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)