For AMs, real-world assets represent a path to crypto while minimizing risk

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We spend so much time talking about the value of crypto assets like bitcoin and ETH, especially as they apply to financial advisors, but RWA can drive trillions of dollars in adoption, is touted by some of the most big names in finance (JP Morgan, Citi, Boston Consulting Group, Blackstone) and will be extremely important for advisors to understand.

Most of the assets we talk about when it comes to blockchain are on-chain native assets like bitcoin, ETH, SOL, or UNI. This means that they are native to a public blockchain and derive their value from the use or performance of a protocol.

For example, bitcoin is an incentive for miners to continue processing blocks on the Bitcoin blockchain, while ETH is used to pay for transactions on the Ethereum network.

When we talk about real-world assets, we usually mean the integration of using on-chain databases to track assets, performance, and valuation from outside the blockchain.

For example, I might have a token that represents equity in a real estate investment, or in a pool that lends money to entrepreneurs in the developing world. While the token is on a blockchain, the assets and payments are in the real world.

Real World Asset tokens are simply representations of assets that are not necessarily native to the blockchain and are NOT volatile assets as we think of in crypto. These RWA tokens, like all crypto tokens, are programmable, so we can encode lock-up periods and accredited investor requirements.

Public blockchains are simply decentralized databases, ideal for storing information immutably. We currently store our data, money, private company equity, loans, financial records in centralized databases with names such as Google, Amazon, Chase, Schwab and your title database. local county. Therefore, we have to ask permission every time we want to access this data, and data from one silo does not work easily or natively with data from another.

When we move this data onto a public blockchain, we can control it using a wallet, a self-custodial technology that works hand-in-hand with blockchains. Once there, we can take advantage of many advantages of public blockchains:

Clients are increasingly interested in alternative assets, private credit, real estate, collectibles. Often, RWA tokens represent some of these alternatives.

We’re already seeing private credits from Maple Finance and Goldfinch, as well as collectibles from Rally Road and 4K. For years, we haven’t seen many options for clients to find income in their wallet. As interest rates have risen, many RWA options offer double-digit returns through interest, without the risk of crypto volatility. They can make low-risk loans in markets where traditional finance can’t or won’t go, and keep the process efficient.

Advisors will need to understand increased transparency and liquidity. Your clients may have the option to sell half of their real estate tokens after 12 months and use that money to invest in a pool to provide invoice factoring.

Advisors should also have a good understanding of self-custody, and the efficiencies and security risks inherent in it, so that they can help clients invest in these alternatives.

Additionally, the increased activity around RWA will lead to increased use of the networks. For blockchains like Ethereum and Polygon, this can also trigger higher token prices since the native ETH or MATIC token is used to pay for transactions.

The promise of blockchain technology has always been to increase inclusiveness and efficiency through public databases. Unlike native crypto assets, which can be volatile and subject to new regulations, real-world on-chain assets are simply more efficient and transparent ways to indicate what people are already comfortable investing in.

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