Real-World Assets for Real-World Purposes – an Impact Analysis

The Onchain research report focuses on and assesses the potential impact of different types of RWAs on real-world challenges. We even set up a ranking score to evaluate which industry niche stands to benefit most from Real-World Assets as a business concept. Spoiler: It’s not real estate, and the outcome may surprise you (it surprised us!)

Here’s what you get in this report:

• You’ll learn if and how RWA solutions can advance emerging markets and reduce economic struggles for businesses and consumers.
• You’ll understand which RWA types offer the greatest chance to increase financial inclusion and fight inflation.
• You’ll get insights on how using blockchain to tokenize physical things can bring new business opportunities to regions like Africa and India.
• You’ll discover how various RWA categories can address political instability and improve undeveloped infrastructure.

Overall, this report raises awareness of RWA-related opportunities besides tokenizing bonds or cash for speculation. It provides tools that help you ideate a business that incorporates RWAs to bring people onchain and tackle their everyday problems.

First, let’s get some things in order and give you some background.

How do we define RWA?

The world of blockchain is full of vague and ambiguous terms: Web3, decentralization, metaverse, to name just a few. All these concepts lack concrete and commonly shared definitions. No wonder there’s a lot of bafflement in and around the crypto space.

The term Real-World Assets adds to the confusion and may well win a disorientation award. Despite its status as the hottest narrative in Web3, you’ll hardly find two people who share the same understanding of the term RWA.

So, let’s make sure we’re on the same page. In this report, the term RWA refers to:

• Assets that exist in the physical world but can be brought onchain.
• Assets that can be tokenized on blockchain.
• Assets whose ownership couldn’t be proven beyond doubt without blockchain technology.

The scope and diversity of RWA usage

Our initial research revealed the most prominent areas of Real-World Asset usage. Because they are quite diverse, we divided them into 9 primary domains, shown in the following table.

Focus point: emerging markets

The hype around RWAs may primarily affect western countries, but that’s because the affluent world jumps on any new technology that smells of profit. The likelihood that these economies will leverage the benefits and revolutionize their real-world business activities is rather low.

We see so-called emerging countries as the most promising markets for Real-World Assets. Our focus will be on these and other markets where RWAs can have a significant, wide-scale real-world impact.

What are emerging markets, and why focus on them?

Emerging markets are countries that have reached the state of a developed country in some areas but are far from meeting all criteria. Characteristics associated with emerging markets are:

The obvious contradictions in emerging markets’ characteristics point towards the basic nature of their challenges. They need solutions that can help level the financial and technological imbalances to keep moving forward. RWAs address both and are, therefore, more interesting for emerging markets than developed countries.

Which countries are most commonly referred to as “emerging markets”? Relying on the MSCI Market Classification, we can list the following: Brazil, Chile, Colombia, Mexico, Peru, Czech Republic, Egypt, Greece, Hungary, Kuwait, Poland, Qatar, Saudi Arabia, South Africa, Turkey, UAE, China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan, Thailand.

You will find some countries in the report that fall outside this list – usually countries the MSCI categorizes as so-called frontier markets. We don’t want to limit ourselves to a small selection of countries just because of a label. If we found a real-world purpose for RWAs outside of emerging economies, you’ll read about it here (we made sure to state it clearly).

Blockchain’s promising role in emerging markets

Blockchain has been referred to as a remedy for emerging economies’ most stubborn pain points. If you take a closer look at the above characteristics and challenges, it appears a decentralized ledger indeed offers a solution for each obstacle.

Some blockchain-oriented projects already seize the opportunity and address these issues. Looking at major Layer 1 and Layer 2 protocols and their ecosystems, you quickly find dApps targeting emerging economies and their main challenges:

As you can see, the majority of blockchain solutions rely on Real-World Asset principles. The question is, do these apps really matter? And, can they actually make a difference in the real world?

We’ll get to the bottom of this and rank the top 9 domains based on our evaluation of their impact potential.

