Real-world assets (RWA) are connecting traditional finance with decentralized finance in an increasingly tight way. How exactly? Let's dive into the tokenization of RWA & their potential use cases, with BNBCHAIN first column for CMC Research 💪
The term real world assets is becoming more common every day, but the public continues to limit its definition to the tokenization of assets that exist outside the blockchain in such a way that they can be used on-chain.The reality is that, RWA cover a wide spectrum that ranges from the tokenization of physical assets that allows them to be integrated into the decentralized finance ecosystem, to protocols that bring yields from assets related to economic activities such as shipping.
RWA currently encompasses both long-term assets on the balance sheet and current assets. Of these, the most interesting accounts are cash and cash equivalents, marketable securities and receivable accounts. Since the main use case of RWA today is the representation of assets owned by an institution on-chain for later use as collateral, the categorization of these accounts as current is of vital importance.
We understand RWA as any asset comprehended in a balance sheet that can be used as a collateral, ultimately allowing lenders to get exposure to real-world yields of any kind.The main use case that current RWA protocols allow is the collateralization of these assets to obtain loans denominated in cryptocurrencies, normally stablecoins. These protocols evaluate the collateral presented by the borrowers and according to that evaluation they calculate the total amount of the loan.
Supply chain financing normally falls into the hands of the trade finance arm of banks, but not all companies have access to these services that generate fees and interest that can be high for many. On top of that, the control of debt instruments always falls on the banking side, on the contrary, it is the issuers of the pools who set the conditions in RWA protocols.
For users, RWA give the possibility to gain exposure to industries that generally would be difficult for this group to access, either because of various jurisdictions or because many of these debt instruments are not available for retail. The same applies to yields. RWA allow users to receive part of the yield generated by a company thanks to its economic activity.
Additionally, a balance sheet can be easily faked and "creative accounting" is a well-known problem. Unlike a code that is only executed if an easily verifiable if condition is fulfilled, the value of a collateral that only appears in a balance sheet can be modified away from reality. These alterations can range from overvaluing a fixed asset to forging receipts or proofs of payment with the consequent negative impact on an accurate valuation of the collateral.
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