The digital assets fuelling the frictionless future of decentralized finance
The tokenization of real-world assets is galvanizing new opportunities for investment yield in DeFi while unlocking liquidity in traditionally illiquid asset classes.
Real-world assets (RWAs) are fungible or non-fungible tokens that represent traditional financial assets on the blockchain. RWAs can represent tangible assets such as real estate or intangible assets such as government bonds and carbon credits.
Real-world asset tokenization is the process of bringing these assets on-chain as security tokens to take advantage of blockchain technology. Any asset of value can be tokenized and utilized on-chain in transactions.
Security tokens can be issued to represent real-world assets that exist and are managed off-chain by custodians, or security tokens can be issued to serve as real-world assets themselves. For example, a bond can be issued directly on-chain as a token, or it can be issued and held off-chain.
Backed by traditional assets, real-world assets can serve as sustainable and reliable digital asset classes that put decentralized finance in direct competition with traditional finance.
In recent years, DeFi markets have seen a rise in protocols tapping into traditional credit markets such as equity and debt financing. The market potential is huge, as credit fuels trillions of dollars worth of business and most of the global economy.
In fact, over $800 trillion USD in traditional markets is poised to be disrupted by blockchain. Bridging this gap between decentralized finance and traditional finance is the tokenization of real-world assets.
Bringing real-world assets on-chain and into the DeFi ecosystem results in unique collateral or investment opportunities, market efficiencies, and access to liquidity that can’t be found in traditional markets.
With real-world asset tokenization, businesses can leverage the DeFi ecosystem for capital and benefit from lower barrier to entry as well as new means for financing that would otherwise be impossible or prohibitively expensive– especially for emerging markets.
Meanwhile, the DeFi ecosystem gains new opportunities for investment yield, access to diverse off-chain markets, and widening customer bases to traditional finance.
Ultimately, blockchain brings trust, liquidity, transparency, security, efficiency, and innovation that makes the tokenization of real-world assets a plus for every participant involved.
A single point of entry for transaction data brings greater trust and a reliable source of ownership. The immutable ledger serves as the golden source of truth for all parties and provides a mechanism for frictionless post-trade reconciliation, atomic settlement, and simultaneous delivery with payment.
Self-executing autonomous protocols automate much of the trade process, reducing reliance on intermediaries and removing sources of human error or interference. With less manual labour involved, transactions become faster, less risky, and significantly less costly.
Public blockchains such as Polymesh are auditable in real-time with on-chain activity and data publicly accessible at all times. The transparency of the network enhances participants’ ability to verify asset collateral quality and systemic risk exposure as well as quickly resolve disputes around record-keeping.
On Polymesh, complex compliance rules can be programmed directly into real-world asset tokens at the protocol layer for leveraging in applications. Compliance on Polymesh works together with a unique identity system and privacy-preserving KYC features that preserve user privacy while facilitating regulatory compliance.
Blockchain makes possible the fractionalization of traditionally illiquid or hard to access assets such as real estate, private credit investments, pre-IPO shares, and carbon credits. This opens the door to new types of ownership models and financial products while bringing access and liquidity to trillions of dollars worth of assets.
On Polymesh, digital assets and settlement logic exist at the protocol layer, eliminating the need for smart contracts or multiple environments. With functionality for both fungible and non-fungible tokens, the blockchain can be used to create new financial products, from fractionalized real estate funds to liquid revenue sharing agreement.
Security is a critical component of tokenized real-world assets, especially as they serve as sources of collateral. It’s important for issuers and investors of RWAs to do due diligence on DeFi protocols and choose technologies or services that prioritize secured lending, offer airtight regulatory compliance, and are built with high-quality open-source code.
As a layer-1 blockchain built specifically for asset tokenization, Polymesh is already a step ahead, featuring a highly secure network built with capital markets needs and regulatory compliance in mind.
Issuers can take advantage of Polymesh’s unique identity system and sophisticated compliance engine to automate and enforce complex compliance requirements, bringing participants the confidence they need to engage with public blockchain infrastructure.