Asset Tokenization: Underlying Logic Analysis and Path Exploration for Large-Scale Applications

In 2023, Asset Tokenization ( Real World Asset Tokenization, RWA ) has become one of the hottest topics in the blockchain field. Not only is this topic widely discussed in the Web3 world, but many traditional financial institutions and regulatory bodies in various countries are also placing high importance on it, viewing it as a strategic development direction. Financial giants such as Citibank and JPMorgan have successively released research reports on tokenization and are actively promoting related pilot projects.

The Hong Kong Monetary Authority clearly pointed out in its 2023 annual report that tokenization will play a key role in the future of finance in Hong Kong. The Monetary Authority of Singapore, in collaboration with the Financial Services Agency of Japan, JPMorgan Chase, and others, launched the "Guardian Program" to deeply explore the potential of asset tokenization.

Despite the heated discussions around the topic of RWA, there are still divergences in understanding within the industry, and the discussions surrounding its feasibility and prospects are quite contentious. Some believe that RWA is merely market hype that cannot withstand in-depth scrutiny; on the other hand, there are those who are very confident about RWA and optimistic about its future.

This article aims to share insights on RWA, delving deeper into its current situation and future.

Core Viewpoints:

1. The RWA in the crypto world mainly revolves around how to transfer the income-generating assets ( such as U.S. Treasury bonds, fixed income, etc. ) rights to the blockchain, or how to put off-chain assets onto the blockchain for collateralized loans to obtain liquidity, as well as moving various physical assets onto the blockchain for trading. This reflects the one-sided demand of the crypto world for real-world assets, and there are many obstacles in terms of compliance.

2. The future key direction of asset tokenization will be driven by authoritative institutions such as traditional financial institutions, regulatory agencies, and central banks, establishing a new financial system using DeFi technology on permissioned chains. This requires computational systems ( blockchain technology ) + non-computational systems ( such as legal systems ) + on-chain identity systems and privacy protection technologies + on-chain legal currency ( CBDC, tokenized deposits, legal stablecoins ) + improved infrastructure ( low-threshold wallets, oracles, cross-chain technologies, etc. ).

3. Blockchain is essentially a platform for digital contracts, providing an ideal infrastructure for the digitization/tokenization of assets. As a distributed system maintained by multiple parties, blockchain solves the problem of delivering trust. DeFi is a "computational" innovation in the financial system, replacing the "computational" parts of financial activities, achieving automation, cost reduction, efficiency enhancement, and programmability. However, the "non-computational" parts (, such as those based on human cognition ), cannot be replaced by blockchain. Currently, the DeFi system does not cover credit and lacks an on-chain identity system and legal protection.

4. For traditional financial systems, asset tokenization means creating digital representations of real-world assets through blockchain, extending the advantages of distributed ledger technology to a wide range of asset classes. Financial institutions adopting DeFi technology can further enhance efficiency by using smart contracts to replace the "computational" aspects of traditional finance, thus enhancing programmability. This not only reduces labor costs but also provides innovative financing solutions for enterprises (, especially for small and medium-sized enterprises ).

5. With the increasing recognition of blockchain and tokenization technology by traditional finance and governments, as well as the continuous improvement of infrastructure, blockchain is moving towards integration with traditional world architecture, addressing real pain points in real-world application scenarios, rather than being limited to a "parallel world" that is separated from reality.

6. In the future, under the permitted chain pattern of multiple different jurisdictions and regulatory systems, cross-chain technology is crucial for solving interoperability and liquidity fragmentation issues. Tokenized assets will exist on public chains and regulated permissioned chains, and cross-chain protocols like CCIP can connect any tokenized asset on the chain, achieving interoperability and universal chain connectivity.

7. Many countries around the world are actively promoting blockchain-related laws and regulatory frameworks. At the same time, blockchain infrastructure ( such as wallets, cross-chain protocols, oracles, etc. ) is rapidly improving, CBDCs are continuously being applied, and new token standards ( such as ERC-3525) are constantly emerging. Coupled with the development of privacy protection technologies (, especially zero-knowledge proofs ) and on-chain identity systems, blockchain technology seems to be on the brink of large-scale application.

