RWA Vision Begins with NFTs

NFTs The Starting Point of RWA's Vision

Written by: WILLIAM M. PEASTER

Translation: Shen Chao TechFlow

In short, Real World Assets (RWAs) come in two types: those representing financial instruments (bonds, real estate, stocks, etc.) and those representing cultural items (baseball cards, Pokémon cards, etc.).

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In both cases, more and more people and organizations are going through the process of “on-chain” their “offline” items to take advantage of the unique functionalities provided by networks like Ethereum. Think of the non-custodial lending capabilities in decentralized finance (DeFi) or the public, global auction infrastructure provided by non-fungible tokens (NFTs). The core idea is to make illiquid assets more liquid.

However, RWAs are not something new in the crypto space. For example, Maker, as the first DeFi protocol to gain widespread adoption, has been using RWAs like government bonds to back its Dai stablecoin since April 2021. Other DeFi projects such as Canto, Frax, Maple, and Polygon have also made significant progress in the RWA space recently.

However, if you take a closer look, the dominant approach in DeFi so far has been like Maker’s, tokenizing RWAs through interchangeable ERC-20 token pools. Given that RWAs now account for the majority of support behind Dai, this approach has been effective so far.

On the other hand, in the realm of culture, NFTs have become the preferred tokenization tool as they lend themselves to one-to-one mapping with unique collectibles, like a first edition “mint” Charizard card that is non-interchangeable with other collectibles.

One of the most notable projects currently is Courtyard.io, which has recently made waves due to the release of Pokémon cards on Polygon.

Courtyard is not only a tokenization service but also a marketplace that allows collectors to store and tokenize their own graded trading cards or buy and sell cards that have already been tokenized by others. Its card packs, some as low as $5 each, sell out within seconds, and recently, a pack opener won a brand new “Mario Pikachu” card worth about $6000!

All the cards on this platform are authenticated and stored in Brink’s reserve vault, ensuring the integrity and liquidity of the associated NFTs at all times.

However, at the intersection of NFTs and RWAs, it’s not just all fun and games. We’re also seeing some finance-focused use cases gaining initial attention.

For example, Roofstock onChain has already resold several houses in the real world through NFTs on OpenSea, with the highest sale price currently at 218k USDC.

Over time, I predict we’ll see more DeFi projects adopting tokenized approaches with NFTs, as more unique financial assets are brought on-chain and innovative solutions around NFTs continue to emerge.

In fact, both culturally and financially, we’ve already opened up new possibilities such as fungibility and composability. For instance, now you can incorporate other tokens into your RWA NFTs using ERC-6551 or place your RWA NFTs into other on-chain entities like blockchain game engines.

It may sound a bit far-fetched at the moment, but this is the power of RWAs and why they’re so enticing for the future. They pave the way for doing things on-chain that you couldn’t do elsewhere, that’s the magic.

However, for now, the RWA space remains relatively experimental and pioneering as the frontier is being established. Many challenges still exist, such as the current lack of regulatory clarity surrounding cryptocurrencies, which keeps many companies and major financial institutions on the edge.

As we gain more clarity over time, there may eventually come a day when all financial instruments and numerous cultural artifacts will be released on-chain. So, what’s my overall view? If that future truly arrives, NFTs will undoubtedly play a vital role in making it all happen!

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