Keep in mind that RWAs may show less overall potential in lower-ranking application areas but could still be highly valuable in solving specific issues.

Why do RWAs matter now?

A brief history of tokenization and Real-Word Assets

Tokenization of assets in the non-digital world has a long history and initially wasn’t related to blockchain. Throughout history, you can find attempts to store value in physical assets such as buckskins, shells, or even cattle. To this day, cigarettes serve as a non-digital token – especially in prison.

The first significant example of asset tokenization appears to be the US Dollar. From 1944 to 1971 US banks had tokenized dollar banknotes with physical gold, known as the Gold Standard.

When the first digital currency, named Digital Gold, emerged, it was backed by physical money. Unfortunately, the first popular tokenized financial instrument quickly turned into an equally popular target of attacks. With inefficient technology to protect digital money, its history is marked by fraud, hacks, and illegal activity.

Other non-blockchain RWAs include real estate Investment Trusts (REIT) and Exchange-Traded Funds (ETF).

On the upside, the failure of electronic gold underscored the need for a more secure, reliable, and decentralized type of digital currency. We bet you know what we’re referring to.

Three common pain points RWAs could solve

All non-blockchain RWAs we’ve listed share a common set of struggles. The main concerns are:

• Lack of access for both investors and projects building in emerging markets.
• Centralized information that doesn’t allow investors and users to gain full visibility, traceability of performance, and liquidity of their investments.
• Lack of ways to digitally own assets that can be traded, often monitored by centralized entities.

The following points explain how Distributed Ledger Technology (DLT) provides solutions in these three crucial areas.

1. Accessibility

Defying physical borders, blockchain RWAs are accessible to an audience of investors beyond the local community.

Traditional, small loans are prevalent all over Europe, the Mediterranean Area, Africa, Asia, and South America. Even in Greenland, Australia, and Russia, there’s some traditional small loan activity.

However, when we analyzed RWA loans specifically, we discovered they were distributed throughout the global south only and primarily in emerging markets. Hence, onchain loans succeed where they are needed most: in countries where local solutions are insufficient.

2. Transparency

Regardless of the type of project, transparency enables entrepreneurs and executives to make more impactful business decisions. Transparency also lies in the nature of blockchain. The technology facilitates access to the same information to everyone at any time.

Take the Helium Network as an example. A map on their portal displays all hotspots connected to the network and is visible to everyone – network participant or one-time visitor to the page. With this information, users can determine the best location to set up their equipment.

3. Ownership

RWAs such as art, shares, and real estate can be represented onchain through tokenization. Stored on the blockchain the data becomes immutable and easily verifiable. This minimizes disputes over ownership rights, royalties in case of reselling, and forgery.

The social marketplace Endemic is a good example in which a local artist’s authorship is represented by the ERC-721 token standard, in other words, a non-fungible token (NFT). This eliminates copyright issues and creates a traceable record of ownership.

The RWA movement is about updating the core primitives and components of the financial system where it interfaces with the real economy. Where traditional financial markets are fragmented, opaque, and inefficient, blockchain technology offers an opportunity to significantly improve upon these factors beyond what traditional technology can provide. With a fundamentally improved foundation for transparency, integrations, and efficiencies, we can begin to address significant gaps and challenges in traditional financial markets. – Asad Khan, Partnerships and Business Development at Centrifuge

 

The taxonomy of tokenization

Okay, now you know that blockchain-based RWAs address the top challenges of digital tokens, but is that all? What is the true gain for businesses or entrepreneurs in leveraging the onchain technology?

We need to get deeper into the advantages and disadvantages of onchain technologies before we can answer this. First, let’s understand how value is created onchain and which offchain models are involved. The following table is an attempt to categorize the different industry aspects of an offchain, hybrid, and onchain business.

Market predictions and projections for RWAs

To grasp the potential impact of RWAs in driving financial inclusion, fighting inflation, and creating new business opportunities you also need to understand the current asset tokenization market.

The below graph unveils our projections on this market’s size and the growth trajectory based on our in-depth analysis.