1. Introduction to Asset Tokenization Background

Asset tokenization refers to the process of expressing assets in the form of tokens (Token) on programmable blockchain platforms, covering tangible assets ( such as real estate, collectibles, etc. ) and intangible assets ( such as financial assets, carbon credits, etc. ). This technology, which transfers assets from traditional ledger systems to shared programmable ledger platforms, represents a disruptive innovation in the traditional financial system and may impact the future financial and monetary system of humanity as a whole.

There are two completely different cognitive groups regarding the tokenization of RWA assets, which can be referred to as Crypto RWA and TradFi RWA. This article mainly discusses RWA from the TradFi perspective.

RWA from a Crypto Perspective

The RWA of Crypto reflects the unilateral demand of the crypto world for the yield of real-world financial assets. Against the backdrop of the Federal Reserve's interest rate hikes and balance sheet reduction, high interest rates significantly affect the valuation of risk markets, extracting liquidity from the crypto market and leading to a decrease in yields in the DeFi market. At this time, risk-free yields on U.S. Treasuries of around 5% have become highly sought after in the crypto market. MakerDAO's large-scale purchase of U.S. Treasuries is a typical example, having purchased over 2.9 billion U.S. Treasuries and other real-world assets as of September 20, 2023.

The significance of MakerDAO purchasing US Treasuries lies in the fact that DAI can leverage external credit capacity to diversify the supporting assets. The long-term additional returns from US Treasuries can help stabilize the exchange rate of DAI, increase the flexibility of issuance, and reduce dependence on USDC, thereby minimizing single-point risk. Recently, MakerDAO has also shared part of the profits from US Treasuries, raising the DAI interest rate to 8% to boost demand.

However, MakerDAO's approach is not replicable by all projects. With the skyrocketing price of MKR tokens and the heightened market sentiment towards the RWA concept, various RWA concept projects have emerged one after another, leading to a mixed bag in the RWA track.

The RWA logic of crypto mainly revolves around:

1. Transfer the rights to income-generating assets such as U.S. Treasuries, fixed income, stocks, etc. ( to the blockchain.
2. Put off-chain assets on-chain as collateral to obtain liquidity for on-chain assets.
3. Move various assets from the real world to the blockchain for trading ) such as sand, gravel, minerals, real estate, gold, etc. (

This reflects the unilateral demand from the crypto world for real-world assets, with many obstacles in terms of compliance. MakerDAO is actually entering and exiting funds and purchasing U.S. Treasury bonds through compliant means, rather than selling these earnings on-chain. The so-called RWA U.S. Treasury bonds on-chain are not the bonds themselves, but rather the rights to their earnings, and involve complex steps to convert fiat currency earnings into on-chain assets.

The concept of RWA has rapidly risen due to the attention from the traditional finance sector. Citibank's research report "Money, Tokens and Games" has sparked strong reactions, revealing many traditional financial institutions' keen interest in RWA, while also igniting market speculation enthusiasm.

) RWA from a TradFi Perspective

From the perspective of traditional finance ### TradFi (, RWA is a two-way approach between traditional finance and decentralized finance ) DeFi (. For the traditional financial world, DeFi financial services that are automatically executed based on smart contracts are revolutionary financial technology tools. RWA in TradFi focuses more on how to combine DeFi technology to achieve asset tokenization, empower the traditional financial system, and achieve cost reduction, efficiency improvement, and solving traditional financial pain points. The focus is on the benefits that tokenization brings to the traditional financial system, rather than merely finding new sales channels for assets.

It is necessary to differentiate the RWA logic from different perspectives, as the underlying logic and implementation paths vary greatly. In terms of blockchain type selection, TradFi's RWA is based on a permissioned chain )Permission Chain(, while Crypto's RWA is based on a public chain )Public Chain(.

