It’s hard not to celebrate crypto’s much-needed pivot to all things real world – after all, that’s not where the real value lies in images of rocks and monkeys. Who would have thought? That said, it’s also sometimes hard to suppress a mirthless grin at what feels like a huge missed opportunity.
You see, it all comes down to what the industry comes to understand as real assets. In most cases, these are traditional financial instruments such as stocks, bonds, ETFs or commodities held by a centralized entity that issues tokens representing a fraction of the said assets. There are also some more exotic options, such as works of art or real estate.
This new real-world asset (RWA) sector for crypto has emerged as one of the largest DeFi sectors by total value, most recently at $5.936 billion at the time of writing, according to DeFiLlama.
Yet RWAs are essentially little more than a new way to buy things that your regular investor could already buy through Web2 apps. Sure, it’s always nice to do A++ on all things Web2, but are the often ethereal on-chain traditional financial tools the most realistic DeFi you can get?
When risk-weighted assets become reality
Think about this: the number of connected devices is expected to reach nearly 30 billion by 2030. And it’s not just consumer devices: companies around the world, even in sectors traditionally considered low-tech, are reinventing themselves in sci-fi style. From agricultural drones to smart mining, machines are transforming industry after industry and representing an increasing part of the value chain, with the automation market expected to exceed $320 billion by the end of the decade.
While automation is more than promising, it also comes with a lot of upfront costs. The same goes for many innovative industries committed to smart devices, from green energy to car sharing and more. In the current cautious investment climate, fundraising can often be quite a challenge.
Read more in our opinion section: Don’t give your life for free to Big Tech
All these machines and devices – the drones that spray the fields with fertilizer, the smart solar panels and wind turbines, the vehicles in car-sharing fleets – are RWAs, as realistic as can be. They generate value in the most direct way possible: by actually creating it, not just by the mercy of art appraisers, and not by adding more speculation to the housing market. And the best part is that we can tokenize this value and redistribute it to investors.
It actually makes all the sense in the world. Tokenization offers companies a way to raise money to deploy hardware (almost any useful hardware) by tokenizing some of the revenue that hardware will generate and offering those tokens to people around the world. This provides faster and more efficient access to liquidity than many traditional alternatives. Machine RWA tokenization also offers established companies a new way to generate revenue as they scale or reinvent their processes through greater automation.
On the investor side, machine RWAs offer something that virtually no other asset in the chain can replicate: a whole new level of access to real-world value creation. An on-chain stock can represent the equity of a company involved in the real world economy, but it requires a lot of intermediation between exchanges, custodians and issuers. A stake in a machine that creates goods and services here and now, to the point where the investors can actually use it themselves, is much more direct and immediate – and the return it produces in an automated, transparent and reliable way is so healthy and sustainable as it can be.
Autonomy, not just automation
Another key benefit of machine RWAs is so important that it deserves a more in-depth discussion. Tokenized machine RWAs enable the communities whose livelihoods may have been upended by the rise of the machines – such as taxi drivers displaced by self-driving taxis – to become stakeholders in the process, not victims. This points to a more sustainable path to automation: the more jobs disappear from the market, the more people earn. This doesn’t have to be a paradox.
Furthermore, tokenized machine RWAs are not just a corporate prerogative. Communities in need of hardware – a remote village looking for internet access, for example, or a group of farmers looking forward to an upgrade – can use this mechanism to avoid the upfront costs.
Finally, the hardware itself can be owned and operated by the community. This brings us to another recent Web3 trend: decentralized physical infrastructure networks, or DePIN. DePINs are projects that crowdsource the deployment of hardware that provides real-world services, such as mobility, data collection or computation, through token incentives. With most DePINs, it is the community that owns and controls the assets in the real world, and tokens act as the lifeblood of the ecosystem, enabling governance and community rewards.
Read more in our opinion section: We need to decentralize science
In a DePIN, machine RWAs can act almost completely autonomously and generate revenue for their owners through their daily activities. The rules of the game are embedded in the blockchain backbone and are executed automatically. There isn’t even a centralized entity ensuring that revenue is distributed fairly, as happens with top-down machine RWAs that are tokenized by companies, because all value exchanges happen on-chain, with all the security and transparency that comes with entails. .
Tokenized machine RWAs are an opportunity for Web3 to not just cosplay as traditional finance with some blockchain on top, but to drive actual, real decentralization. Not just a speculative playground, but the backbone for real value exchange and the engine of real, tangible change. That’s the Web3 we want to see – and we’re confident that with some creativity, vision and courage, it can be all this and more.
Leonard Dorlöchter is the co-founder of peaq, the go-to blockchain for real-world applications, and EoT Labs, a software development and incubation organization that supports open source projects focused on the economics of things. Leonard has built multiple organizations, teams and products during his five years in the blockchain space. He operates at the intersection of business and technology and enjoys building disruptive products and ecosystems.
Leroy Hofer is the CEO and co-founder of ELOOP, a Vienna-based car sharing provider and blockchain startup. He graduated from the Bregenz Commercial Academy before studying Business Administration at the University of Vienna, from where he soon switched to the field of Journalism, eventually completing his education with a bachelor’s degree. Together with his housemate Nico Prugger, Leroy Hofer developed the idea for ELOOP. In the company founded in 2019, he is primarily responsible for the areas of vision, business development and legal affairs.