Real World Asset Tokenization
Real-world assets or RWA are becoming a popular crypto narrative in 2024. RWA is a new step in the adoption of crypto technology in connecting real-world assets into blockchain ecosystems, such as DeFi.
So what is Real World Assets Tokenization and how does it work?
In this article, we'll explore more about RWA and explore how real assets with the adoption of blockchain technology can become more liquid, transparent, and profitable than before.
What Is Real World Asset Tokenization
Real-world asset is an asset that previously existed in the real world. Assets that we have known so far such as property and valuable objects. By utilizing the sophistication of blockchain technology, these real assets will transform into digital assets.
Real-world assets tokenization is a term that describes an asset in the real world, but it has been converted into digital form and issued through a tokenization mechanism for use in blockchain-based ecosystems, such as in decentralized finance (DeFi).
How Do The RWA Tokens Work?
The workings of RWA tokens essentially convert ownership rights of a physical asset into a digital asset in the form of tokens.
These steps will include:
Asset Valuation: Before an asset undergoes tokenization, it must first be evaluated to determine its value.
Smart Contract Creation: Smart contracts are created to govern the functions of tokens representing the value of a physical asset. These functions can further be developed within the DeFi ecosystem.
Verification: Asset verification and tokenization processes are carried out by independent auditors. This is to ensure compliance and alignment with the value and functions of a physical asset.
Token Issuance: After the verification process is complete, the next step is token issuance. Once RWA tokens are issued, they can be traded on the crypto market.
As an example, if there's a property ownership being tokenized, each unit of the property can be divided into several tokens. Each of these tokens has a digital representation associated with a specific portion of its ownership.
Once the tokenization process is completed, each previously created token can be traded on a DeFi platform or specific crypto exchange without the need to transfer ownership of the physical asset.
Additionally, smart contracts can also govern specific conditions, such as rental income distribution or other usage rights.
By utilizing blockchain technology, RWA tokens enable real-world physical assets to be represented and traded efficiently, transparently, and in a decentralized manner.
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