Real World Assets (“RWA”)

May.27.2024

We are back on track. $BTC (the only chart to really look at in cryptoland) has a little set up with a $72k target (current price is $61k) so either we get our little leg up, or not. No one knows and most think crypto is just magic internet money with no real underlying value.

Enter the Real World

One area of crypto that is trying to show the utility of blockchain to the world at large by putting real world assets on chain is the very imaginatively named category of Real World Assets (“RWA”). Put simply, RWA is tokenising the ownership of a real world assets (both tangible and intangible). This allows for the fractionalising of ownership of real world assets. I.e. The ownership rights of one apartment is put on the blockchain and represented in 1000 $APT1 tokens. These $APT1 tokens represent clear ownership of the underlying asset proportionate to the total amount issued and can enable liquidity in notoriously illiquid assets such as residential real estate.

This innovation, particularly with real estate (in jurisdictions that permit it!), eliminates the need for third party oversight. RWA tokenisation permits lending, borrowing and trading and also increases liquidity and transparency as everything is seen on the blockchain.

Tokenise this

Of course, not every asset is suitable for tokenisation and industry events are replete with people asserting that they can tokenise this, that or the other. In my humble submission, tokenisation is best suited for traditional yield generating assets. In addition, it can trace ownership for certain collectible assets. In short, the following categories:

Real Estate;
Bonds (yawn boring sovereign and corporate bonds);
Currencies;
Commodities (soft and hard commodities);
Insurance;
Collectibles (for example high performance cars, designer watches and, don’t tell my wife, high end handbags);
Mortgages;
Funds;
Equities;
Intellectual Property.

Why bother?

There are a number of advantages to having your relevant assets tokenised as RWAs which include, but are not limited to, the following:

Increase liquidity for the asset: Instead of trying to find one buyer for one whole property, you can sell many portions of the property to many buyers and keep some yourself once you have access to the amount of money you need for your next endeavor.

Secondary Markets: The original market for the underlying asset is in trad-fi. The market for your RWA token is in crypto – ideally RWA specific DEXs that have yet to really come to market.

Global Investor Base: The market for your house is limited to the number of views and visits In Real Life (“IRL”). Tokens are available to all investors globally who have access to the DEX / marketplace you are selling them on. As the cost of the Token will be materially less than the full market price of the underlying asset, each Token holder will not come and visit the property before acquiring an interest in it. There will be nice crypto AI tools for that. Dear God… another use for the Metaverse??

Reduced Transaction Costs: You will not need a broker and their percentage points on the sale price. You may, depending on the jurisdiction, need a lawyer to assist in the initial tokenisation. Once the property is on chain, no more need for lawyers. The transaction (buying and selling tokens) will be streamlined with no need for intermediaries.

Immediate Settlement: Settling a transaction on-chain considerably shortens time required to complete Tradfi transactions. In particular, it can take months to acquire real estate. Whereas if it is a RWA token you are buying, it will take only seconds.

Innovation: New assets such as RWAs will have specific products created just for them. I think the most interesting way will be using RWA tokens as collateral for loans on various financing DEXs as you would use real estate as collateral for a loan with a Tradfi institution.

Cool, how do I do it?

If you are interested in tokenising an asset there are a number of steps you will need to perform.

Asset identification: Identify your asset and RWA service provider. Delchain is not affiliated with any such service provider… yet! The RWA service provider can assist with all subsequent steps or you can do a pick and mix of other providers as the market matures. The primary job of the RWA service provider here is (i) value appraisal (ii) ensure authenticity – i.e. you actually own the asset you are looking to securitise and it is genuine and (iii) determine whether the asset you wish to tokenise is suitable for tokenisation.

A key point for the development of RWA as a distinct asset class will be the level of due diligence the RWA service provider puts into the underlying asset and the robustness of the legal structure underpinning it to ensure that the asset is properly managed and maintained. Without that, the RWA token will depreciate in value as the asset breaks / becomes run down.

Securitisation: a unique holding company will be established as an LLC / SPV to manage and custody the asset. While a Trustee / General Partner is appointed for off-chain supervision and management.

The management of RWA is potentially a very lucrative business to get into.

RWA Token Issuance: The Memo and Arts of the LLC / SPV mentioned in step 2 above are amended to reference the RWA Token created which represents an underlying share of the holding company. The benefits of holding the RWA accruing to the token holders will be outlined here.

Primary Offering: Once the Product Placement Memorandum (“PPM”) is filed according to local regulation, all or part of the RWA Tokens are marketed and sold to global investors via an RWA Marketplace or an Exchange (CEX or DEX as the RWA Service Provider will arrange).

Secondary Markets: Once the RWA Tokens are in the wild, there is a secondary market. Your RWA Service Provider may be able to assist with various offerings or indeed have a RWA Marketplace itself.