Public chains, due to their lack of access requirements, decentralization, anonymity, and other characteristics, pose significant compliance obstacles for RWA projects in Crypto, and users also lack legal rights protection. In contrast, TradFi's RWA, based on permissioned chains, provides the basic prerequisites for legal compliance in different countries and regions. Establishing an identity system through KYC on-chain is a necessary prerequisite for implementing RWA. Under the protection of the legal system, institutions can issue and trade tokenized assets in a compliant and legal manner.

Unlike the RWA of Crypto, assets allowed to be issued by on-chain institutions can be native on-chain assets rather than a mapping of assets that already exist off-chain. The transformative potential brought by RWA of these native on-chain financial assets will be enormous.

Summary of core points: The future key development direction of asset tokenization ) Real World Asset Tokenization ( will be driven by authoritative institutions such as traditional financial institutions, regulatory agencies, and central banks, establishing a new financial system on-chain using DeFi technology. To realize this system, it requires:

• Computational system ) blockchain technology (
• Non-computational system ) such as legal system (
• On-chain identity system ) DID, VC (
• On-chain fiat currency ) CBDC, tokenized deposits, fiat stablecoins (
• Perfect infrastructure) low-threshold wallets, oracles, cross-chain technology, etc.(

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II. The First Principles of Blockchain: What Problems Does It Solve?

) Blockchain is an ideal infrastructure for the tokenization of assets.

To understand the first principles of blockchain, it is necessary to clarify the essence of blockchain. Essentially, blockchain is a platform for digital contracts, and contracts are the fundamental expression of assets. The token ###Token( serves as the digital carrier of assets after the formation of the contract. Therefore, blockchain becomes an ideal infrastructure for the digital expression/tokenization of assets.

Text and paper are important inventions of humanity, mainly applied in the fields of information dissemination and support for contracts/instructions. In the field of information dissemination, the pursuit of low cost, lossless copying, and ease of editing is paramount. In contrast, in the transmission of contracts and instructions, authenticity, non-repudiation, and immutability are more important.

The internet, as a modern information transmission system, greatly meets the demand for information dissemination. However, it encounters difficulties in handling contracts/instruction systems, especially in scenarios involving authority and trust, such as corporate operations and government decision-making, where the credibility of information is crucial.

The emergence of blockchain technology has provided a new solution for handling contracts and instruction systems. As a distributed ledger with decentralization, transparency, and immutability, blockchain ensures the authenticity and reliability of information without relying on centralized institutions or third parties to establish trust.

If the internet is a digital upgrade of text-paper technology in the context of information dissemination, then blockchain is undoubtedly a digital upgrade of text-paper technology in the context of supporting contracts/instructions. Blockchain is the first effective technological means to support the digitization of contracts after the development of computers and networks.

) The blockchain meets humanity's demand for "computability".

Blockchain provides the infrastructure for asset tokenization, and smart contracts are the most basic form of digital asset representation. The Turing completeness of Ethereum allows smart contracts to express various asset forms, such as fungible tokens ###FT(, non-fungible tokens )NFT(, semi-fungible tokens )SFT(, and so on.

Blockchain solves the "computational" problem, namely "the process is repeatable and the results are verifiable." This can be seen as the first principle of blockchain. The operational mechanism of blockchain is based on this: after a node records a transaction, other nodes re-execute the recording process ) process is repeatable (; if the declared result is consistent with the self-verified result, it becomes a "fact" in the blockchain world and is permanently recorded.

Blockchain can solve the "computational system" problem, which is based on the transactions of "repeatable processes and verifiable results". The "non-computational system" includes transactions that cannot achieve this characteristic, such as those influenced by human cognition.

Humans have always had the computational demand of "repeatable processes and verifiable results." With the birth of computers, this process can be solidified in programs. Tools that meet the demand for "computability" continue to iterate and upgrade, driving the development of science, technology, and society.

However, in a centralized "computational system", human subjective consciousness may interfere with "process repeatability and result verifiability". Blockchain