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Introduction

Real World Assets (RWAs), in the context of the blockchain sector, refer to tangible and intangible assets such as real estate, art, music, and commodities brought to the blockchain through tokenization. Tokenization is the process of creating a digital version of a physical real-world asset through a trustless smart contract. Developers generally create smart contracts that issue a token representing an RWA alongside an off-chain guarantee that the issued token is always redeemable for the underlying asset.

Source: QIDs asset ventures 

RWAs have been considered the holy grail amongst crypto investors and product builders. The size of global real estate, carbon credits, gold, art, and music markets, to name a few potentially tokenizable RWAs, is enormous, dwarfing the crypto market itself.

One specific Real World Asset has gained traction and is already incredibly popular. Stablecoins are a form of cryptocurrency and digitized real-world asset designed to offer price stability. They are typically pegged to a stable asset, such as fiat currencies like the US dollar or commodities like gold. It has been reported that the transaction volume of stablecoins has now exceeded Mastercard’s and is catching up with Visa.

Many describe stablecoins as crypto’s “killer app”, a relevant and desirable application that proves the core value of a larger technology. It is one of the emerging reasons why the broader financial market has begun to stand up and pay attention to the digital asset sector.

Stablecoins are issued on blockchains with the same characteristics as any digital assets, aside from their back-ends. The majority of stablecoins can only be issued when the issuer receives or takes custody of the asset the stablecoin represents. This is known as 1:1 backing because, due to design choices like the ability to redeem stablecoins for the assets they represent, these assets can hold their value.

The most popular stablecoins, by some distance, are 1:1 backed US Dollars, including Tether (USDT) and USD Coin (USDC). Accessible, digital US dollars have been a haven for crypto traders seeking to lock in profitable Bitcoin and altcoin positions. Stablecoins immediately created a solution for the inherent volatility of emerging crypto tokens like Bitcoin and Ethereum, which are investable assets with high upsides but risky. Bitcoin and Ethereum traders could stay on the blockchain with stablecoins, mitigating tax implications that come with the volatility of crypto price movements, while helping traders stay liquid onchain.

Beyond the trading use case, USD stablecoins are in many ways much easier and cheaper to obtain and transact than highly desirable fiat US Dollars. Holders can earn interest on USD stablecoins without identity restrictions through Web3 platforms, and salaries can be paid to stablecoin blockchain wallets just like they can bank accounts. When combined with tools like a crypto-backed debit card, stablecoin can open up a wide range of banking activities to individuals and businesses that may otherwise be excluded from the traditional banking sector.

Stablecoins help Web3 users onboard to the blockchain and stay onchain.  In August 2024, Brave New Coin spoke to Yat Siu, Co-founder and Chairman of Animoca Brands, one of the leading investors and builders of Web3 technology. He explained that — “Users will become accustomed to paying for Web3.0 goods and services with stablecoins – this also means that users will hold stablecoins for longer durations; once money is on-chain, it will stay there.”

This will be aided by Ethereum’s EIP:7702 and the ERC-4337 standard. The implementation of these upgrades will enable blockchain account separation on Ethereum and its connected networks. It is set to abstract away a lot of the complexities of the blockchain backend making the user experience more similar to that of a Web 2.0 experience.

USD Stablecoin wallets in many ways resemble global semi-regulated US Dollar bank accounts. Source: Allium 

While this use case is powerful, it has its problems. If a USD stablecoin were to get large enough and collapse as USD Terra (UST) did, the wider consequences for the global financial sector could be brutal. 

It should be noted that UST was an algorithmic stablecoin, not a 1-for-1 backed one like popular incumbent USD stablecoins USDT and USDC. 1-for-1 stablecoins have to be backed by equal cash reserves, whereas algorithmic stablecoins like UST are propped by a volatile secondary digital asset that can swap between undercollaterizing and overcollaterizing the stablecoin it supports. This means its model was much riskier than most USD stablecoins available today. 

