Citigroup recently released a comprehensive 162-page report detailing the specific path for the blockchain and Web3 industries to achieve a billion user base and a market size of tens of trillions of dollars. To realize a market of tens of trillions of dollars, relying solely on the nearly 1 trillion dollar crypto-native market that has formed so far is far from adequate. Citigroup has provided a broader dimension - RWA（Real World Assets Tokenization）. The current near-trillion scale crypto-native market is already surging, and the future RWA market of tens of trillions of dollars will be even more impressive!
1. What Is The RWA？
RWA stands for Real World Assets Tokenization, which refers to the process of converting tangible or intangible assets and value rights in the physical world (which could be ownership, income rights, use rights, etc.) into digital tokens. This eliminates the need for a central intermediary for asset storage and transfer, allowing value to be mapped onto the blockchain for transaction circulation. Real-world assets, such as real estate, securities/bonds, commodities and artworks, patents, intellectual property, etc., constitute a significant part of global financial value.
Clearly, the Real World Assets (RWA) in the traditional financial sector are vast. (Global real estate is worth $326.5 trillion in 2020, while gold is worth $12.39 trillion). However, these assets have barely been exploited in the Web3 and crypto domain. This presents the possibility of incorporating real-world assets into the crypto industry, offering a novel asset category for DeFi and financial market participants. For real-world assets, this not only significantly increases their liquidity but also potentially lessens the impact of cryptocurrency volatility on investment returns.
In 2023, with the ups and downs of the global macroeconomic situation and the gradual maturation of traditional virtual asset regulatory rules across countries, the crypto world is compelled to continuously innovate upon its original narratives, creating more attractive products that meet the demands of the community and potential investors, Real World Asset Tokenization (RWA) has thus emerged, and the crypto market's interest in RWA continues to grow. As indicated by the DefiLlama chart below, the total value locked (TVL) exceeded $770 million as of July 2023. RWA has gradually become a new blue ocean and value capture channel in the current crypto market.
2. The Development Status Of RWA
RWA is not a new "concept," but a new trend. Many years before the birth of blockchain technology, the "securitization of physical assets" had already become a widely used financial tool in capital markets. By extension, RWA is essentially a financial tool innovatively developed based on blockchain technology. The reason previous attempts to bring real assets onto the blockchain did not become mainstream is mainly due to two factors: unclear or overly cautious regulatory policies, and immature blockchain infrastructure. However, these two barriers to the implementation of RWA are now disappearing.
Some regions have already recognized the significant transformative power of Web3 technology on the financial industry and have begun to actively embrace Web3 technology. This is especially true in regions where the financial industry is a pillar, such as Singapore, Switzerland, and Hong Kong. Some regions are even beginning to implement central bank digital currencies (CBDCs), providing a more reliable value anchor for the development of RWA than stablecoins.
Secondly, after many years of development, the infrastructure in the crypto field can fully support the development of RWA. This mainly includes public chain and cross-chain infrastructure, tokenization standards, DID technology, and the maturity and deployment of ZK technology.
According to Citigroup's recently released research report (3rd quarter of 2023), by 2030, there will be $40 trillion to $50 trillion in tokenized digital securities, and trade finance transactions based on distributed ledger technology will also reach $1 trillion. This aggressive prediction is based on the following assumptions:
- It is expected that there will be a $1.9 trillion tokenized market in the $187 trillion non-financial company and quasi-sovereign bond market (accounting for 1%).
- It is expected that there will be a $1.5 trillion tokenized market in the $20 trillion real estate fund market (accounting for 7.5%).
- It is expected that there will be a $0.7 trillion tokenized market in the $7 trillion private equity and venture capital fund market (accounting for 10%).
- It is expected that there will be a $1 trillion tokenized market in the $42 trillion securities financing and collateral activity market (accounting for 2%).
- It is expected that there will be a $1 trillion tokenized market in the $12 trillion trade finance market.
Currently, traditional financial giants are mainly exploring and deploying tokenization of Real World Assets (RWA). Among them, financial institutions such as JPMorgan Chase, Goldman Sachs, DBS Bank, UBS Group, Santander Bank, Société Générale, Hamilton Lane, etc., have moved from the research and exploration stage to the testing / combat stage, while institutions such as Temasek, HSBC, BlackRock, etc., are still in the exploration and preparation stage:
● JPMorgan Chase: Tokenization is a killer application for traditional finance.
● Goldman Sachs: Entering the RWA field through the tokenization platform GS DAP.
● Citigroup: Asset tokenization is nearing a growth inflection point.
● DBS Bank: Participating in the Monetary Authority of Singapore's digital asset pilot and DeFi services.
● Temasek: Preparing for tokenized assets.
● HSBC: Exploring asset tokenization use cases.
● Singapore Exchange: Exploring tokenized asset settlement with the Monetary Authority of Singapore.
● BlackRock: Exploring the tokenization of stocks and bonds.
● BNY Mellon: Tokenization has the ability to completely transform the financial landscape.
