Real World Assets – An Introduction

Real-world assets are often physical items with intrinsic value that are part of our daily lives. These assets can be represented on the blockchain in the form of tokens – these tokens then derive their value from the physical existence outside the blockchain. Examples of real-world assets include real estate, precious metals, and natural resources such as oil and gas. Traditionally, investing in these asset classes have been a way to preserve and grow wealth, and as such, real-world assets offer huge potential value to investors facilitated by blockchain.

How does tokenization work?

Owning a real-world asset means having a stake in something physical. For instance, owning real estate gives you rights to a piece of land and any structures on it. Similarly, owning mineral rights grants you a claim to the natural resources below the land’s surface, like oil, gas, or precious metals. Web3 is creating direct connections between asset owners, builders, investors, and users, eliminating the need for large aggregators, lawyers, and intermediaries.

Tokenizing a real-world asset means converting its ownership rights into digital tokens on a blockchain. Each token represents the asset, or a fraction of the asset, allowing it to be bought, sold, and traded on digital platforms. This digital representation is secured by the blockchain, ensuring that all transactions related to the asset the tokens represent are transparent, immutable, and can be verified.

How can tokenization be transformative?

Tokenization addresses several significant issues with traditional asset investing.

First, accessibility is a major hurdle. Traditionally, investing in high-value assets like commodities or mineral rights requires substantial capital, limiting access to a small group of wealth investors. Tokenization democratizes this process by allowing investors to purchase smaller fractions of these assets through digital tokens. This opens up investment opportunities to a much wider audience, enabling more people to participate in the market.

Second, liquidity is often an issue with traditional assets. Selling commodities or mineral rights can be a slow and cumbersome process, tying up capital for extended periods. Tokenized assets, on the other hand, can be traded quickly and easily on digital marketplaces, providing greater liquidity and flexibility. Investors can buy and sell tokens as needed, without the lengthy delays associated with traditional asset transactions.

Third, transparency and security are critical concerns. Traditional asset transactions can be opaque, with information asymmetries and potential for fraud. Blockchain tackles this head on, ensuring that all transactions are recorded in a secure and verifiable manner. Smart contracts, which are self-executing agreements with terms directly written into code, automate transactions and enforce ownership rules, reducing the risk of fraud and increasing trust in the investment process.

Tokenized assets also have a global reach, breaking down geographical barriers and opening up new markets for investment. This accessibility to international markets expands opportunities for accredited investors to explore a broader range of assets and investment strategies.