We project a substantial growth trajectory for the asset tokenization market, potentially reaching a value of USD 15 trillion by 2030. This represents a sevenfold increase in the value of tokenized assets from 2024 to 2030.

We anticipate that two asset categories – real estate and financial assets (comprising debt, capital raising, and public & private equity) – will lead the tokenization trend. This is due to their significant market size, minimal penetration, and the high prevalence of use cases.

When dividing the Real-Word Assets market geographically, our projections suggest that emerging markets could account for 18% to 20% of the tokenized market by 2030.

Tokenizing and turning Real-Word Assets into fractions, like digital shares that are transferred and settled in a completely digital environment, make it possible not only to lower investment entry points but also to reach a larger userbase of investors, generating more exposure and demand than ever for assets that sit in emerging economies.On the one hand, global capital is met with emerging economies. On the other hand, the domestic population in these economies now has better access to finance and alternative investments to compete with other emerging economies. – Henri Ndreca, Co-founder and COO at T-Blocks

As the market for tokenization matures across various asset classes, we are witnessing a diverse range of venture capital investments and demand dynamics. This is intrinsically linked to the maturity levels of the players involved in these asset classes. The following table encapsulates the investments and key players in asset classes that will be the continuing focus of our report.

After this comprehensive overview from the history of tokenization to today’s RWA market predictions you understand better what this is all about. And you’re aware that RWAs matter most in emerging markets and why.

In the following section, you will find a detailed analysis of the different industry sectors and specific use cases where RWA can impact real world conditions. Read on to see the ranking based on impact potential.

Real-World Assets for Real-World Purposes - The Ranking

What’s the impact score?

Our analysis covers Real-World Asset categories that serve the most important real-world purposes. To evaluate them based on their potential impact on emerging and frontier markets, we developed a unique scoring system. This impact score allows us to organize them by rank.

Here’s how it works. The scoring mechanism builds on the analysis of the following criteria:

1. How much do individuals and businesses benefit from RWAs?
   1. Financial inclusion
   2. Reducing poverty
   3. Fighting inflation
   4. Boosting investments
   5. Stimulating business growth (access to capital, new business models)
   6. Improving infrastructure and addressing regulatory and political instability
2. How developed are RWAs in this application area? (existing projects, traction)
3. What is the hype level around RWAs? (popularity in the web3 space and beyond)
4. How much money is poured into RWAs? (market trends)
5. What limitations do RWAs face in the category? (legal, technological, market-oriented)

Note: If a particular criteria was not included in the analysis of a specific niche, it means RWAs don’t address it.

Here’s where the excitement begins. We allocated points per criteria to each RWA domain. The maximum number of points any domain could accumulate was 80.

Presented here are the top 9 RWA usage areas with the highest impact scores.

You can use this information as a pointer where to locate beneficial RWA projects. You can also view it as a barometer for predictions where the market is going.

We hope it’ll help you in your entrepreneurial decisions!

Rank 9. Educational assets

Impact Score: 35.4
RWA’s most promising potential: improving the administrative infrastructure of education in emerging economies.

The fusion of tokenization and blockchain technology might bring about a significant transformation in the current educational landscape.

We all keep our academic certificates in some basement closet where they turn yellow. Maybe you have a digital transcript stored in some institution’s cloud. It’s highly inefficient, insecure, and easily forgeable.

NFTs as a tokenized version of the official paper documents present a revolutionary alternative.

Non-fungibly tokenized certificates make for a secure and tamper-proof means of credential verification and introduce a level of transparency that was previously unattainable. And they can be applied to teaching materials and courses just the same.

Graduates and job-seekers can effortlessly share their digital credentials with potential employers across the globe without the need for further verification. And recruiters can be sure the documentation is authentic.

To ensure that blockchain-in-education solutions scale worldwide and sustainably, the market adoption challenge must be addressed actively. And that’s tricky. It requires governments, educational institutions, and innovators to come together and promote blockchain-in-education solutions.

