How does RWA tokenization work?
In the process of RWA tokenization, the first step is to create a digital token that represents the real-world asset. This could be a fungible token (like a share of a company) or a non-fungible token (like a deed to a house). Fungible tokens, like cryptocurrencies, are interchangeable and divisible, meaning one unit is equal to another of the same type and value. Non-fungible tokens (NFTs), on the other hand, are unique and non-divisible, representing ownership of a specific, irreplaceable digital or physical asset.
Once created, the token is then recorded on a blockchain. Smart contracts are used to automate various aspects of the tokenization of the asset, such as ownership transfer or other contractual agreements. These contracts are self-executing digital agreements written in code, stored, and executed on a blockchain.
Since the asset itself exists in the real world, oracles are often used to bridge the gap and verify the asset's existence and value. An oracle is a service that provides smart contracts with access to external, off-chain data, acting as a bridge to connect the world of blockchains and smart contracts with real-world information and systems.
Once tokenized, these assets can be traded on decentralized exchanges, potentially enabling fractional ownership, not to mention accessibility to a broad swathe of investors. Remember, assets like real estate, commodities, equities, bonds, artwork, and even intellectual property can all be tokenized through RWA tokenization.
