The Tokenisation of Real World Assets (Part II)

Tokenisation of real-world assets (RWA) is indeed a fascinating area and to expand on Part I in last weeks Weekly Digest, it can hold significant potential for transforming traditional finance and can be summarised, as follows:

Asset Selection and Viability Assessment:

  • Choose a real-world asset such as real estate, gold, securities, or bonds.
  • Evaluate the viability of tokenising the asset, considering market value and potential demand.

Legal Framework and SPV Creation:

  • Establish a legal framework to ensure compliance with regulatory policies.
  • Create Special Purpose Vehicles (SPV) to manage and fractionalize the asset, reducing risks and providing a structure for tokenisation.

Blockchain Platform and Smart Contract Development:

  • Select a blockchain platform based on project requirements.
  • Develop smart contracts with predefined conditions for tokenisation, automating processes and minimising human errors.

Fractionalisation of Assets:

  • Divide the real-world asset into a predefined number of tokens.
  • Specify the conditions and rules for token ownership through smart contracts.

Token Creation on Blockchain:

  • Create tokens on the chosen blockchain network, such as ERC-20 tokens on Ethereum.
  • Each token represents a fractional ownership of the underlying real-world asset.

Token Distribution and Trading:

  • Distribute tokens to potential investors through private sales, public offerings (like Initial Coin Offerings), or other methods.
  • List tokens on specified marketplaces to enable trading, enhancing liquidity.

Continuous Lifecycle on Blockchain:

  • RWA tokens persist on the blockchain even after the initial tokenisation.
  • Investors hold rights to their portion of the asset and receive benefits as token holders.

Redemption or Sale:

  • Investors can redeem their tokens or sell them to other investors.
  • Smart contracts dictate the proportionate value in predefined digital currency during redemption or sale.

Benefits of Real World Asset Tokenisation:

  • Increased Accessibility: Lowers barriers to entry for traditional asset investments.
  • Global Reach: Enables global transactions without geographical constraints.
  • Cost Reduction: Eliminates intermediaries, reducing investment costs.
  • Continuous Trading: Markets are open around the clock for digital token trading.
  • Liquidity Enhancement: Fractionalisation and tokenisation streamline the trading process, increasing liquidity.
  • Transparency and Security: Blockchain ensures transparency and security in RWA tokenisation.
  • Diversification: Allows investors to diversify their portfolios with more affordable asset investments.

Major financial institutions like BlackRock, BNY Mellon, JP Morgan, Goldman Sachs, and HSBC exploring RWA tokenisation indicate a growing interest and potential for this concept in traditional finance. The expected growth into a trillion-dollar market further underscores the significance and future prospects of real-world asset tokenisation.

(Source: Coin Gape)

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