Back in the Spring of 2020 I had a brilliant idea. I had been working in Web3 for a bit then and had been fascinated by the prospect of Real World Asset (RWA) tokenizations. It seemed to me that the benefits far outweighed the downsides. By tokenizing expensive assets you could add new liquidity into the market, by allowing a low point of entry for the retail and smaller investors. You could also get more institutional investors involved in the well-being of the asset being tokenized. I was a musician from the age of five to my late twenties. Sometime in my early twenties I had discovered that I had an affinity for business deals and a passion for new and disruptive tech and how it affects society, and these new interests had slowly eroded my zeal for the transient lifestyle of a musician. Looking back at my past experience as a musician, in mid 2020, I saw that established music institutions I had attended were oftentimes struggling financially. So I started thinking about ways to help them using my new-found career.
When I was doing my masters I, at one point, was loaned a Stradivari violin from the collection of the university where I was studying. It was an amazing violin. Imagine playing on an asset worth five to seven million dollars, all the while being stunned by the beauty of sound that this three-hundered-years-old, functional masterpiece produced. Forward to 2020, I had seen in the news that the universities I studied in were struggling financially due to the downturn in classical music. Orchestras were closing, people couldn’t find work, and industry was recoiling from not being appealing to a younger audience. Simply put, the people who funded the business were getting too old to care about what happened to it. It’s from this experience that I thought of an idea: why not tokenize the instruments in the institute’s collection, and use the capital for the school’s endowment? Tokenizations would bring new capital and liquidity, not connected with the ancient sources of funding these institutions had relied on in the past. They would also allow enthusiasm back into the industry, by bridging new investors who would have fractional ownership of these amazing and very valuable assets. The industry needed new people to care about Beethoven being performed, and technology could be the answer to this problem, or so I thought. However, when I approached various institute administrations with this idea, I very quickly saw that the ancient mentality of the governing administrations of these schools would not allow forward-looking technology to reshape the status quo.
Real World Asset (RWA) tokenization has been talked about for the last five to six years. In fact, ever since the DeFi spring innovators have been discussing using RWA tokens (tokens that fractionalized ownership of real world assets), as liquidity in institutional-grade DeFi protocols. Doing so allows for an expansion of liquidity in the economy and the market for several reasons. First, for any RWA tokens to be legitimate there has to be support from the government and its regulator. This means that a new asset class, one which is fully transparent through a public blockchain, can be totally legitimized by a government. Second, government legitimacy brings institutional force and involvement. It’s a lot easier for private business to get strongly behind an asset class which is fully acknowledged and well-defined by a government. Lastly, the foundation laid by a government and the force brought by the institutional private sector, draws the retail investor and smaller businesses to believe in the new asset. This last group brings the momentum liquidity needed to create a truly thriving environment. The confidence of these three groups ultimately drives the bull market, and would allow Web3 to finally produce sustainable yields, as these yields would have the foundation laid by the government, the deep liquidity of the institutions, and the momentum and enthusiasm of the retail public.
Fast forward to today, a new topic has emerged that can create a new bull market byt the use of RWA tokenization. Tokenization, when applied to major infrastructure such as power grids, data centers, and transport is something of a new topic in Web3. At this writing, RWA tokenization is already being used in sectors such as real estate, global bonds, and bringing tokenization to society’s infrastructure can create a major jolt to align all parts of the financial society together. Tokenization will give a lower point of entry for smaller investors, and at the same time, fractional ownership of national infrastructure will allow them to feel that they live in an equitable society. The initial support required from the government and forceful momentum of the institutional private sector will further give confidence to the retail investor that coming back into this inclusive economy will benefit them. Lastly, the infusion of new liquidity into the economy (i.e. the public investing and spending money into the economy) will foster an economic recovery necessary to bring back prosperity lost in the last three years of the bear market.
RWAs are a strategic play. While they do not offer the instant glamour of a new stablecoin, they are an incredible technology that is possible only due to the use of public blockchains. Their benefits can unleash an enormous amount of additional funding and investor confidence in any country and economy where a government is forward-looking enough to implement them. It’s time that this tech is looked at globally as a way to enhance economic growth and prosperity.
