Real World Assets (RWAs) are evolving, shaking up the blockchain landscape, and pushing the boundaries of what types of assets can be “tokenized” and traded digitally.
With the “Total Value Locked” in RWA surging in size by more than 700% year-over-year, these tangible assets are primed to drive a new wave of market growth. Picture a world where assets as like fine art, real estate, or even everyday products (like olive oil) could enter the tokenization market and be traded online. That’s the reality we’re already moving into.
The RWA market isn’t just revolutionizing what people can invest in and trade online, it’s paving the way for a new era of economic empowerment. RWA tokenization will help to facilitate cross-border transactions, empowering and uplifting economies across emerging markets. Of course, there are still challenges to overcome – but the potential is phenomenal.
Here’s your guide to the revolutionary impact of RWA tokenization on emerging markets.
RWA Tokenization and the Impact on Traditional Sectors
RWA Tokenization essentially enables the transformation of “real world” assets, like real estate and artwork, and treasury bonds, into tradeable tokens on a blockchain. It’s a burgeoning part of the crypto and blockchain landscape that’s already having a significant impact on traditional sectors.
For instance, in 2018, a $30 million dollar Manhattan real estate property was tokenized using blockchain, allowing investors to purchase digital shares, for stakes in a real-life building. Elsewhere, Andy Warhol’s “14 Small Electric Chairs” artwork, allowed investors to buy fractional shares in an art piece that would have otherwise only been available to extremely wealthy investors.
Tokenized RWAs revolutionize investment inclusion, allowing anyone an opportunity to invest in all kinds of high-quality assets. It takes assets that you wouldn’t otherwise be able to split up and sell piece-by-piece, into flexible investment tokens that can be bought, sold, and transferred with ease.
The concept relies on blockchain technology. The blockchain enables the use of smart contracts and decentralized ledgers to track elements of transactions in a transparent, consistent manner. There are no middlemen or added friction, unlike with traditional asset trading. Plus, the flexibility of the blockchain makes it easy to open ownership opportunities to multiple investors.
In real estate, RWA tokenization means a property can easily be digitally fractionated into hundreds of thousands of tokens on a blockchain network, each representing a small ownership stake. This means anyone could purchase a small stake in a luxury property, and earn returns, without having to purchase the property outright.
In the international trade landscape, tokenization makes global commerce cheaper and faster. It streamlines cross-border asset transfers and reduces the need for costly intermediaries. In the financial world, tokenized assets can be used as collateral, new DeFi initiatives, and lower-cost loans. The opportunities are endless.
Key Opportunities for Emerging Markets through RWA Tokenization
According to innovative companies like CoinTelegraph, the RWA Tokenization market size is growing at an astronomical rate. In the years to come, the RWA market could reach a value of anywhere between $5 trillion, and $30 trillion, depending on the speed of technology advancement and adoption trends. One factor driving this space forward is the potential for emerging markets.
While many investors are already aware of the impact of tokenization on “traditional markets”, in emerging markets, RWA blockchain tokenization could be a gamechanger.
First, it allows emerging economies to trade using more traditional stablecoin solutions and currencies, through RWA-baked tokens.
In other words, instead of relying on volatile local currencies, users can trade assets using USD, or the Euro. In fact, Dollar-backed stablecoins such as USDT were some of the first RWAs to earn attention among emerging markets for cross-border payments. These coin options also helped to minimize the issues with slow and expensive remittances.
For instance, the average sub-Saharan African remittance fee is currently 8.46% – that’s much higher than the Sustainable Development Goal’s target of 3%. Stablecoins can slash these fees, putting more money directly into the pockets of families and communities that rely on remittances to make ends meet. Beyond enabling remittances and international settlements, stablecoins also open the door to the potential for lower-interest loans.
In emerging markets, inflation rates can be extremely high. Brazil’s rates hover around 39.4%, while Argentina’s can be as high as 52.4%. Compare this with the Euro’s rate of around 5.46% and it’s easy to see how tokenization can significantly reduce loan costs for everyone. This kind of access to credit could accelerate economic growth in emerging countries, helping the RWA market to grow.
Fractional Ownership and Democratized Investment Access
Beyond supporting economies with lower-interest loans and better cross-border transaction fees, the RWA market size is also growing in emerging markets because of the growing demand for fractional ownership. In the past, it was almost impossible for anyone but the extremely wealthy people in established countries to invest in various assets.
Fractional ownership breaks an expensive asset down into “segments,” so more people can purchase a piece for a lower price. This ensures that people in lower-income areas still have an opportunity to invest in high-value assets, from real estate and renewable energy projects to tech startups.
As mentioned above, this benefit of the tokenization market has already become incredibly popular in real estate for both buyers and sellers. Property owners can sell portions of the estate without having to track down a buyer with enough money to buy a whole property. Alternatively, buyers can start investing in a valuable market without forking over huge sums upfront.
Tokenized real estate platforms like RedSwan are already supporting this growth, allowing people from anywhere to purchase tokenized slices of multi-million-dollar properties around the world.
The potential goes beyond personal wealth. Imagine a renewable energy project in rural Africa being funded by thousands of small investors, each contributing through fractional shares of a tokenized asset. With RWA tokenization, local communities can fund projects, create jobs, and drive development from within, reducing reliance on external capital.
RWA Tokenization Success Stories in Emerging Markets
While the RWA market might have started to gain traction initially in the real-estate sector, opportunities are everywhere. For instance, in agriculture, many farmers in emerging countries struggle with limited access to financing. Tokenized assets can address this issue by allowing businesses to raise funds in ways that were previously inaccessible.
For instance, in Kenya, the Twiga Foods startup piloted a blockchain-based financing model for small farmers, which allows farmers to receive capital in exchange for future produce, represented by blockchain tokens. Investors buy the tokens and essentially bet on the future yield of the farm.