Advancing financial and educational inclusion & removing poverty

Web3 concepts could disrupt traditional education models by introducing decentralization, transparency, and financial incentives, which can indirectly alleviate poverty.

Tokenized EdTech platforms, such as Tutellus, operate as a value-as-a-service (VaaS) model. They provide tokenization services for others to incorporate the concept in their educational evaluation mechanisms.

The idea of tokenizing educational resources includes the fragmentation of courses, certifications, and learning materials into single elements represented by tokens. Higher education becomes more accessible by lowering the entry barrier and enabling micro-purchases.

OpenCampus is another example of a blockchain-based EdTech platform. In both, token holders can participate in staking and governance, thereby, generating passive income and influencing platform development.

Real-World Assets technology can also transform learning and teaching methodologies directly in several ways:

• In some models, tokens gamify the learning process. Every time students accomplish an assignment, engage in a discussion, or reach a specific learning objective, they are rewarded with a token. Rewards are always effective, but resonate particularly well with a generation of gamers who are more attuned to tokens than traditional grading systems.
• Blockchain allows for personalized learning experiences. Educational institutions can craft customized learning pathways for students, tailored to their individual interests, skills, and career aspirations.
• RWAs encourage lifelong learning. Educational institutions can use tokens to reward students for ongoing commitment to learning and upskilling throughout their careers. It motivates and enables people of all ages to keep developing their professional growth. Institutions can extend students’ engagement beyond the completion of their formal education.

Improving administrative, educational infrastructures

• Tokenizing educational certificates reduces forgery and ensures transparency and fairness. Additionally, using RWAs in this context, reduces bureaucracy, saves everyone time and opens the global job market. Graduates can share their certificates quickly with any institution in the world. Job applicants can instantly provide proof of skills and increase their chances in the job market. Companies don’t need to spend time and effort verifying certificates manually.
• Establishing a reliable, decentralized, and collaborative infrastructure would set the benchmark for issuing, storing, displaying, and verifying academic credentials in a digital format.
• It would further allow institutions to distribute these records in a safer and inexpensive way, thereby, reducing identity frauds.

Traction

• Since 2016, several companies like BlockCerts, APPII, and Parchment have been designing platforms for creating, issuing, and verifying blockchain-backed certificates.
• In 2018, a number of leading universities, including MIT, founded the Digital Credentials Consortium to design an infrastructure for digital credentials of academic achievement. The institutions recognized blockchain’s potential to improve the administrative infrastructure of higher education and help maintain academic integrity.
• To make this possible, the Consortium is developing a mobile wallet for securely storing and sharing the academic achievements with others. Sony Global Education, is already collaborating with industry leaders such as IBM to provide the Consortium with the required technological solutions.
• These are promising, but rather isolated initiatives. The road to widespread adoption of RWA’s in educational systems is still long and winding. One critical point is that adoption is necessary on a global, institutional scale to make Real-World Assets valuable in this sector.

Limitations:

• EU’s General Data Protection Regulation (GDPR) and California’s Consumer Privacy Act of 2018 (CCPA) may impose limitations on how personal data is transacted on the blockchain. Definitions of personal data also remain vague in legislation.
  University leaders and staff have limited knowledge of how to apply and maintain such applications internally, and this has slowed down the overall adoption by different institutes.

Rank 8. DePIN - Decentralized Physical Network Infrastructure

Impact Score: 40.6
RWA’s most promising potential: improving the technological infrastructure (i.e., network, computational power).

Most RWA categories refer to the process of putting assets onchain while utilizing the existing infrastructure. DePIN goes one step further and incentivizes people to actually build infrastructure, not only for RWAs.

DePIN – Decentralized Physical Infrastructure Networks – use blockchain to coordinate participants and enable them to build their own networks with real-world purposes. They may be focused on providing wireless connectivity (e.g., Helium, Pollen), computing power (e.g., Akash, Aleph, Render), storage (e.g., Filecoin, Arweave, Storj), sensor data (e.g., DIMO, Hivemapper), or general DePIN-focused infrastructure (e.g., Lisk, IoTeX).

