Tokenization of Real-World Assets is a FAILURE
Hype around Real-World Assets is slowly coming to an end
Despite all the hype around Real-World Assets, most likely, in this bull-market cycle, nothing significant will happen.
Tokenization of Real-World Assets (RWAs) is a great concept and one of the biggest promises of blockchain.
At the peak of the RWA hype last year, I heard numbers as high as $10 trillion (yes, that’s a trillion with a T) of assets in tokenized form on the blockchain by 2030.
Tokenization promises to completely disrupt traditional ways of investing and ownership, lower costs, bring transparency and greater liquidity into the ecosystem.
I have to clearly state my doubts about the topic of tokenization of RWAs after my decade of being the pioneer and leader in this space:
with my crypto start-up Lykke, in 2015 we were the first company ever to digitize our shares (LKK token), issue those digital shares on the blockchain, and list them on our exchange for secondary market trading. Despite the LKK token being in the Top 50 globally by market capitalization in 2017, it was ultimately scrapped due to regulatory pressure.
with SwissAssetDAO, we are the leader in securitizing RWAs and bringing them to the crypto-native ecosystem for investments and diversification of treasuries. And we did that while being a Decentralized Autonomous Organization (DAO) with a legal set-up in Switzerland!
Both were an amazing experience, and I’m forever grateful & humbled to lead those pioneering achievements.
However, now I have strong credibility and insights into where the tokenization of RWAs is lacking and how to move forward.
The tokenization of Real-World Assets (RWAs) is pitched to everyone as one of the biggest narratives for the current bull market.
If you want to discuss RWAs, write me “RWA” in the comments and I’ll set up a call with you.
However, it is painfully obvious that the tokenization of RWAs has massive obstacles on its way to adoption:
Tokenization of RWAs happens via Special Purpose Vehicle (SPV) which is costly, complex, and inefficient,
most jurisdictions in the world do not have a legal framework for direct, on-chain issuance of RWAs,
there are no secondary markets or liquidity for RWAs,
interest for tokenized RWAs is dying and liquidity is leaving the RWA ecosystem.
Tokenization is not "direct" because many jurisdictions worldwide do not allow on-chain issuance and recording of Real-World Assets (RWAs).
You need to set up a Special Purpose Vehicle (SPV) in an off-shore and tax-friendly jurisdiction, which purchases, holds and manages the RWA, and then you tokenize the SPV holding the RWA.
You don’t need to be an RWA expert to understand that this process creates friction, increases costs, and creates a complicated environment for investors.
Traditional Finance (TradFi) investors would never purchase such tokenized RWAs - they can open a securities account with a broker-dealer and purchase such assets directly, or via securitization.
Only crypto-native companies would go through the hassle of RWAs since they can't easily access such products using TradFi services.
To make the tokenization of RWA a massive success and accessible to everyone, we NEED direct & on-chain issuance.
Unfortunately, only a handful of jurisdictions allow direct, on-chain issuance of RWAs - for example, Switzerland passed the so-called "DLT Law" which created a legal assurance and process for direct on-chain issuance.
The dream of RWAs tokenization is:
direct on-chain issuance of digitally native assets,
legal rights are enforced on-chain,
counter-parties exchange RWAs directly on-chain (via atomic swaps or DEX/AMM).
I'm still very bullish on RWAs but we need to fix legal and regulatory challenges for scale.
The legal framework needs to be ready for all the implications such tokenizing could bring and this is also narrowing its use case - even the crypto itself still needs regulation to support the concept of tokenizing everything.
Finally, the interest in tokenized US Treasuries, the biggest part of the RWA ecosystem, is ending and losing liquidity.
As my friend Harvey Li noticed, today the on-chain allocation to tokenized US Treasuries is in a DECLINE! Can you believe that?!
The crypto bull market is back and the RWA liquidity is drying up! You can't make this stuff up…
I want to end on a positive note: Tokenized Real-World Assets are one of the biggest promises of the blockchain ecosystem, and in the future everything of value will be on-chain.
There are amazing RWA projects such as MakerDAO, Ondo Finance, Open Finance, Mapple, ClearLoop, Centrifuge, GoldFinch, Aktionariat, SwissAssetDAO, and many more doing amazing work building tokenized RWA ecosystem.
We have to acknowledge my feedback and work on overcoming these challenges to make RWAs a massive success.
If you want to discuss RWAs, write me “RWA” in the comments and I’ll set up a call with you.
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