This model allows smaller businesses to gain immediate access to funds, so they can invest in better seeds, equipment, and technology to boost productivity and outcomes. In Latin America, Agrotoken is working with corn, wheat and soy farmers to enable tokenized grain trading. Farmers can even use their tokens as collateral for loans, through a partnership with the Santander bank.
In the small-scale manufacturing sector (which includes local textile produces, artisanal crafts, and small factories), the RWA blockchain tokenization market also presents numerous opportunities.
For instance, in 2023 a French olive oil manufacturer issued a bond on a blockchain through a channel called “Obligate”, in a regulated Euro stablecoin. By participating in the RWA tokenization market, the company reduced its funding costs by a massive 40-50%, thanks to fewer costly intermediaries.
In various regions, RWA tokenization could significantly improve access to capital, and empower economic growth through small-scale manufacturing. In Mexico, for instance, tokenization could allow the SMEs that form the backbone of the economy to turn their equipment or inventory into digital tokens, providing them with a new way to raise funds.
The Challenges in RWA Tokenization for Emerging Markets
While the potential for the tokenization market is massive, there are still challenges to overcome. First, there are regulatory hurdles to address. Laws governing tokenized assets vary widely across countries, especially when it comes to securities and property rights.
Plus, unlike high-profile sectors like real estate, which are seeing increasing clarity in regulations for tokenized assets, agriculture and manufacturing are often left out of regulatory frameworks. As these sectors lack a “one-size-fits-all” approach to compliance, companies attempting to tokenize in these industries face a patchwork of local laws and tax policies.
Security is another major issue. Blockchain and smart contracts bring transparency into trading, but they can be vulnerable to technical issues and security risks too. A bug in a smart contract could lead to the loss of an asset. Plus, the decentralized nature of blockchain can make it harder to recover assets, and hold bad actors accountable for their actions.
Solutions like the regular auditing of smart contracts, and the use of multi-signature wallets, and private keys could help in this area, but there’s still work to be done.
At the same time, there’s the infrastructure and “expertise” gap to consider. Many emerging markets lack the digital infrastructure needed for smooth adoption of RWA tokenization. Rural areas in emerging markets may not have reliable internet access or local expertise to implement blockchain technology. They may also not have the expertise required to enable RWA tokenization.
Overcoming RWA Tokenization Market Challenges
Addressing these challenges, and potentially increasing the RWA market cap and potential, will require a multifaceted approach. Fortunately, governments, international organizations, and private firms are stepping in programs to address these gaps, such as:
Collaborative frameworks and regulatory sandboxes:
A lack of clear regulatory frameworks, and unfamiliarity with blockchain technology create numerous problems for the tokenization market. Regulatory frameworks and sandboxes could help. For instance, the Monetary Authority of Singapore created a regulatory sandbox for blockchain and fintech products, which allows companies to test out tokenized products.
The sandbox has empowered various companies to pilot RWA tokenization initiatives, and other emerging markets are taking note, like Brazil, Kenya, and Nigeria – introducing their own sandboxes.
Public-private partnerships on blockchain infrastructure:
Building the digital infrastructure necessary to support RWA in blockchain requires a lot of investment. That’s particularly true in areas where secure digital networks and internet access are limited. Government and international organizations are beginning to partner with private tech companies to accelerate the growth of the RWA tokenization market.
For example, in Colombia, the government collaborated with the Inter-American Development Bank (IDB), and a blockchain company called ChromaWay. This allowed them to build a blockchain-based land registry for Antioquia, which simplifies the transfer of land titles.
Education and Training Programs
Digital skill gaps are everywhere, particularly in emerging markets. Without local expertise, the implementation risks of RWA tokenization are higher, and adoption crumbles. International organizations and governments are investing in education programs to increase local talent.
The World Bank, for instance, launched training programs in Africa to build expertise in digital infrastructure. In Nigeria, these initiatives have already given thousands of professionals and students with hands-on training in tokenization and blockchain technologies.
Smart Contract Auditing Programs
The decentralized nature of blockchain networks can be a double-edged sword. While it increases transparency, it also opens the door to security risks, particularly with smart contracts, which may contain vulnerabilities if not properly coded and audited.
To address this problem, foundations and private firms are joining forces. In India, the Tech Mahindra Foundation partnered with a blockchain security firm called CertiK on a standardized auditing program for smart contracts and tokenized assets. This initiative aims to drive safer tokenization practices across all sectors going forward.
Building Regional Alliances for Cross-Border Compliance
Because the RWA tokenization market is inherently global, and designed to allow tokens to cross borders effortlessly, regulatory compliance is often complicated. Addressing this problem requires regional groups to work together to build interoperable regulatory standards.
This is already happening on an increasing scale. The Association of Southeast Asian Nations (ASEAN) is taking steps towards a cross-border regulatory framework for digital assets to help enhance RWA tokenization projects. An alliance around standardized regulatory framework would make managing compliance simpler for countries on a global scale.
RWA Tokenization as a Pathway to Financial Inclusion
The potential for the RWA tokenization market in emerging landscapes is exciting, and transformative. By allowing individuals to invest in assets previously out of reach, RWA in blockchain is laying a foundation for financial inclusion and economic empowerment.
Innovations in this landscape are breaking down the barriers that have previously locked billions of people out of traditional finance opportunities and investments.
We’re on the precipice of a new era in global finance, where RWA in blockchain and tokenized assets will drive equitable growth for everyone. For the first time, people from any background will be able to invest in art, real-estate and high-value projects, and smaller organizations will be able to unlock funds like never before.
With ongoing efforts to improve regulations, security, and infrastructure, the market will only continue to grow, forming the foundations for a new future of economic development.