The Hong Kong Monetary Authority (HKMA) also mentioned in the Digital Hong Kong Dollar pilot program announced in 2023 that 16 selected companies from the financial, payment, and technology sectors will conduct the first round of trials within this year. They will deeply study the potential use cases of the Digital Hong Kong Dollar in six categories, including comprehensive payments, programmable payments, offline payments, tokenized deposits, third-generation internet (Web3) transaction settlements, and tokenized asset settlements. In fact, in February of this year, the Hong Kong Special Administrative Region government HK$800 million in tokenized green bonds. This was one of the first batches of RWA tokenized green bonds issued by a government worldwide.
Overall, although asset tokenization is still far from reaching mass adoption, the momentum of RWA tokenization adoption has undergone a noticeable change as some giants leading the financial market gradually shift from research, exploration, and testing to the promotion stage.
3. The First-Class Citizens In The RWA Field - Intellectual Property (IP)
The development of RWA tokenization in the financial industry, in fact, still faces a series of technical, compliance, and regulatory challenges in the process of practical implementation all over the world.
Entrepreneurs in the Web3 field face legal compliance risks when they venture into RWA. If RWA wants to develop in different regions worldwide, with their considerable disparities, it must prioritize compliance with local laws. Therefore, one must be cautious in choosing the path of real-world asset tokenization and stay away from regulatory red lines.
3.1 Real World Assets Choices
In theory, all tangible assets, rights, and even financial products can be tokenized via RWA. Essentially, RWA can facilitate all our imaginations about value circulation. Global financial industry's RWA projects are based on this, expanding from traditional tangible assets like gold, real estate, and luxury cars to special valuable "things" such as bonds, private equity funds, and intellectual property.
However, many primary countries have strict restrictions and regulations on cryptocurrency-related applications (like the United States, European Union, China, Japan...). To prevent unnecessary legal risks, RWA needs to avoid asset categories that could potentially be associated with financial security as much as possible.
Firstly, it's essential to avoid high-value properties like real estate, vehicles, ships, precious metals, etc. On one hand, local laws generally have special regulations on the circulation of such assets. Not to mention that the innovative concept of RWA may not be achievable, and it could trigger numerous breaches of contract and infringement disputes. On the other hand, properties like real estate significantly influence the mainstream economy and existing industry order, and improper operation could potentially lead to systemic financial risks, affecting social stability and violating regulatory red lines.
Secondly, it's best to avoid financial products and be cautious about the RWA of categories like private equity funds and securities. Some heavily regulated countries (like the US and China) have implemented intensive and penetrative regulations in the financial sector. As a blockchain and financial derivative product, it's not advisable for RWA to enter the heavily regulated financial field in its early stages.
In its early stages, RWA can prioritize starting with lower-value but widely used common digital art pieces (refer to NFTs) and common goods (like luxury or daily goods etc.). Starting from the perspectives of cultural development and asset management, it can maximize the accumulation of industry application compliance experience and avoid global legal and regulatory risks.
3.2 Tokenization Options
As previously mentioned, some mainstream countries strongly regulate ICOs and related virtual currency financial activities. However, this does not mean that the development path of RWA in strongly regulated areas and countries is blocked. What can be clearly stated is that major countries and regions worldwide encourage and are friendly towards the development of blockchain ledgers and distributed technologies. Currently, there are no laws or normative documents prohibiting the issuance and trading of digital rights confirmation technologies and products like NFTs. Conducting RWA in the form of NFTs could be a good approach. However, what needs to be avoided is that conducting RWA in the form of NFTs also needs to avoid financialization, ICOs, and other behaviors, otherwise it is likely to trigger local regulatory attention and actions.
Therefore, we suppose that Intellectual Property (IP) are very likely to become the first-class citizens in the RWA track.
4. The Next Industry Wave Of NFT
4.1 Challenges And Issues Faced By NFTs
From 2021 to 2022, the total market value of NFTs soared from 70 million to 20 billion! The rise of NFTs has provided unprecedented opportunities for digital art, IP digital rights confirmation, music, sports, and other fields! Despite the significant progress NFTs have made in the digital economy, they are still constrained by some pain points. One of them is the limitations of the virtual world. Although NFTs as a type of digital asset can represent unique artwork and value, they exist in the digital domain and are difficult to directly touch people's real lives.
For example, when you purchase an NFT, do you acquire the real IP copyright of this NFT?
Generally speaking, the answer is no (users need to carefully read the detailed rules of NFT issuance to know the specific answer).
Let's look at some simple examples. As early as March 2021, Jack Dorsey sold his first tweet in the form of an NFT for as much as 2.9 million dollars. There is no doubt that this is a piece of historical content, but the buyer, Sina Estavi, does not own the IP of this tweet. All copyrights still belong to Dorsey.
"The New York Times" staged a half-joking stunt when it published an article about crypto collectibles, offering readers a chance to own a tokenized version of the story. It eventually sold for as much as 350 ETH — worth $560,000 at the time, and worth about $600,000 as of the beginning of August 2022. Despite some benefits this NFT indeed brought (the buyer had the chance to brag on Twitter), it did not include the copyright of the article...or any rights of reproduction.