Banks in the United States are protected and regulated by entities like the FDIC and the US government, meaning they have safety and reassurance in the event of a black swan event. FDIC which protects consumer bank accounts up to $100,000 per account. 

The accessible, global, unbureaucratic nature of USD stablecoins is a major advantage that has helped the token model grow, but it also has drawbacks. The USD stablecoin market does not have the parachute of the US government; instead, it is supported by private companies.

A more pragmatic rationale for why the USD stablecoin sector may fail or be contained is that it will become regulated like US banks or even more harshly. US Senators like Democrat Elizabeth Warren take a dim view of USD stablecoins:

“Stablecoins also pose risks to our national security. Stablecoins are now the most common cryptocurrency associated with crypto scams and crypto transactions to and from sanctioned entities, overtaking Bitcoin. Groups dealing in illicit transactions have an incentive to use stablecoins because they face difficulties accessing the U.S. dollar through traditional means, but still want to benefit from its stability.”
— Elizabeth Warren, US Senator from Massachusetts and Vice Chair of the Senate Democratic Caucus

Stabull is a Stablecoin & RWA DEX that brings FX and commodities markets on-chain. USD and non-USD stablecoin users can swap, provide liquidity, and stake 24/7 with low fees and fast execution. Stabull’s trading engine was built to optimize swapping between digital forex and commodities. 

Source: stabull.finance

Stabull and non-USD Stablecoins like NZDS, BRZ, and GYEN were built with the impending regulation of the USD stablecoin sector in mind. As well as to solve the under-representation of non-USD stablecoins within the digital asset space. 

An overemphasis on US Dollar stablecoins has created a potential concentration risk.

Additionally, the sector could be more efficient given its global nature. A typical stablecoin user is a work-from-home pro-crypto tech employee who works at a global firm and works flexible hours. They get paid in stablecoins but in most cases would need to sell them for local currency for day-to-day spending. There are numerous third parties involved in this type of interaction.

More fiat stablecoins, like Digital Yens, Euros, and Pounds, would reduce the middlemen involved in cross-border fiat-to-crypto transactions. Better infrastructure like the Stabull global stablecoin exchange can also reduce transaction costs and improve the speed and efficiency of a blockchain use case that has a strong product-market fit and is extremely popular.

Source: X.com 

In the above example, a stablecoin exchange like Stabull would allow for easy swapping between USDC and CAD stablecoin. Most CAD stablecoins offer direct redemption facilities and can generally be accessed on major exchanges. QCAD was recently announced as an asset that global exchange giant Coinbase is considering listing.

The user’s other issue, being unable to access American banks because they signed up for an exchange with Canadian credentials, may also be indirectly improved by the emergence of Stabull. Stabull is working hard to bring together stablecoin issuers, large and small, from across the globe.

In addition to offering stablecoin liquidity, issuers are sharing resources and spreading the stablecoin ecosystem’s net. By sharing information and networks around banking partners, off-ramp services, and DeFi integrations across stablecoin providers, the growth of the non-USD stablecoin ecosystem is set to increase year-on-year as we move into 2025.

The power of transitioning from off-chain to on-chain systems. Source: stabull.finance

Stablecoins, however, are just one layer of the RWA iceberg, and the sector’s potential and scope are all-encompassing.

One of the most powerful capabilities of RWAs is lowering the barriers to entry for investing in high-value assets like art, real estate, and private credit. Tokenization allows these assets to be broken down into smaller, investable chunks that are more accessible to different investor demographics. Further, it removes barriers like geographical borders and data privacy.

Tokenizing RWA’s also makes these underlying assets more liquid, given that they can be fractionalized. Tokens are easier to trade on secondary marketplaces compared to physical, legally complex assets like real estate. Tokenization also boosts the utility of real-world assets by allowing them to become collateral for DeFi protocols.

RWAs are also considered a key pathway for the institutional adoption of cryptocurrencies. Some of the most popular assets to tokenize are high-value assets that often sit on the balance sheets of major institutions like banks and family offices. These institutions are exploring asset tokenization because of the efficiency benefits like transparency and transaction speed.

