On Tokenized Real-World Assets (RWAs) and DeFi

Until now, DeFi has been instrumental in the adoption of Web3, with different blockchains, cryptocurrencies, and tokens. But it is still a highly reactive and speculative market for the tokens that are traded on the platforms, mainly because the revenue generated from various platforms is through price variation through speculation. So how can DeFi be less speculative and more globally adopted? This is achieved with the RWAs (Real-World Assets).

What is RWA?

They are tokens (fungible or non-fungible) that represent a real asset that can be traded on-chain (sell, buy, use as collateral for loans, and more). Examples of RWA can be homes (real estate), shares of a company, contracts/guarantees, any object with any significant value to be used in a transaction, and much more.

The most important thing is to decide the type of token to use. If it is fungible, we could tokenize a property in 10 parts and each person could buy a part of that property (more inclusive access to investments). If we decide to be non-fungible, we will tokenize the property into a single NFT, which will represent that we own the property and could use it to apply for a loan and collateralize the NFT (with a real-world value). The use of the RWA that we will give you will be essential for deciding the type of tokenization.

The role of RWA in DeFi

Speculation in DeFi has been one of the main drivers of its use, even in bear markets. But the integration of native non-crypto assets will have a strong impact on the new use of DeFi. This integration will make DeFi a competitor on a par with banks and other financial institutions (so far DeFi is David and banks are Goliath).

The RWA will allow removing the traditional restrictions that count many assets to be transacted, for example, a person could buy a house in another country with almost zero bureaucracy. They will also help a person apply for micro-loans using their car as collateral, commercial office debts can be financed by tokenizing contracts, among many other uses you can imagine.

Imagine exchanging part of your property for a block of shares of a company through Uniswap, requesting a loan with those shares on Aave, and then generating some return with the money obtained, paying off the loan, and then recovering the part of your property borrowed. This is a business that, although it has risks, will be less speculative due to the support of the assets.

What is missing for RWA to become massive?

There are 2 fundamental aspects that are critical for the massive use of RWA. The first is the regulation in all countries, so far there is talk of regulation of cryptocurrencies, but little is discussed about regulating the tokenization of assets. Until that happens, it is very difficult for us to see a DeFi revolution. Also, there is a trade-off to consider, because tokenization of real assets could involve KYC and AML processes, something that many DeFi participants would disagree with, so the question is how to ensure that the asset is real and the property of this one to trade it on-chain?

The second point is the user experience of the platforms. In order to use DeFi platforms, you need some technical knowledge (knowing which blockchain you are on, connecting your wallet, etc.). An ordinary user should be able to use it without understanding those details (those who have accounts in a bank do not know the complexities behind it, only a platform where they can move “their” money).

But there is a very positive aspect.

The existing DeFi infrastructure will be prepared for this RWA revolution, and those of us who are participating will be pioneers in this world of DeFi 2.0