RWA Protocols: The Picks and Shovels of RWA

Real-World Asset (RWA) protocols are revolutionizing the financial landscape. Imagine tokenizing real-world assets – real estate, bonds, commodities

Real-World Asset (RWA) protocols are revolutionizing the financial landscape. Imagine tokenizing real-world assets – real estate, bonds, commodities, intellectual property, fine art, and anything else – and putting these tokens on the blockchain.

For example, you may not have the capital to buy a skyscraper in Dubai, but that skyscraper can be tokenized and sold on digital ledgers – like any other crypto token – so you can own a small percentage of the skyscraper.

The “rails” that run these RWAs are called real-world asset protocols, which make it easier for asset owners to tokenize and sell these RWAs. In addition to investing in RWAs, then, the intelligent investor can also look at investing in the RWA protocols themselves.

At Bitcoin Market Journal, our approach is to look less at specific investments within a category, and look at investing in the entire category. Investing in the top RWA protocols is a great example of this approach: in this guide, we’ll outline the investment opportunities for you.

These protocols are the “picks and shovels” that everyone else will use to hunt for gold.

The Categories of RWA Protocols

RWA protocols cover a wide array of sectors; here are the important categories for the intelligent investor.

Yield Bearing Stablecoins

Stablecoins are cryptocurrencies often tied to real-world assets like fiat currencies or gold. They maintain stability within the markets and are important tools for adding liquidity to the crypto market. (See our guide to Best Stablecoins.)

Yield-bearing stablecoins offer incentives and token rewards from holding the coin. MakerDAO, Frax, and Ondo are all yield-bearing stablecoin projects that generate yield (i.e., interest), and earn rewards based on amount, staking duration, and market demand.

This balance between earning rewards and maintaining stability creates a unique financial instrument that combines elements of both savings accounts and transactional currencies.

Non-Yield Bearing Stablecoins

Non-yield bearing stablecoins are stable digital assets that maintain their value but do not accrue interest. They’re mostly used for trading, remittances, and as a store of value for investors waiting for their next trade. Their stable value allows investors to move value between digital asset platforms and applications without having to worry about volatility.

Tether (USDT) and Circle (USDC) are the two most widely used stablecoins on the market with a combined market capitalization of nearly $150 billion. Both are backed by full reserves of real-world assets.

While non-yield bearing stablecoins like USDT and USDC don't inherently offer interest, investors can earn yield on them through external services. (See our guide to Best Stablecoin Interest Rates.)

Underwriting Protocols

Underwriting involves assessing the value and risk of tokenized real-world assets, such as real estate and commodities, using that assessment to determine whether a loan should be approved, then specifying the interest rate, terms, and conditions of the loan.

Underwriting protocols in the RWA ecosystem facilitate the assessment and approval of loans backed by real-world assets. Through loan approval, they provide liquidity and ensure that the policy can be paid out by the borrower.

Maple Finance and Centrifuge are two projects leading the charge for underwriting RWA protocols.

Tokenized Funds

Tokenized funds represent blockchain-based shares of traditional funds, rather than a paper record of asset ownership held on a centralized database. This gives investors the benefits of enhanced transparency, streamlined settlements, and reduced fraud risk.

Tokenization propels traditional funds into the future. It’s like putting a V8 engine into a lawn mower body. While it doesn't change the functionality, it does make everything go faster.

Both BlackRock (through its BUIDL Fund) and Franklin Templeton (through its FOBXX Fund) have both leveraged tokenization as a means to enhance operations, drive more efficient fund management, and allow for seamless peer-to-peer transactions. These are a sign of things to come.

Tokenized Commodities

Commodities may also be tokenized: everything from precious metals, to energy resources, to agricultural products. Especially when it comes to energy, tokenization removes logistical barriers and allows international investors to purchase commodities worldwide.

Tether Gold and PAX Gold offer digital tokens backed by physical gold. It merges the traditional stability of gold as an investment with blockchain technology to allow investors to trade the precious metal with ease.

Alternative Tokenization Protocols

Outside of stablecoins, underwriting investments, tokenized funds, and commodities, here are alternative protocols you should take note of:

RealT: RealT specializes in tokenizing real estate properties and making ownership more accessible to investors with less capital.

Tangible: Tangible tokenizes physical assets such as art, collectibles, and luxury goods. The protocol creates a blockchain-based marketplace for trading and investing in these assets.

Lofty: Starting as little as $50, Lofty is a tokenized real estate investment platform for digital tokens representing various

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