The winner in the RWA game will be the RWA service provider that can offer excellent secondary market services to its clients and investors using their own platform.

The key point above is the ability of the PPM to be filed in accordance with local regulations. If the country is hostile to crypto the PPM will probably not be accepted. Confirm the position before spending time and money tokenising any of your assets. The service providers surrounding RWAs will be happy to charge fees irrespective of whether the RWA token is issued or not.

Take my money!

There are a few RWA projects already live. As always, you can find them on coingecko under the “Categories” tab https://www.coingecko.com/en/categories/real-world-assets-rwa. Do we advise you pick any up…. Nope. RWA is becoming the narrative for this cycle (together with Decentralised Physical Infrastructure Networks (“DEPIN”)) so it is worth paying attention to. There may be other tokens launching soon that could be interesting. No.’s 2 and 3 below are near ATHs now and I would be very wary of investing in either.

Here are some examples:

Currencies: $ONDO – $ONDO offers the $USDY token which is backed by short term US Treasuries and bank demand deposits. It combines a stablecoin with high quality USD-denominated yield. Basically, this is what $USDT is doing for itself with your money when you buy $USDT. https://www.coingecko.com/en/coins/ondo It is a relatively new entrant to the market, but it has gained some traction.

RWA Service Provider: Mantra ($OM) is a Security first RWA Layer 1 Blockchain, capable of adherence and enforcement of real-world regulatory requirements. Built for Institutions and Developers, MANTRA offers a Permissionless Blockchain for Permissioned applications. They have their own marketplace https://www.mantra.finance/ This project has been around since October 2020, it has had 3 pumps and 2 dumps so far. Maybe this time it is different? (it is up approximately 30x since December 2023 so maybe wait a bit!) https://www.coingecko.com/en/coins/mantra

Regulated Marketplace: Swarm Markets ($SMT): Swarm Markets is the world’s first licensed DeFi platform—a unified exchange for securities and crypto. Swarm Markets makes it possible for institutional investors like banks and hedge funds as well as retail investors to trade and stake tokens based on all kinds of real-world assets, such as commodities and traditional market securities alongside crypto.

Regulated by Germany’s Federal Financial Supervisory Authority (BaFin), Swarm Markets’ regulatory status means the platform provides the same level of governance and accountability as traditional financial institutions. Asset custodians will be able to leverage Swarm Markets’ licenses to issue new tokens and instantly create high-liquidity trading pools directly on the platform.

$SMT is another project that has been around for a number of years, waiting for the narrative to change and have its day in the sun. It has had 2 pumps and 1 dump so far in its history. https://www.coingecko.com/en/coins/swarm-markets

RWA DEX: Realio ($RIO) (www. https://www.realio.fund/) is a platform to invest in, trade and leverage real estate, private equity and other RWAs. Deals on their site include a Liquid Mining Fund (LMX) a “fully tokenized special-purpose vehicle that provides exposure to Bitcoin mining, focusing on immersion cooling technology and sustainable power sources such as hydroelectric.”. Another “coming soon” transaction looks like a property transaction, or it could be a forest. Let’s see. You need to do full KYC and sign and NDA before getting any real information about the deals at hand.

$RIO has been in the wars with 3 pumps and 2 dumps in its over 3 year history. All time low is 0.013 (13^th of October 2022) and all time high is $5.12 (16^th of September 2020), current price is around $1.50. So the lesson of the day boys and girls is try not to be early to the next big thing. You might be right, but the markets may eat you alive before the concept is proven and it gains adoption.

At the moment RWA is one of the narratives in the crypto space. Anecdotal VC activity would suggest that its time is indeed coming, it just may not be anything available on the market… yet.

RWA Service Provider: Defactor $FACTR https://www.defactor.com/ Defactor is another project that has been in the space for years awaiting its day in the sun. It is part of the SORs group (https://sorsdigitalassets.com/) that has Black Manta in its ecosytem: https://blackmanta.capital Black Manta is a regulated RWA platform providing investment, tokenisation and advisory services – the advisory services are Corporate Finance Advisory (Tradfi) and Blockchain Advisory. Black Manta has no token at the moment although it has a long list of completed RWA transactions available on it’s website. Defactor’s objective is to provide a toolkit and support services for anyone looking to tokenise their assets. It is interoperable across $MATIC, $ALGO and $ETH. They have an active community and are frequent publishers on the RWA topic. The $FACTR token allows you to stake it and participate in the governance of the project. Their “Pools” section will assist you (token creator) to launch lending and borrowing pools for your project. The “Asset” section i.e. helping you create your own RWA is not yet ready for primetime (it is in testing and should be ready in 3 months). $FACTR is, unlike most other tokens mentioned here, still significantly down from it’s ATH of 0.8896 – https://www.coingecko.com/en/coins/defactor current price is around 0.1.