What are RWAs?

Real-world assets (RWAs) are tokens representing existing forms of wealth, such as real estate, gold, stocks, art, machinery or collectibles. Tokenizing these items translates them into digital form, allowing them to be divided between multiple owners and making it easier to trade them.

Some RWAs are tangible—items you can see and touch, such as gold bars or commercial buildings. Others are intangible, such as government debt, intellectual property, or equity in a company.

When tokenized, these assets are turned into units of value. Tokenized gold is a good example of how this works. The company Paxos(opens in a new tab) translates 400-ounce gold bars into 400 tokens on the Ethereum blockchain, each backed by one ounce of gold. Token-holders can redeem their tokens for gold at any point. That’s also the case for tokens purchased from another RWA company, Tether Gold(opens in a new tab).

Each token can be divided into even smaller fractions. Tether Gold tokens, for instance, can be split into parts as small as 0.000001.

RWA tokens don’t have any intrinsic value. Rather, they reflect the value of the item that they represent, and so the token’s value changes along with the item’s value.

What are the benefits of RWAs?

Fractional Ownership

RWAs democratize investment. If you’re locked out of investing in certain asset types because you can’t afford to buy into those markets, you can now do so as a partial owner.

Investment diversification

You can invest in multiple types of asset, allowing you to diversify your portfolio without spending hedge-fund sums of money.

Global opportunities

RWAs remove geographical barriers to investment. You can buy tokens for assets located anywhere in the world.

Make assets liquid

Many assets are illiquid. They’re valuable, but that isn’t the same as having cash you can spend. By tokenizing an asset, owners can turn part or all of it into value they can use.

Worldwide market

Owners looking to capitalize their assets can reach a wider range of investors—not just the people who can typically afford to buy land, equity, artwork, or traditional financial instruments.

Skip middlemen

Tokens run on smart contracts, which means tokens can be traded person-to-person without the need for intermediaries and their associated fees.

How do RWAs work?

Let’s look at a few examples from across the RWA ecosystem: real estate, traditional financial products, and fine art.

Investing in real estate

Say that you’d like to invest in real estate, but purchasing an entire property is out of reach. Instead, you could buy RWAs through a project such as RealT(opens in a new tab). Its tokens represent shares in a limited liability company (LLC) created to hold a property’s deed. Token-holders receive rental income in the form of stablecoins according to the fraction they hold; RealT says it has so far returned $15 million USD in net rental income to investors.

Another project along the same lines, LABS Group(opens in a new tab), allows people to buy into tokenized real estate with amounts as small as $100 USD.

Investing in financial products

Several projects bridge the world of traditional finance and decentralized finance (DeFi) by bringing securities, stocks, bonds and other financial instruments onto the blockchain.

For example, the Ethereum-based company Securitize(opens in a new tab) specializes in tokenizing traditional financial products. In 2024, it partnered with BlackRock to launch a RWA fund. BlackRock says it plans to eventually tokenize $10 trillion USD of its assets: its CEO, Larry Fink, called tokenization “the next generation for markets”.

Investing in fine art

There are a few different mechanisms for fine-art investment. Masterworks(opens in a new tab) buys artwork, securitizes each piece, and sells shares in the form of tokens. It plans to later sell the artwork and distribute the profits to token-holders.

Art owners looking to capitalize on their collection can sell up to 49 per cent of an artwork’s value on the platform Maecenas(opens in a new tab), provided the piece is valued at more than $1 million USD.

In both cases, token-holders don’t control the storage or future sale of the artwork. Rather, they’re in charge of how long they hold onto their tokens, which rise and fall with the value of the art.

Meanwhile, the blockchain-based digital art registry Artory(opens in a new tab) verifies the authenticity of artworks and records past ownership.

Investing in collectibles

So far, most of these examples demonstrate how tokenization allows partial ownership of various types of wealth. Another benefit of tokenization is that it enables the trade of valuable items, such as collectibles, on the global market.

One example of this is Courtyard(opens in a new tab), which tokenizes trading cards–think of baseball cards, football cards or Pokemon cards. Card owners ship their cards to a secure storage facility in the USA. The cards are minted as digital tokens and added to the owners’ wallets for trading on Courtyard’s marketplace. Courtyard only accepts graded cards: that’s where a third party has certified a card’s authenticity and awarded it a score based on its condition, whether dilapidated or pristine.

Courtyard also offers a type of royalty scheme. Each time a card is sold, the person who tokenized it receives one percent of the revenue. Only card originators are rewarded in this way. At any point, an owner can swap their digital cards for physical cards, no matter where they are located in the world.

What are the limitations of RWAs?

One of the challenges of RWAs, at this early stage, involves ensuring the connection between real-life objects and their digital representations.

A green flag is when RWA projects supply investors with proof of reserves–the guarantee that they are the legal owners of the physical objects backing digital tokens. Think of Paxos, Tether Gold, or Courtyard, mentioned earlier, all of which hold their assets in secure storage and offer owners the option of swapping a token for its physical equivalent at any point.

Another limitation is whether token ownership is recognised by legal systems around the world. In other words, are smart contracts enforceable in a court of law, or can the holder of a RWA token claim ownership of the real-life item?

Some of the frontrunners in terms of setting up legal frameworks specifically to recognise tokenization include Singapore, the United Arab Emirates, Hong Kong, and Switzerland, which introduced legislation in 2021 nicknamed the ‘Blockchain Act’ to regulate technologies such as tokenization. The European Union has begun the process of regulating RWAs, while in the United States, the Securities and Exchange Commission is expected to issue guidance on RWAs at some point.

Learn more

Dive into smart contracts or find out more about a different token class, non-fungible tokens (NFT).

Real-world assets (RWAs)