September 19, 2023
This week, I had the opportunity to attend TOKEN2049. At this premier gathering, pioneers, visionaries, and thinkers in the crypto and Web 3.0 spaces converge to discuss the future. One topic that particularly stood out was the role of Real-World Asset (RWA) tokenization in reshaping finance.
I encountered many startups focused on various areas, including tokenizing bonds, art, watches, cigars, private equity, and music. Other startups contribute to this ecosystem by offering new blockchains, stablecoins, analytics, metrics, and custodial services for these tokenized assets. I've also seen different markets for tokenization that span from personal retail users to institutions, governments, and banks. While I can't say that half of the discussions were about RWAs, many speakers touched upon the subject directly or indirectly, which uniquely positions tokenization startups to pioneer building the RWA ecosystem.
However, while we're still defining what this space should look like, there are several considerations. Managing this space is challenging, and addressing regulatory and legal issues and establishing trust is critical for any tokenization startup. Mirroring real-world assets in a digital format involves multiple complexities that cover trust, ownership, legislation, regulatory compliance, banking, Web 3.0 protocols, insurance, and the security of assets. We're dealing with two systems here: one that is revolutionary and one that needs a revolution. One system is borderless; the other is regional and local; one is fast and instant; the other is slow and takes days; one is always open; the other closes on holidays and after hours; one is affected by cybersecurity; the other is affected by con artists and fraudsters. Tokenization is trying to bridge these two worlds.
In a fast-moving world where prices are rising, mortgage rates are increasing, debt is becoming more expensive, people are moving to new, more expensive tax brackets, and some need 40+ years to pay off their mortgages. Tokenization can offer most people more control over their financial future. Not only can they diversify their portfolios and lower their risks, but they can also start generating passive income with minimal commitments and build their wealth piece by piece. Tokenization can also benefit institutions suffering from a lack of asset liquidity and the legal and operational overhead required to buy, sell, and transfer ownership of assets without affecting the operation of the underlying asset. Just think for a second about how much effort it would take for an establishment owner to transfer ownership. It involves legal paperwork, banking setups, new agreements that need to be signed, asset management, and perhaps leasing documents. That's one of the underlying beauties of tokenization that I haven't heard anyone talk about how tokenization will help us structure and optimize our businesses better. You can operate on two levels: the real-world level, where you keep things as they are, and the digital layer, where ownership, transferability, and transactions happen. This distinction is fundamental for harvesting the best from this technology.
Regulatory is important; protecting people's assets is key, but the current regulatory framework is not the answer. I am always boggled when the first question someone asks an RWA startup is if they are a traditional security. This underscores the need for education about tokenization, compliance, and regulatory systems that serve the unique needs of RWAs. The question suggests a need for more understanding of the transformative potential of tokenization. I'm all for regulatory compliance; every RWA startup should be compliant. Still, at the same time, the current regulatory frameworks are very limited. Most of the benefits of tokenization are lost within the current regulatory framework. So, instead, I would love to see people asking questions about how we can change the narrative to get the best out of tokenization. Otherwise, tokenization will wrap up an outdated system, and the current system's inefficiencies will remain.
That's why on-chain KYC will be critical in the near future. It will allow users to carry their verified identities across multiple applications without needing to undergo KYC procedures repeatedly. This is essential for mass adoption and aligns with the promise of Web 3.0.
After talking to many attendees and speakers at the event, I am encouraged by MetaWealth's steps to pioneer RWA real estate and wealth generation. We have built trust with our users and built a fully traceable, end-to-end ownership chain that connects from the digital space to the land registry in the real world.
However, more than these individual efforts are needed. As a community, we need to establish the necessary protocols and communicate the benefits of tokenization to governments. This will help shape a more conducive regulatory environment designed explicitly for RWAs. If you're involved in the RWA space and are passionate about improving the protocols and standards, now is the time to collaborate and make a lasting impact.
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