What are tokenization and RWAs?

Can a token in your wallet correspond to gold in a vault somewhere? Yes, but the crucial question is who guarantees that link and what exactly you are entitled to.

Tokenization works like issuing digital certificates that are recorded and transferred on a blockchain. Real-world assets (RWAs) can be physical goods, such as gold, but also financial assets, such as bonds or loan receivables. Tokenization is the process; RWAs are a category of assets it’s applied to.

Consider a company that owns a property in Thessaloniki and issues tokens linked to its income. Depending on the terms, the holder may be entitled to a share of the rent or a stake in the company. The token on its own is not a title deed to the property. The rights are determined by the legal structure and the relevant contracts.

In practice, an issuer sets up the link to the asset, and a smart contract can manage the issuance and transfers of the tokens. Storing the gold or collecting the rent, however, still happens off the blockchain.

Why it matters

Tokenization can make it possible to split a large claim into smaller shares and make them easier to transfer. Some RWA-linked tokens can also be used as collateral in decentralized finance (DeFi) apps, as long as those apps support them.

We find this link between traditional assets and blockchain apps useful. It doesn’t, however, automatically create liquidity or open access: there may be transfer restrictions, identity verification requirements or few interested buyers.

What to watch out for

Before you assess a token like this, you need to know who owns and holds the underlying asset, how its existence is verified and whether redemption is provided for. Just as important is what happens if the issuer or the custodian goes bankrupt.

Recording something on the blockchain doesn’t guarantee the backing outside it. Default risk, swings in the asset’s value and possible smart contract bugs all remain. Also, a token that simply uses the “RWA” label doesn’t necessarily offer rights over real assets.