonds and real estate as examples. These two are the main asset types in the current RWA market, with market values reaching US$240 trillion and US$280 trillion respectively. Even if we put aside other real assets such as gold and just focus on the U.S. debt and real estate markets, if 1% of existing assets can be traded on the chain through RWA, it seems that it can easily bring an increase of more than 5 trillion US dollars to Web3. value. This data is eye-catching, but allowing 1% of U.S. debt and real estate to be tokenized through blockchain technology is obviously not an easy task that can be completed in the short term, so don’t oversell RWA.
But in the long term, we cannot underestimate the changes that tokenization of RWA can bring. Especially as the entire society accelerates towards a more digital Web3 world, our need for digital and tokenized assets will become even more urgent. Not only financial institutions, but also various enterprises and even individuals may need to tokenize their assets through RWA and other methods to better adapt to the digital world.
Bank of America’s latest report also pointed out that enterprise blockchain and tokenization use cases may be more diverse and broader than financial institutions’ use cases. Since the beginning of 2020, more than half of the Fortune 100 companies have launched projects utilizing blockchain and tokenization. Enterprises in various industries are increasingly leveraging the same basic technologies as financial institutions to increase revenue, reduce costs through automated processes, optimize supply chains, expand potential customer base, improve customer loyalty, and offset The impact of climate change, combating counterfeiting, and calling on consumers and investors to pay attention to ESG (environment, society and governance). Many companies facing huge risks of disruption or fear of losing market share are actively exploring how to enter the digital asset ecosystem and adopt its use cases.
Today, we may be at the stage of building the infrastructure in preparation for a real explosion of growth in RWA and tokenization.
From the beginning of the digital exploration of financial assets in 1971, to the complete transition of the U.S. stock market to decimal marking of asset prices in 2001, to the ongoing financial informatization and digital transformation today, the infrastructure construction of the traditional financial system has never stopped. But even so, 27% of financial settlement systems today still use infrastructure from more than 20 years ago. These outdated infrastructure will inevitably limit the transaction circulation of tokenized assets, so we urgently need to build infrastructure that belongs to the token economy era. In addition to financial infrastructure such as transaction and payment systems and settlement systems, there are also crucial security and compliance infrastructure.
When all this is ready, perhaps it’s time for RWA tokenization to realize the trillion-dollar narrative becoming a reality. And this time may be five years or ten years.
About Ouke Cloud Chain Research Institute:
The Ouke Cloud Chain Research Institute is a strategic research institution under the Ouke Cloud Chain Group. Its mission is to help global business, public and social sectors gain a deeper understanding of the evolution of financial technology and the blockchain economy, and to output in-depth analysis and professional content. Covering topics such as technology application and innovation, technology and social evolution, and financial technology challenges, it is committed to promoting the application and sustainable development of cutting-edge technologies such as blockchain technology.
