Opinion by: Alex Zhang, co-founder of Pharos
Tokenization of real-world assets (RWA) is not a stand-alone solution to traditional financial problems. To state such a thing would be one-dimensional. As it stands, RWA tokenization is under immense pressure to perform despite showing clear value and signs of progress.
Despite its progressive trajectory, criticism of RWA tokenization is immense. Critics say decentralization alone is enough.
It’s too complex for the masses. The regulatory obstacles are insurmountable. The infrastructure is missing. Fraud is widespread. Manipulation is possible. Audit missing. Lack of standardization. Continue.
These critics fail to recognize that we may have to crack a few eggs along the way to establishing an institutional-level framework that can position RWA tokenization at the heart of the new global economy. The rough before the smooth.
Reduce the global financial gap
Important and deliberate work is being done to establish high-level, compliant RWA systems that overcome the inefficiencies of traditional finance. Advances can help close the global gap, especially when it comes to treasuries and real estate. International investors are not succumbing to the shortcomings of paper contracts, the opacity of agreements with intermediaries and general dispute management.
RWA tokenization is on the way to providing an antidote, but like some medications, the initial taste can be incredibly bitter. People’s inherent resistance to change leads them to criticize or underestimate RWAs, rather than seeing their potential. However, transforming tangible assets into programmable, divisible and instantly settled digital tokens is necessary for blockchain maturity. Institutional funds require institutional thinking.
As Coinbase co-founder Fred Ehrsam said:
“Everything will be tokenized and connected through a blockchain one day.”
Consider the stablecoin market. It is already worth more than $260 billion, demonstrating strong demand for RWA and a huge market opportunity. Detractors are notably silent regarding RWA tokenization’s biggest success story.
Building the compatible foundation
Unlocking a trillion-dollar market will be fraught with obstacles as it depends on the development of robust regulatory frameworks and meticulously designed tokenomics. These, in turn, must align incentives with sustainable growth. Inefficient architectures that fail to integrate carrot and stick and ignore existing laws can lose value to shareholders and lead to failure.
Related: Animoca launches NUVA marketplace to unify ‘fragmented’ RWA sector
Critics who cite complexity and lack of infrastructure miss the remarkable work already done. Onchain Know Your Customer, Anti-Money Laundering, identity management and institutional-grade infrastructure for custody, settlement and trusted valuation are all key components being developed and launched. What remains to complement them now are standardized compliance templates with limited liability structures and fast track cross-border compliance. It’s just a matter of time.
RWA in the real world
The momentum in the real world is already visible. These are not pilot projects; They are signs of a paradigm shift that is already underway.
The idea that uncertain regulations are a deterrent is changing, and the situation has become noticeably clearer in recent weeks and months. The implementation of the US Stablecoins National Innovation Guidance and Establishment Act (GENIUS Act) in the US is a clear sign that defined regulations can bring greater legitimacy.
The regulation of the EU cryptoasset markets will come into force in phases until 2025. It sets out clear and comprehensive rules for the issuance of tokens, asset-backed tokens and stablecoins in all 27 member states. This harmonization will unlock more compatible RWA products in European financial centres. In Asia, Singapore’s Guardian Project has already piloted tokenized bond issuance and fund tokenization with major banks such as DBS and JPMorgan. Japan’s Financial Services Agency has also introduced specific guidelines for stablecoins and security tokens, building a proactive and regulated path for asset tokenization in East Asia.
The United States is not alone: Hong Kong, another major innovator in the blockchain space, is imposing new regulations on stablecoins. Japan has also introduced its own regulatory frameworks, hoping to move more capital east and engage in financial innovation.
These recent critical developments, along with growing support from traditional financial markets and partners, indicate a clear path forward for RWA to achieve widespread adoption. The mood is changing, the market is growing exponentially and sentiment could reverse towards the end of the year. We are moving forward in the world, moving away from the lawless Wild West and into the realm of legitimate, well-governed markets.
While detractors have raised valid points at times, those closest to the action know that the criticism has served as actionable feedback. Everything negative that was said about RWA tokenization has helped inspire new regulatory frameworks, new institutional partnerships, and new pieces of infrastructure. Ironically, the more criticized and belittled he is, the more important and trustworthy he becomes.
RWA tokenization is not a local trend, but is happening in all financial centers around the world. It’s everything TradFi is not, and people are starting to realize that.
The market has quintupled in just three years. Whether skeptics like it or not, RWA’s vision is quickly becoming tangible. We have overcome speculation. We are building infrastructure. We are forging regulatory alignment. The road has been rocky, but today it is paved. Everyone can reimagine how value is created, owned and exchanged on the chain.
Opinion by: Alex Zhang, co-founder of Pharos.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