The five most popular and relevant RWA categories are:

Regenerative Finance is a concept that has gained traction within the RWA and DeFi sectors. ReFi focuses on promoting sustainability and economic resilience alongside monetary gains. Traditional finance has been criticized for prioritizing short-term profits over long-term consequences like environmental and societal damage. ReFi offers a solution by building systems that promote long-term economic and social vitality.

Examples of ReFi include KlimaDAO, a project that has launched a crypto-token backed by real-world carbon assets, carbon credits. This system means when anyone buys a KLIMA token they are funding the removal of environment-damaging carbon. The DAO claims to have removed millions of tonnes of carbon from the world.

Another popular ReFi app is the Seed Club, a Vancouver-based DAO that provides an incubator and accelerator focused on helping eco-conscious start-ups set up communally governed DAO structures that are more aligned with their egalitarian missions.

Tokenized treasuries are digital representations of government bonds accessed and traded through smart-contract-based tokens on a specified blockchain. They are stable investments that generate yields, especially during economic conditions where interest rates rise.

The 10-year Treasury is the most popular government bond. Its yield is the interest rate the US government pays to borrow money for the decade. After government bonds are issued to investors, they can either buy them to hold or sell them to investors on a secondary market.

Tokenized treasuries are generally seen as safer and more stable than investments like equity and crypto but also generate a yield and can be an excellent investment in specific economic conditions, such as when a Central Bank is trying to cool down inflation by raising interest rates. 

“Less than five months after hitting $1 billion in market capitalization, tokenized Treasury notes have doubled in size again, crossing the $2 billion level according to data from RWA.xyz.

Source: RWA.xyz 

Future Outlook: Tokenized stock 

While compiling this report we spoke to Scott Gentry from the Stabull team. Gentry, who has an experience in Traditional Finance has thought long and hard about the disruptive potential of tokenization. He suggested that the US share ownership system should be a system that may benefit from tokenization. Share ownership in the United States is conducted and managed by the Depository Trust Company a subsidiary of the Depository Trust and Clearing Corporation (DTCC). This centralized entity was created during the 1970s to improve efficiencies through the reduction of back office administration and paperwork obligations of Wall Street firms. 

When public companies look at their share registry, they only see the Depository Trust company. Stock Brokers transfer shares amongst accounts at the trust company, with the brokers representing individual owners of shares. This system where brokers have control over the shares that ultimately belong to their clients can lead to various issues. For example, instead of executing a trade a broker may just transfer shares amongst their clients and mark the sale as an external trade. In another similar situation, if a trader wants to short a stock by borrowing it and then selling it to the market, then the broker can enable this by lending an individual stockholder’s shares without their permission, nor any publically accessible evidence that it has happened in the first case.

We have seen these pressures practically emerge during the Dole settlement case in 2013. After a successful lawsuit that accused David H. Murdoch and his executives of conflicts of interest in taking the company private. Shareholders were told that they would receive a decent pay-out, however, issues emerged because shareholders who owned shares could not be accounted for. 

In the settlement, 4,662 people and entities claimed 49,164,415 shares at $2.74 per share but Dole had only 36,793,758 shares outstanding. These were likely not false claims. On top of the potential shorting issue, the market may have been bearish on Dole’s positions because of a view that the company’s merger and privatization may have failed. 

Beyond shorting, another issue may have also arisen. The New York Times discussing the case notes “that the Depository Trust Company sometimes doesn’t keep track of shares. When this happens, it puts a “chill” on the shares, meaning that it stops tracking them because of established procedures for the final three trading days up to the closing of a merger.”

Tokenization fixes this because it allows for direct ownership. Tokenization would allow individuals to hold tokens, instead of brokerage accounts, to represent their shares directly on the blockchain. Shareholders can have full control over their assets, without needing an intermediary. 

