Many people have been skeptical about investing in cryptocurrencies because their value is mostly driven by speculation and volatility. While some investors may have gambled on early crypto to get rich, others are hesitant to invest in crypto because they don’t see it as stable. The only thing keeping crypto alive is its decentralized financial system.
From Speculation to Utility: How Crypto Is Maturing
What if there were a way to merge traditional finance with decentralized finance? The next structural phase of crypto is the tokenization of Real-World Assets (RWAs) and the maturing of stablecoin payment infrastructure.
When the crypto market crashed in the winter of 2022, it was clear that crypto needed to mature from a speculative asset to a utility asset if it was going to survive. RWAs seemed to become the answer because they would allow traditional financial assets from the real world, such as stocks, bonds, gold, and real estate, to trade just like digital assets and cryptocurrency.
That is what is meant by utility crypto, a digital asset where the value derives from actual legal ownership and cash flows. Rather than trading tokens that represent speculative assets, people trade tokens that represent equity in real assets. That brings more value and stability to those assets than speculative assets.
What Real-World Assets (RWAs) Actually Mean in Digital Finance
RWAs are assets that exist in the physical world but are tokenized and traded on blockchain networks. Investors would have fractional ownership of the assets, similar to buying stock in a company. They can also enjoy the benefits associated with trading on a blockchain, such as faster transactions, increased liquidity, smaller minimum investment requirements, high security, and increased ownership transparency.
The Mechanics of Tokenization in Plain English
The process of tokenizing RWAs is much simpler than it may seem. The best way to think about it is as the digitized version of a physical asset. Here are the basic steps of RWA tokenization:
1) The physical asset is appraised to determine its real-world value.
2) A specialized legal entity, such as a Special Purpose Vehicle (SPV), serves as the middleman that obtains off-chain custody of the physical asset.
3) Smart contracts are made to outline the rules of owning and transferring the token.
4) The tokens representing fractional shares of the RWA are created on the blockchain, the equivalent of minting physical coins.
5) The tokens are listed on crypto trading platforms, where investors are free to buy and sell them.
6) Third-party custodians continue to hold the RWAs as people use stablecoins to buy and sell the tokens of the RWAs.
7) All token transactions are recorded on the blockchain to show ownership. Meanwhile, real-world value data is fed into the blockchain to ensure the token price matches the RWA’s real value.
Stablecoins as the Payment Infrastructure of a Tokenized World
Stablecoins are a type of cryptocurrency that has a stable price with little to no value changes. The value typically aligns with a fiat currency value, such as the U.S. Dollar. Some examples of fiat-supported stablecoins are USDT and USDC, which are basically the cash equivalents of real U.S. dollars. That is why the value of one USDT or USDC coin is always around $1.
Up until now, people only invested in stablecoins to preserve their purchasing power, especially if they live in countries with unstable national currencies. The downside is that holding stablecoins in a crypto wallet does not earn investors any money, nor interest payments or increased value. They are just used to quickly buy, sell, exchange, and transfer currency across borders without any of the traditional restrictions.
Today, stablecoins serve as the payment infrastructure for buying and selling RWAs. Since stablecoins have a guaranteed value with virtually no volatility, they pretty much guarantee that all RWAs sales will instantly settle 24 hours a day, 7 days a week. It is a benefit that traditional banking cannot offer.
Why Institutions Are Betting on RWAs, Not Meme coins
Financial institutions are waking up to the reality that meme coins offer temporary volatility only, with no long-term value. You won’t see major institutions like Fidelity and BlackRock purchasing meme coins like Dogecoin. Instead, they are putting the infrastructure in place to transfer trillions of dollars in RWAs onto blockchains, where they can remain safe, secure, and stable.
The Global Regulatory Shift Shaping Tokenized Assets
Global regulations around digital and tokenized assets have been limited over the years. But now, there is a major shift toward increased digital asset regulation across many continents, including North America, Europe, and Asia. Here is the current state of this major international regulatory shift shaping how tokenized assets are traded:
- The European Union passed the Markets in Crypto-Assets (MiCA) regulation to establish a comprehensive legal framework for all local crypto-asset service providers (CASPs) to follow throughout the EU member states. Now, traditional banks have more confidence to get involved in digital asset trading.
- In Asia, Hong Kong and Singapore have created strict licensing guidelines for RWA platforms that require them to operate under local securities laws to maximize investor safety protections.
Practical Use Cases That Will Change Every Day Finance
Okay, so how will RWA tokenization and investments change everyday finance throughout the world?
Just imagine a scenario where you have a portfolio of tokenized RWAs and wish to use them as collateral to take out a loan. Rather than seeking a loan officer’s approval, you can get approved for a loan within seconds over a decentralized blockchain protocol. It is like providing instant collateral without waiting for approval.
How about the ability to trade tokenized stock assets 24 hours a day? As you know, the traditional stock market trades about 6 ½ hours per day, five days a week. However, if the assets are tokenized on a blockchain, investors throughout the world can trade them at any time and day they want.
Risks, Guardrails, and Misconceptions Around RWA Tokenization
Despite all the optimism surrounding RWA tokenization, there are some risks and misconceptions to consider. Some people think tokenizing assets makes everything liquid for easier trading. The truth is that certain tokenized physical assets, such as real estate, don’t always create immediate liquidity. Because of this, they are still subjected to market fluctuations and economic downturns.
Next, how does an investor know the custodian secures their physical assets? Since this concept is still new, there is very little insurance protection against physical assets that might get stolen or misplaced while in custody. The digital tokens become worthless if something bad happens to the physical assets.
What about the smart contracts that are governing all these RWA token transactions? If there is a bug or cyberattack that messes with the smart contract coding, it could jeopardize people’s assets and investments.
How RushRadar Helps Readers Navigate the Tokenized Future
If you need help navigating the transition from speculative to utility cryptocurrency, RushRader is the best place to seek guidance. It follows the latest trends in digital investing and cybersecurity and publishes comprehensive educational content and resources to help readers better understand them.
Whether you’re looking for trustworthy crypto exchange platforms or the latest RWA tokenization projects, RushRader will bring you fully vetted details to help you stay ahead of the curve on these latest news developments.
Here are some recommended crypto exchange platforms to start investing in new tokenized assets across top blockchains:
- MEXC is an international crypto exchange platform designed to make trading digital assets accessible and easy for everyone. About 30 million people use it in over 170 countries.
- Bybit is one of the biggest crypto exchange platforms worldwide. It has more than 60 million active users in approximately 195 countries.
- Binance is the largest crypto exchange in the world based on its trading volume. It is also one of the oldest exchanges and offers several attractive crypto products for investors, such as margin trading, futures, savings, educational content, and staking.
Why RWAs and Stablecoins Define Crypto’s Long-Term Trajectory
RWAs and stablecoins represent the final stop for cryptocurrency’s long trajectory toward something more prosperous in the digital asset space. Investors can finally trust crypto and digital asset investing because those assets will finally have real-world value like they never did before. That could potentially open up trillions of dollars in RWA trading opportunities to investors worldwide. That will revolutionize the global financial markets forever.
