Opinion: Alex Zhang, Pharos Co-Founder
Tokenization of real-world assets (RWA) is not a self-contained solution to traditional financial problems. Claiming such a thing is one-dimensional. As it stands, RWA tokenization is under tremendous pressure to perform despite showing clear signs of value and progress.
Despite its progressive trajectory, criticism of RWA tokenization is immense. Critics say decentralization alone is enough.
Too complicated for the masses. Regulatory hurdles are insurmountable. Infrastructure is lacking. Fraud is rampant. Operation is possible. There is a lack of auditing. Lack of standardization. It continues.
These critics fail to acknowledge that some eggs may need to be cracked along the way to establish an institutional-level framework that can place RWA tokenization at the heart of the new global economy. Rough before smooth.
bridging the global financial gap
Significant and deliberate work is being done to establish a compliant, top-level RWA system that overcomes the inefficiencies of traditional finance. The development will help close the global gap, especially regarding finance and real estate. Foreign investors are not succumbing to paper-based contracts, the opacity of brokered transactions, and general dispute management deficiencies.
RWA tokenization is moving towards providing an antidote, but like some medicines, the first taste can be incredibly bitter. People inherently resist change, leading them to criticize and underestimate RWA rather than understanding its potential. Nevertheless, the maturation of blockchain requires converting tangible assets into digital tokens that are programmable, divisible, and instantly settled. Institutional funds require institutional thinking.
Coinbase co-founder Fred Ehrsam famously said:
“One day everything will be tokenized and connected by blockchain.”
Consider the stablecoin market. Already worth over $260 billion, RWA has proven strong demand and a huge market opportunity. Naysayers have been surprisingly silent regarding the biggest success stories of RWA tokenization.
Building a compliant foundation
The hurdles are high as unlocking a multi-trillion dollar market depends on the development of a robust regulatory framework and carefully designed tokenomics. These need to align incentives with sustainable growth. Inefficient architectures that fail to integrate carrots and sticks and overlook existing legislation can leak value to equity holders and lead to failure.
Related: Animoca launches NUVA Marketplace to unite “fragmented” RWA sector
Critics who cite complexity and lack of infrastructure are unaware of the remarkable work that has already been done. Institution-level infrastructure for on-chain customer awareness, anti-money laundering, identity management, custody, payments, and trusted reputation are all key components being developed and launched. What remains to complement them now are standardized compliance templates with limited liability structures and expedited cross-border compliance pathways. It’s just a matter of time.
Real-world RWA
The real-world momentum is already visible. These are not pilot projects. They are signs that a paradigm shift is already underway.
The idea that regulatory uncertainty is a deterrent is changing, and the situation has become much clearer in recent weeks and months. The implementation in the United States of the National Innovation Guidance and Establishment Act for U.S. Stablecoins (GENIUS Act) clearly shows that defined regulations can provide greater legitimacy.
The EU’s crypto market regulation will be implemented in stages until 2025. The regulation sets out clear and comprehensive rules for token issuance, asset-backed tokens, and stablecoins across all 27 member states. This harmonization will enable more compliant RWA products to be available across Europe’s financial hubs. In Asia, Singapore’s Project Guardian is already piloting tokenized bond issuance and fund tokenization with major banks such as DBS and JP Morgan. Japan’s Financial Services Agency has also introduced specific guidelines for stablecoins and security tokens, creating an active and regulated path towards asset tokenization in East Asia.
In addition to the United States, Hong Kong, another major innovator in the blockchain space, has also implemented new stablecoin regulations. Japan also wants to introduce its own regulatory framework, move more capital to the East, and participate in financial innovation.
These important recent developments, along with growing support from traditional financial partners and markets, provide a clear path for RWA to achieve mainstream adoption. The mood is changing, the market is growing rapidly, and sentiment could reverse by the end of the year. We are moving forward in the world away from the lawless West and into the realm of well-governed legal markets.
While the naysayers sometimes made valid points, those close to the action know that the criticism served as practical feedback. Everything that was said negatively about the tokenization of RWA helped create new regulatory frameworks, new institutional partnerships, and new infrastructure. Ironically, the more it is criticized and ignored, the more important and credible it becomes.
RWA tokenization is not a local trend, but rather is happening across financial hubs around the world. That’s everything TradFi is not, and people are starting to realize this.
The market has grown five times in just three years. Whether skeptics like it or not, the RWA vision is rapidly taking shape. We went beyond guessing. We are building infrastructure. We are strengthening our regulatory alignment. The road used to be full of stones, but today it is paved. Everyone can reimagine how value is created, owned, and exchanged on the chain.
Commenter: Alex Zhang, co-founder of Pharos.
This article is for general informational purposes only and is not intended to be, and should not be taken as, legal or investment advice. The views, ideas, and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.