There are additional benefits like Streaming dividends. Tokenization means that any dividends can be paid directly to the wallet holder, in the form of assets, at any point in time or automatically through smart contracts when they conduct a snapshot of who holds their shares.

The transparent, accountable nature of blockchains also contributes to this. The immutable ledger of a public blockchain means every tokenized share transaction is visible and transparent. This prevents situations where there may be more shares claimed than are in existence, or if there are then it would be easy to know exactly when the issue arose.

This would prevent the uncommissioned borrowing of shares for shorting. Trades can also settle instantly and remove issues like delayed settlements between brokers or internal transfers. Ownership accounts could be updated instantly and automatically so that records can be accurate and up-to-date. Tokenization would also eliminate the need for centralized clearing houses, while the possibility of human error or manipulation is reduced. 

Leading consultancy firm McKinsey outlines several key challenges to the widespread adoption of RWA systems and tokenization:

The current growth of the RWA sector has been hindered by technological and infrastructural unpreparedness. Institutional-grade wallets, exchanges, and custody services, such as Agio, do exist but often lack the flexibility and connectivity of traditional, non-blockchain systems. While decentralized and permissionless blockchain platforms offer advantages, they also come with trade-offs, such as slower updates, underdeveloped tooling, insufficient token standards, and security concerns.

RWAs’ potential use cases will likely only materialize with industry scale and proper connectivity and trading systems. Professional investors must currently build twin systems to handle both off-chain and on-chain activity, adding legal and regulatory complexity. Additionally, the short-term benefits are unclear, with uncertainties about how much capital will flow into new issuers and how many buyers there will be in the market.

McKinsey suggests that tokenization may be reaching an inflection point. Despite infrastructural limitations, the sector is showing promise due to improvements in tokenized cash options, the introduction of RWAs like tokenized treasuries that leverage the current high-interest-rate environment, and the emergence of favorable regulatory structures in non-traditional markets.

The USD stablecoin market has continued its rapid expansion thanks to cheaper, faster, and more versatile transactions enabled by new blockchain deployments and bridging technologies. USDC and USDT have grown in popularity due to versions built on Optimism and Tron, and bridges like Synapse make cross-chain movement easier. Constraints on stablecoins are slowly being removed, while solutions like Stabull are facilitating the growth of non-USD stablecoins.

If retail users in different countries around the world can hold digital versions of their local currencies, instead of being limited to digital US dollars, the RWA sector could expand further. This future aligns with Stabull’s mission to reduce reliance on USD stablecoins by supporting a diverse range of fiat currencies across different blockchains.

Major corporations such as Goldman Sachs and countries like El Salvador and the U.A.E. have built frameworks to support asset tokenization. These frameworks aim to establish safety nets, bridges, rules, and other structures to promote the sector’s growth. Ambitious RWA projects are gaining traction due to this increased institutional interest.

One key factor driving growth is the success of tokenized treasuries, which have become more attractive in a high-interest-rate environment. As McKinsey notes, short-term liquidity transactions, such as tokenized repos and securities lending, have benefited from capital efficiency in this economic climate. Tokenized treasuries, now valued at over $2 billion, have experienced rapid growth due to favorable conditions.

While tokenized treasuries have thrived in recent years, the potential for interest rate cuts may dampen their future popularity. However, the RWA sector’s adaptability provides opportunities for other assets, like gold, that thrive in low-interest environments. Gold, as a safe-haven asset resistant to currency depreciation, could see increased demand as interest in tokenized treasuries wanes. Additionally, if interest in tokenized treasuries drops because of lower US rates, RWA staking is another possible replacement. 

An advantage of tokenization is the boosting of an asset’s utility. Tokenized versions of assets like property and private credit can be integrated into DeFi and have newfound utility. In a recent AMA conducted on Gempads’s Telegram channel,  Fran Strajnar founder of Techemy Group— discussed the disruptive potential of DeFi and platforms like Stabull to generate a yield from assets like gold. Strajnar mentions Liquidity provision as an avenue for yield generation. 

