📉 Why Most RWA Protocols Fall Short

Real World Asset (RWA) trading on the blockchain presents an entirely new set of challenges compared with the trading of purely digital assets. For digital assets, whilst different tokens may serve very different functions, once they have been tokenized as ERC-20 tokens, NFTs, or similar, the actual trading of them requires fairly standardized functionality. However, this is not the case for Real World Assets. The wealth of different market dynamics and regulatory and legislative requirements unique to each RWA asset category and individual assets within those categories means that a one-size-fits all approach simply is not applicable.

The current generation of out-of-the-box, off-the-shelf, non-customized RWA (Real World Asset) trading protocols are therefore not fit for purpose for different RWA trading use cases due to the diverse and specific requirements of various industries. Each type of real-world asset has unique characteristics, regulatory considerations, and market dynamics that necessitate tailored solutions for effective tokenization and trading. Even within a single industry or asset class, different parameters and functionalities may need to be tailored to specific trades.

For instance, real estate involves complex ownership structures, varying legal regulations across jurisdictions, and the need for detailed property assessments and documentation. A protocol designed to handle these intricacies must be able to manage its specific legal compliance mechanisms, and provide robust verification processes for property titles.

In contrast, commodities trading, such as gold or oil, requires real-time tracking of asset quantities, quality certifications, and secure storage solutions. The trading protocol must integrate with supply chain systems to ensure the authenticity and traceability of the assets.

Similarly, the tokenization of art and collectibles involves unique challenges related to provenance verification, authenticity, and valuation. Meanwhile, financial instruments such as bonds and equities come with their own set of regulatory requirements, including compliance with securities laws, investor accreditation, and reporting obligations.

In summary, the diverse nature of real-world assets means that each type demands a specialized approach to tokenization and trading. This means that current RWA-trading protocols are either too inflexible to handle the realities of the trades they seek to facilitate, or they are too niche to serve anything beyond such a narrowly defined use case as to make them unusable.