How Real World Assets (RWAs) Are Transforming Emerging Markets

Real World Assets (RWA) are becoming increasingly significant in the blockchain sphere, expanding what can be tokenized and traded digitally. With the total value locked (TVL) in RWA skyrocketing to $8 billion year-over-year —a remarkable 700% increase—these tangible assets are poised to drive the next wave of crypto adoption and market growth.

By Lisk

15 May 2024

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When the Real World Meets Blockchain

RWA enables the transformation of a wide range of assets— from everyday items like real estate and artwork to complex holdings such as treasury bonds—into tradable tokens on the blockchain. This capability is set to revolutionize traditional economic sectors. It can simplify international trade, provide cross-border funding, and offer investment opportunities to unbanked populations, making previously challenging transactions feasible.

By integrating blockchain technology and self-executing smart contracts, RWA enhances transparency, eliminates costly intermediaries, and reduces the complexities of international trade. This streamlining benefits not just large institutions but also small businesses and individuals, resulting in faster, more efficient transactions and contract executions.

A Catalyst for Economic Growth in Emerging Markets

Emerging economies stand to gain significantly from RWA. They can trade using stronger currencies like the USD or Euro instead of volatile local currencies, thereby leveraging the stability of more robust financial systems.

Unsurprisingly, Dollar backed stablecoins (like USDT and USDC) became the first RWAs to gain widespread traction in emerging markets facilitating cross border payments and remittances especially in places where remittances are slow and expensive (For example the average fees of remittance in sub-Saharan Africa is at 8.46% — far higher than the 3% target of Sustainable Development Goal 10).

In addition to remittances and international settlements, stablecoins also open the possibility to take advantage of lower interest loans, further accelerating the economic development of the economy in those areas. For instance, interest rates in developing countries are often high due to inflation (Brazil: 39.4%, Argentina: 52.4%, Nigeria: 12.3%, South Africa: 8.8%), compared to the Euro area's 5.46%.

Fractional ownership through RWA allows individuals in cash-strapped regions to invest in assets previously accessible only to institutions and high-net-worth individuals. This democratizes access to real estate and other high-value investments, enabling crowdfunding for capital-intensive projects. Property owners can also sell portions of their estates without needing to find buyers for the entire property, simplifying transactions through tokenized real estate marketplaces like Redswan.

A notable example in 2023 saw a French olive oil manufacturer issuing the first bond on the blockchain through Obligate—a secure debt management platform—denominated in a regulated Euro stablecoin. This event demonstrated the practical application of cryptocurrencies in complex financial operations like bond issuance, reducing funding costs by 40-50% and eliminating costly intermediaries.

The Far-Reaching Economic Benefits of Real World Assets

The adoption of RWA can ensure broader economic benefits by facilitating seamless asset transfers and maintaining tamper-proof transaction records. This transparency promotes traceability and real-time public monitoring, reducing corruption and increasing economic stability by diversifying income sources and providing a more stable investment environment.

For Africa, where natural wealth has not always translated into broad economic growth or democratic improvements, RWA offers transformative opportunities. By using stable assets like USDT for global trade, Africans can access various financial services, including lending, borrowing, and investing in futures and bonds, thus leveling the playing field with the West.

At Lisk, we are committed to supporting emerging markets, particularly in Africa. Our initiatives, such as the African Blockchain Incubation Hub, aim to nurture local blockchain talent. We also plan to launch a fund dedicated to RWA to increase liquidity and tokenize what could become the future of those regions, enabling anybody to generate yields on stablecoins, invest in tokenized entities and bootstrap liquidity for RWA.

A New Era for Emerging Markets

It is clear and now widely recognized: RWA can revolutionize numerous sectors, including small-scale agriculture, community-based ecotourism, and artisanal mining, by opening them up to global markets and investors. Tokenization enhances liquidity, making traditionally illiquid assets like real estate or specific commodities easily tradable. It democratizes access to high-value investments and ensures secure, transparent transactions through blockchain technology. This shift towards a transparent and inclusive financial system can reshape the future of economic development in emerging markets, promising more equitable economic progress.

Together with our community, we are optimistic in our capacity to help driving this transformation by actively working towards the tokenization of assets and supporting the development of a transparent, inclusive financial system, thus fostering sustainable economic growth in emerging markets.