What Is Real World Assets (RWA)?

In the tokenization process, the asset is usually held within a legal structure such as a fund or a special purpose vehicle, and tokens representing rights over that asset are issued on a blockchain. Depending on the structure, token holders may receive a share of interest, rental income or changes in the asset's value. Thanks to smart contracts, these tokens can be transferred at any hour of the day, divided into small fractions and used as collateral in DeFi protocols.

One of the leading examples in this field is tokenized US Treasury bonds and money market funds; major asset management firms have also begun offering such products on blockchains. Protocols such as MakerDAO have directed part of their stablecoin reserves into real world assets. Private credit, gold and real estate are also among the assets being tokenized.

RWAs carry risks that blockchain cannot solve on its own. The value of the token depends on the trustworthiness of the institution holding the asset, the soundness of the legal structure and the accurate transfer of off-chain data. If the issuer goes bankrupt, the rights of token holders may become uncertain. In addition, these products are often subject to securities regulations; therefore KYC requirements and restrictions for investors in certain countries are common.