With more institutional involvement in blockchain and Web3-related products and services, real-world asset (RWA) tokenization has become the next hot topic of discussion due to its huge potential to become the future of finance and spur much-needed innovation and economic growth. Thus, governments around the world are working with these industries to clarify the regulatory status of these asset types, especially for institutional investors.
When it comes to RWAs, many types can be digitized and represented as a token that is issued and recorded on a decentralized blockchain. However, despite the growing adoption, the number of actual real-use cases is concentrated in a few sectors because of infrastructure hurdles, among other factors.
Within these RWA tokenization use cases, here are five of the most promising and adopted asset classes for institutional and accredited investors in no particular order.
Key Takeaways
- The rise in the adoption of RWA tokenization is driven by increased institutional involvement in blockchain and Web3 due to tech advancements, increasing regulatory support, stronger custodial solutions, and rising awareness.
- Stablecoins: The most tokenized RWA by market value, initially used for trading but increasingly for payments and remittances.
- US Treasuries: A growing sector in RWA tokenization, with some models offering direct ownership claims, and is expected to expand in the future.
- Private Credit: Rapidly growing from $4 billion in 2022 to $11 billion by the end of 2024, tokenized private credit makes traditionally illiquid lending opportunities more accessible and tradable, supporting the flow of capital to individuals, businesses, and asset holders.
- Global Bonds: A newer, smaller market that is focused on bonds from nations other than the US, with EU treasury bills being the most popular.
- Institutional Funds: Includes private equity, hedge funds, and venture capital, with a relatively smaller market capitalization.
1) Stablecoins
Stablecoins have become a commonly issued and used product within blockchain circles. It is one of the first widely adopted use cases of blockchain technology because of its ability to facilitate faster and more direct payments and settlements, especially across geographical borders.
To date, the most tokenized real-world asset in the blockchain industry remains fiat currency. Currently, the total market value for these tokens sits at approximately $230 billion (as of writing), the largest by many orders of magnitude compared to other tokenized RWAs. Less than a decade ago, the total market capitalization for stablecoins was under a billion dollars, and market adoption was just starting to gain traction. Nowadays, the number of holders is also estimated to be almost 160 million as of the time of this article.
Source: https://app.rwa.xyz/stablecoins
In the past, the stablecoin market was primarily seen as a trading tool. Crypto traders operating on-chain needed a way to quickly exit positions and secure gains without having to completely exit the blockchain space. Stablecoins offer this by providing a supposed stable peg to a selected fiat currency. This use case initially fueled the original growth in the stablecoin asset class. These days, the prevalence of DeFi (decentralized finance) applications and their usage by traders has led to increased demand for stablecoins as well.
Today, other factors, such as payments, are also expanding the user adoption of stablecoins, in particular fiat-backed stablecoins. For those in financially underserved or inefficient regions, a direct payment transfer through stablecoins can be considerably more affordable and accessible than using the traditional banking system and relying on other intermediaries.
This makes stablecoins an increasingly attractive and practical alternative to those making cross-border payments. As blockchain and crypto adoption continues to rise over the long term from more DeFi traders, RWA tokenization issuers, NFT popularity, payment use cases, and more, stablecoin growth is expected to continue.
Recently, Cardano stablecoin USDA issued by Anzens is available for trading on the Minswap platform and has also enabled minting access for users in fourteen eligible US states on the Anzens platform.
2) US Treasuries
US treasuries have been one of the most traditional assets within institutional and retail investor portfolios seeking a consistent yield due to their backing by the full faith and credit of the US government. Now, US treasuries have also started to become tokenized by some issuers.
For traditional stablecoins, their issuers typically buy US treasuries and bonds and then mint stablecoins using those assets as reserve collateral for the newly issued stablecoins. The holders of these don’t have a claim of ownership of the US treasuries and can only redeem the stablecoin for cash.
On the other hand, some tokenized US treasury models offer a direct claim of ownership by those who buy them on-chain. They are a natural extension of the stablecoin model, only with more direct connections between the underlying asset and the digital token issued and recorded on the blockchain ledger.
The size of this market is smaller, valued at around $6.33 billion (as of writing), according to RWA.XYZ. However, this sector is expected to keep growing due to the consistent demand for US treasuries and the rise in institutional awareness and adoption of tokenized products.
Source: https://app.rwa.xyz/treasuries
3) Private Credit
Private credit is one of the biggest emerging RWA classes to enter tokenization and achieve significant growth after stablecoins. These days, it is considered to be the second-biggest asset class within tokenized RWAs and has attracted the attention of Wall Street and venture capital.
In short, private credit refers to non-bank lenders providing loans to individuals or entities outside the traditional banking system.
The tokenization of real-world loans improves liquidity for these traditionally illiquid assets, enabling the holders of these illiquid assets to gain access to alternative financing opportunities or sell the tokenized versions directly to interested investors.
In less than two years, the market for active tokenized loans has grown from around $4 billion in 2022 to nearly $13 billion (as of writing), a threefold increase in just a couple of years.
The technological properties of blockchain and digital tokens through the usage of platforms and wallets have enabled traditionally illiquid lending opportunities to be more accessible and tradable, supporting the flow of capital to individuals, businesses, and asset holders.
Source: https://app.rwa.xyz/private_credit
4) Global Bonds
The increasing success of tokenized US debt has caught the attention of many Web3 developers trying to bring other bonds on-chain. This has created a new wave of tokenization projects that focus on bonds issued by other nations.
This effort is much more recent, having taken flight at the start of 2023. This makes this market much smaller, but also one with a lot of potential. As of writing, these bonds sit at a combined valuation of $209 million, which has grown more than ten times from the latter half of 2023.
Source: https://app.rwa.xyz/global-bonds
5) Institutional Funds
Institutional funds are another class of assets outside public debt that is being tokenized. These include private equity, hedge funds, venture capital, and similar investment vehicles. They offer greater capacity for retail investors to participate in this market, something that can be difficult in the traditional financial world.
The combined capitalization of this type of asset is $475 million (as of writing). The main obstacle to its growth is the regulatory requirements for these entities. Anyone looking to enter this market has to provide additional documentation and be compliant with the jurisdiction. For this reason, most retail blockchain users tend to avoid these services.
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