News:

Coinbase is currently seeking SEC approval to offer this service to its customers. Robinhood, meanwhile, has submitted a 42-page document to the US authority arguing in favor of a national framework for real-world assets. The SEC itself has stated that regulating these assets is now one of its priorities.

On June 4, Binance published a report showing 260% growth in the tokenized asset market since January. Private credit (58%) and US debt (34%) dominate this segment.

If "RWA" still makes you think of "risk-weighted assets" on bank balance sheets, then you should definitely keep reading this article. The acronym here refers to "Real World Assets," which are real-world assets (real estate, bonds, commodities, etc.) accessible on the blockchain. This also includes monetary assets: a stablecoin is nothing more than the tokenized form of a currency.

The principle: assets converted into tokens

Tokenization involves transforming the rights attached to an asset into a digital token. This token can then be split, integrated into automated mechanisms using smart contracts, and finally exchanged.

But before we go into detail about how it works, let's look at why this practice is of interest to equity markets.

The key advantages of tokenization:

  • Elimination of intermediaries: Transactions are carried out over the counter, without a clearing house. Smart contracts replace traditional procedures, offering speed, reduced costs and automation.
  • Greater liquidity: A tokenized asset is divisible. This means that a fraction of an expensive share, such as Lindt shares, can be purchased. This lowers the barriers to entry.
  • Transparency: The blockchain records everything in an immutable way. Every transaction is traceable: wallet addresses, amounts, time, fees, smart contract content. Total visibility.

How does it work in practice?

Let's take a fictional example: Apple decides to issue tokenized shares via Coinbase.

  • A token could be worth 1/100th of an Apple share.

  • These tokens would be tradable 24/7.

The role of the smart contract

This is a computer program that runs automatically if all conditions are met. It can:

  • Verify the buyer's identity (country of residence, status, regulatory compliance).

  • Manage securities transactions: All transactions would be managed automatically (dividends, stock splits, etc.).

  • Provide proof of reserve that the token corresponds to a real Apple share for each transaction.

  • Integrate emergency mechanisms (suspension of transactions, dispute management, etc.).

The contract contains all the information inherent to each transaction. As a result, the contract has complete control over everything related to the transaction itself and everything involved in holding such a security.

What if markets were already efficient enough?

One might think that tokenization is superfluous. But it introduces structural improvements:

  • No more opening hours: the "fair" price would be constantly integrated into the market price.

  • Broader access to markets: more investors, more liquidity, better integration of overall sentiment into the price.

  • Automation of regulatory compliance: rules are built into smart contracts.

  • Democratization of finance: some regions have little or no equal access to Western markets. Blockchain could correct this.

And this model is not limited to financial markets.

Beyond markets: a revolution for illiquid assets

Liquidity is a minor issue on the stock market. But imagine the effects of tokenization on alternative investments: works of art, valuable spirits, real estate. An owner can already sell a share of their asset to obtain liquidity quickly on specialized platforms.

Tokenized real estate: RealT, LoftyAI

Tokenized art: Masterworks

A trend driven by efficiency

The key takeaway is that tokenization removes barriers. Like any truly useful innovation, it will eventually become mainstream. It is a direct application of the principle of economic efficiency. It can be linked to Joseph Schumpeter's concept of creative destruction, but also to many economic references related to growth fundamentals.