Blockchain networks come in all sorts of configurations. Here’s why you should choose a public permissioned blockchain — like Polymesh — to tokenize real-world assets or RWAs.
As we see in APAC, governments and financial authorities are gearing up to regulate digital assets. Regulatory moves are prompting industry preparations for widespread asset tokenization.
A major market focus is the tokenization of real-world assets (short-form RWAs), from real estate and loans to government bonds and carbon credits.
Regardless of the asset or its value, whether tangible or intangible, and whether it will be managed on-chain or off-chain, it can be tokenized. Asset tokenization brings benefits to both issuers and investors and provides collateral and yield in decentralized finance.
Choosing the blockchain that fits your business purposes is up to your research. To make it easier, here are 5 compelling reasons why a public permissioned blockchain is best for tokenized RWAs.
Public blockchains are ideal infrastructure for use cases that benefit from reduced reliance on centralized intermediaries, or that can only be created without them — like real-world asset tokenization and native digital assets.
Public blockchains enable secure information sharing and validation between multiple parties in a trustless, peer-to-peer manner. This is extremely important for institutional use cases like RWAs requiring traceable and verifiable transactions, interactions with third parties, and reconciliation.
Public permissioned networks are a category of public networks ideal for use cases where privacy, control, and identity are equally important as publicly-enabled transparency, verifiability, and interoperability.
Permissioned networks make trustless transactions truly feasible by ensuring a minimum viable, finite number of entities in control. Unlike on permissionless networks, every validator node knows the identity of other validator nodes, enabling effective governance and incentivization for consensus and long-term viability.
Public permissioned networks like Polymesh are often crafted with data and AML/KYC compliance in mind and balance the decentralization and immutability of public infrastructure with strong governance.
Public permissioned blockchains are especially valuable for institutional finance — the domain of RWAs — as market dynamics benefit from secure information sharing and transparent transaction verification against a backdrop of heavy regulation.
Public permissioned blockchains bring security and transparency to real-world asset tokenization that enhances regulatory compliance. The publicly shared and immutable ledger of transactions and asset ownership improves trust, accountability, and auditability.
Less reliance on any single entity for maintenance or control provides higher security than a private network. Permissioning introduces reputation factors as node operators must be known entities, as they are on Polymesh. This shrinks the risk of malicious attacks or collusion.
Smart contracts and automation can streamline the verification and reporting process, reducing the cost and complexity of compliance. As the chain is public, regulators and auditors can access data associated with transactions in real-time or on-demand.
Identity verification processes in onboarding like the one required to access Polymesh enable compatibility with existing financial procedures like Know Your Customer or KYC. Regulators and financial institutions can be guaranteed every on-chain user has a known identity that can be traced by the KYC provider if required.
Finally, encryption and zero-knowledge proofs can be used in combination with transactions or attestations to prove the validity of data without revealing its contents. These techniques can ensure personal identity information and other on-chain data is private and only selectively disclosed.
Even when blockchain is ideal for a use-case — like real estate or other RWAs — scalability and efficiency issues can prevent expanding to enterprise.
Public permissionless blockchains can’t provide enterprise-level efficiency. Relying on consensus between a large number of nodes, they’re plagued with network congestion that translates into high fees, latency, and low transaction throughput. Challenges for compliance, technical support, and accountability can also bleed a budget down the line.
On the other hand, private permissioned networks are notoriously costly and time-consuming to implement and maintain. They also scale poorly. Expanding to new members involves intensive participant identification as well as a manual set-up, exchange of key material, and updates to consensus or smart contracts.
Public permissioned blockchains remove the burden of building new infrastructure while preserving the benefits of identification and finite knowability with less resource-intensive off-chain processes. Millions of participants can be onboarded as in permissionless networks, and no one entity can dominate or manipulate the network or its data.
Preliminary requirements for who is able to join and participate, and in what capacity, enable various levels of control. It’s possible to refine who can read the blockchain’s data vs. validate new blocks, run a regulator node vs. validator node, and plug into the network to build applications.
It’s only possible to transact digital assets with native bearer representation — assets where the holder provably owns the asset — on a blockchain. Centralized databases can’t natively store and transact digital bearer assets with true ownership because owners can’t maintain custody while using them.
This makes blockchain especially valuable for real-world assets such as real estate, fiat currency, equities, commodities, carbon credits, intellectual property, and fine art. RWA tokens can be bearer assets that give the token holder a claim over the real-world asset, just like how a house deed is a legacy bearer asset that represents an ownership claim over a house.
Once tokenized, real-world assets can be used for trading or as collateral in blockchain networks. Blockchain’s global, borderless nature, frictionless transactions, and utilization within DeFi can pour trillions of dollars of liquidity into RWAs.
Tapping into the digital native ecosystem requires interoperability. Finding compatible private blockchains will be hard, as there are fewer and each is built to be an isolated environment. A private blockchain can interact with public blockchains, but interoperability will be limited. It will have to invest time, money, and talent into integrating with each new environment individually.
It’s far easier to use an existing public blockchain. A public permissioned network is ideal for markets that need new tooling to improve processes and maintain incentives — like public equity — but not a full overhaul.
For enterprises, public permissioned blockchains provide the on-ramp to decentralized markets. Traditional finance users can use permissioned networks as gateways to access, innovate with, and eventually transition to fully decentralized networks.
Control can pose a problem for enterprises wishing to integrate emerging technology, which is why many have preferred to explore private consortiums for real-world asset tokenization. However, this limits the benefits businesses harness from the technology, requires high investment and a robust business model, and isn’t any more compatible with compliance.
Private consortiums involve large commitments from their members for participation and technological contributions. There are also considerations around who pays for the infrastructure or is reliable for maintenance. Bargaining power, asymmetric information, and varying levels of technological mastery can throw fairness out the window.
In contrast, a public permissioned blockchain can provide confidence in network control with the benefit of increased innovation, collaboration, and flexibility. A minimum viable number of nodes mixed with decentralized governance means faster upgrades and protocol changes than possible on either public permissionless or private networks.
Public blockchains come with layers of open-source knowledge and tooling that private permissioned blockchains lack. Deployment and development problems can draw on a well of industry knowledge, developer resources, and decentralized applications. Layer-2 solutions, cryptography, and cross-chain communication are also constantly evolving to meet institutional needs and improve scalability, privacy, interoperability, and governance.
Governance on public permissioned networks is more likely to be designed in line with existing systems for real-world assets such as traditional settlement rails. Public permissioned networks also tend to be designed towards compliance, including with data protection and privacy laws like the European Union’s GDPR.
In general, public permissioned infrastructure is more likely to be both backward and forward-compatible with legacy and DeFi networks.
Blockchain infrastructure is only really low-cost if the cost of tooling is offset by the benefits of efficiency and functionality, faster transactions, security and reduced market risks, compatibility with existing systems and competitive positioning, and a transparent, immutable ledger between multiple parties.
In many cases, it’s cheaper and less time-consuming to use an existing, imperfect option instead of a custom-build. But there are lots of existing options to choose from for real-world asset tokenization.
Both public and private blockchains are useful for various objectives and project requirements in the industry, with their own unique benefits and challenges for digital assets.
In recent years, a number of public permissioned networks — including Polymesh — have emerged that balance openness and control, efficiency and security, and decentralization and governance. Their hybrid infrastructure combines the benefits of public permissionless and private permissioned blockchains while minimizing their challenges, making them an ideal fit for tokenized RWAs.
To learn more about public permissioned blockchains, visit polymesh.network/permissioned-blockchain.