In this respect, DePIN adds one more important layer to the RWA landscape. Although such apps don’t focus directly on bringing assets onchain, they improve physical assets with the help of onchain architecture. An example could be incentivizing Helium network participants to deploy wireless hotspots and enhance internet connectivity or encouraging car owners to share their mobility data through the DIMO network.

Financial inclusion

Wireless infrastructure provided by projects like Helium can significantly boost financial inclusion. They don’t have a direct impact but assist other RWA application areas, such as stablecoins, which require a robust internet connection.

Unfortunately, a glance at the Helium Hotspot Map reveals that currently, the vast majority of hotspots are placed outside the emerging countries. It appears they primarily address connectivity problems in developed economies where financial inclusion is less of an issue.

Reducing poverty

DePIN provides additional earning opportunities for people regardless of their location. They can be especially attractive for those living in lower-income areas, who can significantly improve their earnings.

Examples include: 

• Earning by providing data storage (e.g., Filecoin)
• Earning by providing car-related data (e.g., DIMO)
• Earning by providing mobility data (e.g., NATIX Network)
• Distributing a share of revenues (e.g., ELOOP and car-sharing earnings)
• Earning by providing battery power for decentralized energy grids (e.g., React)

Fighting inflation

Aside from the opportunity to earn money in another currency than that controlled by the central bank (i.e., crypto), DePIN doesn’t offer specific advantages. Additionally, the earning potential highly depends on how stable the relevant cryptocurrency is. Nearly all protocols pay in their own volatile tokens or use ETH, which remains more unstable than, for example, USDC.

On the other hand, if DePIN can provide working internet infrastructure, it can contribute to fighting inflation through stablecoins, which require an internet connection.

Stimulating business growth

DePIN networks are fully transparent and open. This enables businesses and individuals to easily scrape data for research and other purposes, accelerating business development and advancing DeSci (Decentralized Science) initiatives.

It’s still a promise rather than an actual use case. However, the accessibility and globality of DePIN applications could enable people to run businesses based on its underlying principles. As an example, a company focused on providing decentralized computing power through Akash, sounds like a reasonable idea.

Improving technological infrastructure

DePIN projects that focus on storage (e.g., Filecoin, Arweave, BitTorrent) could improve technological infrastructures in emerging markets – at least when it comes to solving data storage issues (e.g., insufficiently secured servers). For now, these protocols mainly attract other Web3 apps, not individuals or non-web3 businesses.

Current traction

There are currently over 650 DePIN projects. The biggest niches are Computing, with 250+ projects, and AI, with 200+ projects, according to Messari.

• For emerging markets, these application areas are less critical than others, like Wireless or Energy. When looking a little closer, computing, in combination with sustainability, shows some potential. Some projects allow users to share their computing power in return for financial incentives.
• DePIN protocols tend to lose traction over time. The best examples are Filecoin and Helium, which are considered the most representative of the entire domain. Both attracted lavish numbers of users right after launching and during the most bullish period in the usual crypto cycle.
• DePIN projects often struggle with generating revenue – a sad reality for many Web3 initiatives that we addressed in depth in our previous report. Messari claims the only categories with notable revenue are computing (e.g., Filecoin, Akash) and services (e.g., Braintrust).

Limitations

• DePIN is an RWA category that requires very fast, low-cost, and reliable blockchain infrastructure. Hence, the most dominant Layer 1, Ethereum, seemed to impose limitations in this area. Further development of Layer 2s promises to address this more efficiently. In particular, you should keep an eye on the emergence of EIP-4844.
  Recently, Solana tried to position itself as a new leader in this space due to their market focus on DePIN and a fast, low-cost blockchain. Concerns about its security may, however, move DePIN entrepreneurs back to Ethereum and its L2s. The most recent data regarding the blockchain usage in DePIN space looks to be confirming it:

• The entire DePIN category highly depends on network effects. If they don’t occur in a particular project or event, the entire application area will dry out.