Real-World Assets (RWA) breaks down the walls of traditional finance and opens the door for everyone to invest in assets such as real estate and art.

For centuries, the realm of finance has been a walled garden, accessible only to the elite. Traditional financial instruments, while offering opportunities to accumulate wealth, are often exclusive, complex and full of barriers to entry. However, a paradigm shift is taking place, marked by the emergence of Real-World Assets (RWA).

RWAs are poised to democratise finance, breaking down the huge walls that have long separated investors from the diversity of asset classes. By tokenising physical assets, from real estate to art and from commodities to intellectual property, RWAs are transforming the investment environment into a more inclusive and accessible arena.

Imagine a world where owning a fraction of a New York skyscraper or a piece of art is as easy as buying a share of stock. This is the promise of RWAs. By fragmenting ownership, these innovative financial instruments allow individuals from all walks of life to participate in asset classes previously reserved for institutional investors and high net worth individuals.

In this Alpha Insights, we delve into the complexities of Real-World Assets (RWA) with industry expert Yongjin Kim, the Flipster founder and CEO of Mansa Finance, a leading cryptocurrency derivatives trading platform; and Mouloukou Sanoh, CEO and co-founder of Mansa Finance, a Web3 RWA DeFi protocol specialising in emerging markets short-term receivables.

RWAs: bridging traditional and digital finance

Flipster CEO Kim believes that RWAs reduce friction and increase liquidity in asset classes. He sees significant potential in tokenised fixed income assets such as private debt and US Treasuries, which have a combined value of over $50 trillion. Other promising asset classes include private equity, credit, venture capital, and the art and collections market, which boasts annual global revenues of more than $65 billion.

Tokenisation supports fragmented interests in the real estate market, allowing a wider audience to earn rental income and benefit from the appreciation of property values. The process removes many traditional barriers to entry, such as high initial investment costs, and adds value. Liquidity towards illiquid asset classes, says the CEO for The Shib.

Mansa CEO Sanoh stressed that RWAs act as a bridge between traditional finance and DeFi, offering real, sustainable returns down the chain.

The asset class I am best at is payments finance, using the liquidity of the DeFi to finance payments transactions of international payment companies. This is because these are highly liquid, short-term transactions that allow investors to capture double-digit risk (adjusted sustainable return).

As the bridge between traditional finance and digital tools becomes stronger, the question arises as to who benefits the most from RWA.

RWA adoption: institutional versus retail investors

Sanoh explained that the biggest advantage of RWAs for institutional investors is liquidity. Tokenised assets enable peer-to-peer value exchange on the blockchain, eliminate intermediaries, reduce barriers and allow transactions to take place 24/7. Standardisation and regulatory developments in digital assets also reduce compliance risks and operational complexities, providing a secure investment environment.

Kim stressed that institutional adoption is driven by the development of blockchain and tokenisation technologies that improve the availability and tradability of RWAs. Tokenisation allows for fragmented ownership of large assets, increasing liquidity, as well as more efficient management and transfer of ownership. Improved due diligence processes and enhanced data transparency will allow institutions to better assess and manage risk.

For retail investors, RWAs democratise access to high-value assets through partial ownership, allowing them to diversify their portfolios with assets such as commercial real estate. This diversification can reduce dependence on traditional financial markets and increase risk-adjusted returns. Developing user-friendly platforms and increasing financial literacy will allow retail investors to explore RWAs.

To fully understand the potential of RWAs, it is essential to understand the technical background of tokenisation.

Tokenisation mechanics: the building blocks of RWAs

Tokenisation involves the conversion of physical assets into digital representations on a blockchain. This process, as outlined by Sanoh and Kim, is a systematic approach that involves asset valuation, legal structuring, token creation, distribution, trading and ongoing management.

Kim stressed:

Iron-clad smart contracts, verified through rigorous auditing, can play an important role in the secure transfer of ownership. Using licensed custodians with extensive experience in managing digital assets is also an effective solution.

By laying the technical foundations for tokenisation, we now turn our attention to the investors who stand to benefit from this revolutionary asset class.

Investor landscape: opportunities and challenges

Sanoh identified regulatory uncertainty, security risks, market volatility and technology risks as major challenges. To mitigate these risks, it is essential to a regulatory developments updating , implementing robust security protocols, diversifying investments and conducting comprehensive due diligence. Educating investors about the complexities and risks of tokenised assets also empowers them to make informed decisions.

While the potential benefits of RWAs are tempting, investors should tread carefully. Regulatory uncertainty, security risks and market volatility pose significant challenges. Yongjin Kim also stressed the need for robust security protocols and to keep up to date with regulatory developments.

Diversification of investments across asset classes and comprehensive technology due diligence are essential to manage risk. In addition, educating investors about the complexities and risks of tokenised assets can empower investors to make informed decisions and navigate the evolving environment more effectively," said the CEO of Flipster.

RWA success stories: the case of global demand

According to industry experts, the success of RWAs depends on global demand and liquidity. Stability coins, private credit and assorted artifacts led the charge. As Sanoh notes, "demand for tokenised assets is strongest when demand for assets is global". Kim echoes this sentiment, highlighting the success of fixed rate products denominated in USD. While partial ownership and increased liquidity are key benefits, regulatory compliance and transparency remain the key to sustainable growth.

The future of RWA investing: a new financial frontier

While tokenisation of real assets has opened up new investment opportunities, moving forward requires a strategic focus. Both Sanoh and Kim are close to promising opportunities in fixed income assets within the RWA environment. As DeFi matures and yields decline, tokenised fixed income assets are becoming increasingly attractive.

To fully exploit this potential, a favourable regulatory environment is essential. Sanoh stresses the need for updated regulation in developed countries and looser capital regulation in developing economies. Kim stressed the importance of integrating tokenised assets into existing financial systems. These factors, along with continued technological advances, will be crucial in shaping the future of RWA investments.

Real-World Assets is transforming the investment environment, democratising access to asset classes once reserved for the elite. By tokenising physical assets and leveraging blockchain technology, RWAs bridge the gap between traditional finance and the digital world.

Insights from industry leaders, such as Mouloukou Sanoh and Yongjin Kim, underline the transformational potential of this emerging asset class. As the RWA market matures, it is poised to redefine investment strategies, offering opportunities for both institutional and retail investors.

However, challenges such as regulatory uncertainty and security risks need to be addressed to realise the full potential of RWAs.

About the Experts

Industry veteran Yongjin Kim is the driving force behind Flipster, a rapidly expanding cryptocurrency derivatives trading platform. With a strong foundation in quantitative research and development developed by Jump Trading, Kim co-founded Presto Labs in 2014, which has since grown to become Asia's largest crypto-quantitative trading company. Flipster's deep understanding of market dynamics and technological innovations has propelled it to a leading position in the crypto derivatives space.

Mouloukou Sanoh is an experienced entrepreneur and investor with deep roots in financial inclusion. As CEO and co-founder of Mansa Finance, Sanoh is at the forefront of leveraging Web3 to address the financial challenges of emerging markets.

His previous roles at Cassava Network and Adaverse, as well as his experience in investment banking and private equity, have given him a unique perspective at the intersection of finance and technology. With a global mindset having lived in multiple countries, Sanoh offers a multi-faceted approach to problem solving and innovation.