RWA Introduction

What are real world assets in Crypto?

Real World Assets, Asset Tokenization, and Asset Securitization are terms that essentially describe the same concept, though they have evolved over time. Initially popularized as Security Tokens (STOs) during 2019-2020, the terminology shifted to Asset Securitization in 2021-2022, and most recently to Real World Assets in 2023-2024. All these terms refer to the process of converting off-chain assets (those existing in traditional finance) to on-chain assets (digital tokens on a blockchain).

The technological processes involved in creating and trading these tokens, which represent real-world assets, are similar to those used for Utility Tokens or Governance Tokens. Virtually all tokens representing real-world assets are classified as "securities" under regulatory frameworks, necessitating adherence to specific legal requirements.

The complexity of building a new RWA project is spread across three areas:

1) Technology - This relates to tokenization, enabling trading, and custody of the assets. Since most builders in crypto come from a tech background, this is generally the easiest part for them.

2) Legal - This is one of the most complex areas, as builders need to be aware of regulations across multiple jurisdictions.

3) Asset Knowledge - Builders should also have detailed knowledge and connections to successfully bring relevant traditional assets on-chain.

RWA Project - Team Composition

Real World Asset (RWA) projects require a diverse skill set to successfully launch a product. The team should ideally include:

1. A Developer with Blockchain Expertise: This individual should have a deep understanding of blockchains and decentralized finance (DeFi) primitives.

2. A Capital Markets Expert: This professional should possess a thorough understanding of the asset market and be able to identify which types of assets are viable for tokenization.

3. A Securities Lawyer: An essential member of the team, this lawyer specializes in securities law and is adept at structuring the company while navigating the complex web of regulatory requirements. Their role is critical in ensuring that the project complies with all legal norms and can operate smoothly across different jurisdictions.

4. A Sales and Marketing Strategist: A strong sales and marketing professional is key to forging partnerships with asset providers and engaging with potential investors.

Together, these roles form the cornerstone of a successful RWA project, blending technical skills with market insight and legal and promotional expertise to navigate the challenges of introducing traditional assets into the blockchain ecosystem.

This makes RWA projects at least twice as complex as compared to other projects.

Role of Regulations in Real-World Assets (RWAs)

The concept of tokenizing real-world assets (RWAs) like stocks, ETFs, and bonds on the blockchain has been explored for the past 5-7 years. Despite its potential to revolutionize asset trading, significant challenges have hindered its adoption in the blockchain community. The main obstacle lies in the complexity of complying with global securities regulations, which impacts the ability of these assets to be traded freely on decentralized platforms, integrated with DeFi protocols, or transformed into derivative products.

A significant barrier to RWA adoption is the challenge of offering securities compliantly on a global scale. Securities laws vary widely between countries, and complying with each jurisdiction's regulations is an enormous undertaking. This complexity hampers the ability to trade RWAs seamlessly on blockchain platforms, integrate them into decentralized finance (DeFi) protocols, and create derivative products.

Since the assets being bridged onto the blockchain are securities, builders must ensure compliance throughout all phases of asset tokenization.

Note: Builders/Token Issuers need to consider the legal implications of both the jurisdiction where the token is issued (securitized) and where the token is distributed.