January 12, 2024

Tokenized Real-World Assets: A Beginner’s Guide to Key Words

5 min read

In the world of blockchain and cryptocurrencies, the concept of tokenization has emerged as a game-changer. It refers to the process of converting real-world assets into digital tokens, representing ownership or rights on a blockchain. This innovative approach enables an entire sector of DeFi called RWAs (Real-World Assets) which can represent any asset from apartments to Pokemon cards. At Plume we’re devoted to enabling the adoption of RWAs for the masses so let’s ensure we grasp a firm understanding of key terms within this growing sector.

Real-World Assets: These are tangible or intangible assets like real estate, art, stocks, bonds, and even commodities. Tokenization enables these assets to become more divisible, tradable, and accessible to a broader range of investors.

Tokenization: Tokenization is the core concept of RWAs. It’s the process of creating digital tokens that represent ownership, value, or rights for any asset that exists in the physical world. Tokenization enables the trading and investment of assets not typically accessible in certain markets, geographic or demographic regions and increases liquidity and accessibility for them.

Examples of assets that can be tokenized can range from:

  • Houses
  • Pokemon cards
  • Government bonds
  • Wheat / Corn
  • Stocks
  • Natural gas
  • Luxury items

Blockchain: The underlying technology behind tokenization. Blockchain provides the security, transparency, and immutability required to ensure the integrity of tokenized assets. Plume is a blockchain!

Security Tokens: These are a type of digital asset that represents ownership in a real-world asset that must comply with securities regulations. Security tokens are a type of RWA but under a stricter purview often representing classical securities like stocks, bonds or other securitized assets.

Fractional Ownership: Tokenization allows assets to be divided into smaller units, enabling fractional ownership. Just like how cryptocurrencies can be purchased in small increments as a whole, Investors can purchase tokens representing a fraction of an expensive asset, making the experience overall more accessible.

Expensive real estate or art pieces can be broken down into thousands of tokenized representations and can open up investment opportunities to a broader range of people for lucrative opportunities!

Liquidity: Liquidity refers to how “liquid” an asset is which simply means how easy it is to buy or sell at any given time because you always require someone on the other side willing to trade with you. Tokenized assets can be traded 24/7 on blockchain-based marketplaces, improving liquidity compared to traditional illiquid assets like real estate. Increasing liquidity is positive because it increases financial flexibility of an asset, allowing individuals and companies to respond quickly to any price changes.

Illiquid assets can mean assets like a house — traditionally selling homes can take months with all the paperwork involved and middle-men in between.

The most liquid asset is actually cash! It’s very easy to “buy” and “sell” cash which just means exchanging it for goods and services.

Smart Contracts: These self-executing contracts with the terms of the agreement directly written into code automate processes like dividend distribution, making ownership of tokenized assets efficient as many operational burdens typically relying on real-world middlemen can be automated in a transparent and fair way.

Regulation: The regulatory environment for tokenized real-world assets is always evolving! Understanding the legal framework in certain jurisdictions on what is and isn’t allowed to be traded is crucial for both issuers and investors. This area is always up for contention in the industry but recent developments such as the SEC approval for Bitcoin ETFs are a positive mark of more support to come.

Tokenization Platforms: Companies and platforms are emerging to facilitate the tokenization process, making it easier for asset owners to tokenize their holdings and for investors to participate. Plume offers several tokenization partners as part of our network infrastructure enabling RWA based protocols to efficiently issue and deploy all types of tokenized assets.

Real Estate Tokenization: One of the most prominent use cases for tokenization. It allows real estate assets to be divided into tokens, making it easier for people to invest in properties without buying the entire asset. This enables fractional ownership and access to lucrative investment opportunities that are more typically restricted. Tokenization is great for real estate owners as their properties can access more liquidity.

Art Tokenization: Artworks can be tokenized, allowing art enthusiasts to own fractions of famous paintings or sculptures. In the same vein as real estate tokenization they share all the same benefits!

Compliance: Ensuring that tokenized assets comply with local and international regulations is a top priority for issuers and investors to avoid legal issues. Plume also works with several infrastructure providers to consistently review compliance with local juridical laws and regulations to ensure investors are protected and issuers can feel confident.

Commodities Tokenization: Commodities are basic goods which means raw materials that can be bought and sold in markets similar to stocks and bonds. The tokenization of commodities allows them to be used as collateral for certain types of real-world asset instruments on blockchains as well as having increased settlement speeds while reducing fraud risk.

Closing thoughts:

Tokenized real-world assets are reshaping the investment landscape, offering new opportunities and efficiencies for both asset owners and investors. As blockchain technology continues to mature and regulations adapt, we can expect the tokenization trend to grow and diversify, unlocking a world of possibilities in the financial and asset ownership realms. At Plume we’re envisioning a world of diverse investment opportunities that is accessible to all through the benefits tokenization can bring and we’d love to chat if you are interested to help build this future with us!

About Plume:

Plume is an RWA L2 built for the seamless integration of RWA projects and new capital on-chain. It achieves this by directly incorporating essential asset tokenization and capital/compliance software directly into the chain. Plume’s objective is to establish a secure and cost-efficient ecosystem that simplifies project development and offers investors a unified platform to explore and invest in various types of RWAs. Additionally, Plume unlocks liquidity and supports the trading of RWA assets through its composable DeFi ecosystem.

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