The potential pitfalls of NFTs go beyond this. For example, MetaBirkins were popular during the NFT boom — an NFT digital replica of the famous Hermès handbag. But the author, Mason Rothschild, eventually got into a dispute with the Hermès brand, which claimed that this NFT could confuse consumers and took legal action against the product.
Some of the most popular NFT series (including Bored Ape Yacht Club) have granted users the intellectual property rights of the NFT individual they purchased and hold. This is a significant advancement. It essentially means that the specific holder of Bored Ape NFTs could potentially profit from them, but the holder of Bored Ape NFTs still do not own the overall brand intellectual property rights of BAPE.
Most importantly, since intellectual property itself is an intangible asset and value right protected by real-world laws, there has been a long-standing global lack of reliable, low-cost, and easy-to-promote rights confirmation technology and trading mediums. The emergence of blockchain technology and NFTs has technically perfectly solved these series of problems, making NFTs a natural carrer for intellectual property.
On the other hand, the NFT field currently lacks protocol standards and frameworks related to global real-world intellectual property, which poses a potential significant adverse effect on the application promotion and growth development of NFTs themselves, and also hinders the large-scale application of NFT technology in the intellectual property industry.
4.2 Opportunities for Innovation Brought by Combining RWA with NFTs
The limitations of digital virtual assets pose challenges to the further development of NFTs, while RWA (Real World Asset Tokenization) brings innovative power. The next narrative for NFTs to break through development barriers might be a comprehensive combination with RWA.
Based on the previous discussion, we can draw a basic conclusion: RWA and NFTs will be the best partners at the current stage.
● From the perspective of NFTs, it is necessary to use RWA to explicitly assign the value and meaning of real-world assets to NFTs.
● From the perspective of RWA, there is a need for unique digital rights confirmation technologies and standards like NFTs, to build a bridge of trust between the real world and the virtual world digital economy.
● From a compliance and practice perspective, intellectual property RWA could potentially drive NFTs to become the first compliant crypto "killer app."
NFTs are the best digital carrier for the RWAization of intellectual property. IP RWA will become the innovative pusher driving the Next Induestry wave of NFTs, which is supposed The first trillion-level non-financial digital asset rights market besides DeFi.
5. METAIP - Open Intellectual Property NFT Protocol
YieldDAO is the world's earliest metaverse guild to focus on RWA Intellectual Property NFT Protocol, initiating the world's first metaverse intellectual property NFT protocol "MetaIP". The MetaIP protocol not only explicitly opens the intellectual property rights of the NFTs held to the holder, but also shares and opens the rights to use the NFT brand name and logo to the holder. MetaIP realizes the intellectual property rights confirmation of its digital artworks and digital assets through NFTs, is a digital certificate for sharing its IP rights and interests, and is also a certificate for NFT brand holders to carry out digital governance.
DragonCapsule is the world's first NFT collection that applies the METAIP metaverse intellectual property protocol. It pioneered the opening of brand name and logo usage rights and realized the sharing of intellectual property rights with global holders.
If BAYC represents the "PGC mode" and Mfers belongs to the CC0-type NFT project which is the "UGC mode", then the MetaIP project that DragonCapsule belongs to is the "PGC+UGC mode". MetaIP combines the strengths of the previous two - it not only allows NFT holders to participate in the promotion of IP, but also protects the motivation for authors to continue creating. It perfectly merges the common interests of the holders and creators, achieving a technological and community basis for digital governance on DAO.
MetaIP is currently updating and developing a new generation 2.0 protocol content, to achieve a more general and open on-chain contract basis protocol. By RWAizing, it integrates IP (intellectual property) rights with native crypto NFT standards. Any NFT artwork can conveniently declare calls through the MetaIP factory protocol, achieving a standard flexible NFT intellectual property declaration, giving NFT intellectual property certificate intrinsic application value. It continuously builds an open crypto application example that meets regulatory requirements and can be widely used for IP RWA NFT and the metaverse digital economy.
Conclusion: As per the current development trend, most RWA cases are concentrated in the field of financial products. After analyzing the two main bottlenecks of technology and regulation, we believe that one of the best paths for RWA to empower the future digital and even physical economy is the direction of cultural value and utility value. NFTs based on intellectual property rights happen to satisfy both dimensions at the same time. We hope that players who accurately grasp commercial rules, reasonably consider regulatory rules and compliance paths, will ride the trend of the global digital new economy, realize the innovative landing and development of RWA. and truly promote the integration & upgrade of the traditional industries in real world and the digital new economy.
- https://www.coindesk.com/learn/nfts-and-intellectual-property-what-do-you-actually-own/ NFTs and Intellectual Property: What Do You Actually Own
- https://foresightnews.pro/article/detail/39759 The crypto filed RWA is coming on waves？
- https://cointelegraph.com/explained/nfts-and-intellectual-property-explained NFTs and intellectual property, explained
- https://www.coingecko.com/learn/what-are-real-world-assets-exploring-rwa-protocols What are Real World Assets (RWA) in Crypto?