While the term 'Real World Assets (RWAs)' is thrown around the space more and more, many people have yet to have a full grasp of what they are and the potential associated with their tokenization.
The concept of RWAs and its tokenization opens up a whole new chapter in the financial market by making it possible to bring, hold, and trade real-world value to the Blockchain.
It has presented a new market from which early investors can profit.
It also presents an opportunity to grow your wealth and diversify your portfolio. You can invest in fractions of different assets.
Let's have a deeper look...
In simple terms, Real World Assets (RWAs) are physical and tangible assets with intrinsic value such as bonds, stocks, and even gold. They are also referred to as real-world traditional financial instruments with value.
Bringing RWAs on-chain means that one can purchase and own Tesla stock, Meta Facebook stock, a rare painting by Picasso, Apple stock, Amazon stock, Classic car, Google stock, and Netflix stock even as a fraction.
Trading Real-World Assets (RWAs) is normally allowed through centralized systems like stock exchanges, legal contracts, and banks. This restricted access to the market for many people, as not everyone can freely enter and buy these assets.
When cryptocurrency was taking off, people could only dream about tokenized real-world assets. But now the possibility for the tokenization of these assets is not only possible, it's regulated thanks to the advancement of technology and lawmakers.
Real World Assets (RWAs) only existed off-chain in the real world. But they are now issued on-chain as a digital token for trading, storage, or transfer on the Blockchain. This concept is called RWAs Tokenization.
These digital assets are issued to divide any asset into smaller portions, allowing even small investors to participate.
Recently, interest in RWAs has gained great momentum as many investors and institutions have been enthusiastic about this revolutionary concept.
From our perspective, the buzz around the Tokenization of RWAs is justified as it removed a major barrier for those who couldn’t own any RWA through traditional financial institutions.
There are lots of benefits associated with RWA tokenization which has led to the growing interest and here are a few of them….
• Making RWA accessible and open to all, creates a borderless market
• Increased trading liquidity makes it easy to sell and purchase
• Eliminating middlemen like banks and brokers makes RWA a cost-effective way to invest
• Enabling fractional assets ownership, makes this investment available to both small and big investors alike
• On-chain transactions are significantly faster than traditional trading
• Full transparency of ownership and transactions is recorded and available on the Blockchain.
Considering all these benefits, it is evident that tokenized RWAs are about to shake the core of the finance industry.
Despite how exciting all these are, it is important to understand that regulation is a crucial aspect of RWAs tokenization.
The EU passed the Markets in Crypto-Assets (MiCA) regulation on July 31, 2024, as a harmonized regulatory framework for digital assets. This was done to facilitate the compliance of tokenized assets in the EU, including RWAs.
With this act, MiCA set out to establish clear guidelines to safeguard investors in the EU's digital assets market while driving innovation in the industry.
MiCA has made the issuance and trading of digital assets possible by creating a new asset class called Asset Referenced Tokens (ARTs).
ARTs are digital assets that must be backed by tangible resources to maintain a stable value by referencing another value.
For instance, if an ART represents wrapped Amazon digitized stocks, the underlying asset would be Amazon stock and the ART value would be pegged to the market price of Amazon stock. This means that a holder of this particular ART has a fractional ownership of Amazon shares.
For a company to legally issue RWAs and meet the EU compliance laws they must meet the following conditions:
With these new regulations, MiCa makes it easier for financial companies to issue RWAs and expand the industry responsibly. These regulations safeguard the investors in the digital assets industry lowering the risk of fraud and bringing cryptocurrency a step closer to a future where tokenized assets are adopted by the masses.
Our team at Auroca has been closely following the MiCA regulations even before it kicked in office to ensure full compliance.
Just like the EU, there have been frequent changes in the tokenized securities regulations in the US. This may cause some confusion for companies and investors in the industry. We’re here to clear this up.
With Trump leading the financial revolution 8 agencies were put in place to regulate the wild west of digital currency in The US:
There are quite a few differences between the regulations of tokenized assets in the US and EU.
EU has a dedicated and well-structured framework for tokenized assets regulations which is MiCA. While the US has a fragmented regulatory framework as the responsibility is given to different agencies.
The MiCA regulations cover the digital assets market across the EU while that of the US varies by state.
EU provides clear categories for digital assets and the rules governing them while that of the US is not completely clear as there are frequent changes. This breeds uncertainty and makes it difficult for digital assets companies operating in the US to thrive.
It is important to note that the more recent actions of the SEC and other regulatory bodies suggest that the US is gradually looking to move towards clearer and more favorable regulations to further advance the digital assets market Although the changes still confirm the uncertainty already mentioned.
All these are probably why Auroca is currently restricting access to its platform for U.S Citizens, UK residents, and other users in certain jurisdictions, for the time being.
While many companies are still processing the MiCA regulations and their implications, Auroca has been preparing for the day this regulation comes into effect to perfect its technology and user experience.
Auroca is bridging the gap between TradeFi and DeFi by giving crypto users exposure and permissionless access to tokenized stocks, bonds, and ETFs in an easy and regulated way.
With the regulation in mind, Auroca has already taken the necessary steps to comply with the regulations mapped out by MiCA for EU companies on Assets Referenced Tokens (ARTs).
Auroca is not just a player in this industry but a pioneering force set to shape the future of blockchain. And yes, we’re very proud of this.
Despite the excitement of this massive change the need for the regulation of tokenized Real World Assets (RWAs) cannot be over-emphasized no matter how complex it may seem. An unregulated system is prone to risks like fraud, market manipulation, illicit activities, and lack of transparency.
These regulations bring the crypto industry closer to mass adoption and Auroca isn’t just focused on compliance. We created a game to help investors practice trading on-chain while winning awards and even tokens. Have questions? Join our community.
The market does not sleep, so why should you? Click to play and win rewards now.
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