Historically, being a liquidity provider and earning an income simply by providing capital to facilitate trading was exclusively accessible to institutions and professionals. Decentralized Finance, however, has broken down many of these barriers by democratizing and simplifying financial systems, making it possible to create straightforward avenues for yield generation. Anyone can purchase a tokenized fiat currency, gold, or commodity, and deposit it onto a platform like Stabull where it will facilitate trade and enable the depositor to earn a cut of the transaction fees generated. 

Nelson, another member of the Stabull team, spoke to us about the importance of considering why tokenization— if it is an incredible, game-changing tech model— hasn’t changed the world already? Nelson told us that launching an RWA start-up is no easy task, it’s a brand new technology paradigm with invisible walls still in place. 

Antone Golub is the founder of the cryptocurrency exchange Lykke and a member of SwissAssetDAO. Golub led a project to tokenize shares of Lykke and SwissAssetDAO and is at the forefront of creating tokenized real-world assets to help crypto portfolios diversify. He has highlighted several key challenges from an insider’s perspective:

The tokenization of RWAs often requires the establishment of Special Purpose Vehicles (SPVs), which is a costly, complex, and inefficient process. Golub explains that in many jurisdictions, there is no legal framework for the direct, on-chain issuance of RWAs, necessitating the creation of SPVs even in tokenization-friendly environments. Dematerialization (DEMAT), or the move from physical certificates to electronic bookkeeping, has long been accepted in traditional finance. 

One of the significant barriers to RWA adoption is the absence of secondary markets and liquidity. Investors face limited venues where they can buy and sell tokenized assets efficiently, which hinders the ecosystem’s growth and attractiveness.

Regulatory challenges remain a significant barrier for the tokenization of equity and RWAs. Golub mentions that legal complexities often arise when attempting to create and deploy RWAs on public, permissionless blockchains without facing repercussions. This legal friction increases costs and creates a challenging environment for investors and issuers alike.

Golub also notes that liquidity is gradually leaving the RWA ecosystem, and investor interest is waning. For the sector to succeed beyond stablecoins, it must become easier for investors to access RWAs, and issuers should be able to deploy them seamlessly across multiple public blockchains.

The emergence of Real World Assets (RWAs) with blockchain technology marks a pivotal evolution in the financial and asset management industries. One form of RWA, the Stablecoin, is already recognized as crypto’s latest “killer app,” but it showcases just one layer of what tokenization can achieve in making real-world value accessible on decentralized networks. 

As the popularity of USD stablecoins continues to grow unabated, this growth is fuelling the broader  RWA sector, encompassing assets like non-USD Stablecoins, Gold, Treasuries private credit, and more. These tokenized assets offer significant benefits, from enhanced liquidity to democratized access for investors of all sizes.

However, as promising as this space is, significant hurdles remain. Regulatory challenges, technological limitations, and liquidity concerns must be addressed for the sector to reach its full potential. Platforms like Stabull, which seek to diversify and strengthen the stablecoin ecosystem, are taking the first steps toward overcoming these barriers by broadening the fiat currency stablecoin market with a single platform to swap between large and small stablecoins, streamlining cross-border transactions in the process.

Ultimately, RWAs offer immense potential to reshape how people and companies invest, trade, and manage their assets. Their success will likely depend on a combination of regulatory clarity, improved infrastructure, and continued innovation in the sector. As tokenization approaches an inflection point, its impact could extend far beyond stablecoins, revolutionizing global finance through broader institutional adoption and deeper integration with decentralized finance (DeFi) systems. They can unlock new lawyers of value by raising the efficiency and transparency of financial markets.

Stabull Finance is a decentralized exchange (DEX) optimized for fiat-backed stablecoins and tokenized Real World Assets (RWAs). The platform and protocol is designed to fill a critical infrastructure gap within the web3 ecosystem, as there is currently no core infrastructure dedicated to serving the growing range of non-USD stablecoins.

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