17 November 2023
RWA (Real World Assets) Tokens and Cropto
Right now, I believe the most useful and exciting development in the blockchain world is the real entry of RWA (Real World Assets) tokens into our lives. We've been seeing the abbreviation "RWA" more and more frequently. It stands for "Real World Assets," referring to tangible and financial assets in the real world. Tokens indexed to real-world assets have arrived, and soon they will be everywhere.
In this article, I will explain what RWA tokens are, their types, and what they will do in the future. I have written extensively about the tokenization of real-world assets before. This time, I will try to explain the topic more clearly, specifically in the context of Cropto.
Technically, RWA tokens will be ERC-721, ERC-1155, or ERC-20 tokens indexed to real-world assets, covering:
Financial assets such as bonds, treasury bills, and sukuk,
Real estate, including land, apartments, and buildings,
Precious metals such as gold, silver, platinum, and jewelry,
Underground resources such as natural gas, oil, and coal,
National energy-producing assets like hydroelectric and solar power plants,
Agricultural assets such as wheat, barley, corn, and hazelnuts, which are the focus of Cropto,
Perishable agricultural commodities like fresh fruits and vegetables,
Physical or digital artistic assets.
This list could go on, but I will stop here. If you notice, I also included tokenized artistic assets at the end. You might ask, "Weren't these already tokenized as NFTs?" And you'd be right. Real-world asset tokenization has been done before, but now it's happening on a much larger and more global scale.
The large-scale tokenization of RWAs is advancing ahead of country regulations defining and approving them. No one currently cares about the regulatory aspect, assuming that laws will eventually catch up. The entire world has already started working on it. The other day, I watched an interview with Avalanche leader Emin Gün Sirer, who mentioned that RWA tokenization is the biggest focus for his platform. Clearly, the time for this has come.
Why Are Real World Assets Being Tokenized?
The tokenization of real assets will create new investment opportunities. Previously, only wealthy "qualified investors" could invest in assets like Eurobonds, large-scale real estate, and publicly traded companies. Now, even small investors can participate with smaller amounts. For Cropto, the primary reason for tokenization is to provide small investors access to agricultural products. Cropto Agricultural Tokens allow anyone, anywhere in the world, to invest in agricultural products in any quantity, 24/7.
RWA tokenization is also opening new credit mechanisms in financial environments where banks are constrained, credit is scarce, or, as in our country, borrowing in foreign currencies is expensive. While Cropto has not yet ventured into this area, Cropto Tokens could be used for such purposes in the future.
Additionally, businesses can use idle assets as collateral for refinancing or securing fresh (new) financing. Cropto Tokens may also serve this function in the future.
Developing countries have traditionally had less visibility in the conventional bond market compared to strong currencies like the dollar and euro due to financial infrastructure limitations and political/economic instability. However, in recent years, countries like Brazil, Mexico, and Indonesia have become more active in the bond market, increasing participation from emerging markets.
One of the factors contributing to this disparity is the "interest rate gap," which refers to the difference in interest rates between developed and developing countries. Developed nations typically have lower interest rates due to their stronger financial systems and stable economic and political environments. This makes it harder for emerging markets to compete in the traditional bond market, as they must offer higher interest rates to attract investors. As a result, there is growing interest in alternative financing models, such as blockchain-based lending platforms that use real-world assets as collateral.
Of course, I must also mention the ability to access these new financial instruments democratically, 24/7, from anywhere in the world via cryptocurrency-compatible exchanges.
Commercial Use
Whenever I read about RWAs, I notice that discussions on tokenization are often limited to the three areas I mentioned above. However, from my perspective, the most significant impact will be in global commodity trading, including Cropto’s role.
Today, fiat currencies are printed without any tangible backing. The previously high value of currencies from developed countries like the U.S., Japan, and Switzerland no longer means much. As the supply of unbacked fiat money grows, even wealthy Western nations are not immune to the decline in the dollar’s value. Essentially, all fiat currencies are on the same trajectory.
In this scenario, I believe that future alternative currencies will be indexed to commodities—just like in points (c), (d), (e), and (f) at the beginning of this article. Naturally, the trade of these commodities will take place on specialized crypto exchanges using decentralized blockchain technology rather than traditional banking systems. I am certain that we will soon see specialized agricultural token exchanges or dedicated energy token exchanges in decentralized (DEX) or centralized (CEX) forms.
Conclusion
Beyond the well-known benefits of RWA tokenization, such as facilitating investments and improving access, I believe the real future lies in international trade. At Cropto, in addition to producing investable agricultural commodity tokens, we are also preparing for this future.
Regards,
Cemil Şinasi Türün
Chairman of Advisory Board
Cropto - Trademark of AgriFintech Finansal Teknolojiler A.Ş.