In crypto, it's easy to feel disconnected from the "real world." 

Unlike traditional finance, which is tied directly to physical assets, established institutions, and everyday transactions, much of crypto operates in a digital-first ecosystem with its own rules, currencies, and platforms, and use cases beyond trading and speculation often feel like venturing into uncharted territory.

But that's starting to change. Thanks to tokenization – the process of turning real-world assets into blockchain-based tokens – developers are making decentralized technology more relevant to daily life, offering new ways to bridge blockchain and traditional finance. Some financial firms are so confident in its potential that they estimate tokenization could soon become a $2 trillion market.

But what exactly are crypto RWAs, and why are Web3 enthusiasts so excited about them? In this guide, we'll tell you what you need to know.

What is an RWA in crypto? Why are RWAs useful?

In crypto, RWAs (real-world assets) are digital tokens that represent traditional investments or physical assets like stocks, bonds, real estate, precious metals, and fine art. Unlike cryptocurrencies such as Bitcoin (BTC) or Ethereum (ETH), which exist solely on the blockchain, RWAs bridge traditional finance and blockchain, making these assets more accessible in a digital format.

For crypto traders, RWAs offer an easy way to diversify their portfolios while benefiting from blockchain’s security, transparency, and efficiency. Tokenizing assets like real estate, bonds, and commodities also opens up new investment opportunities – especially for assets that would be otherwise difficult to access or slow to trade.

Here’s a closer look at what makes RWAs so unique:

Fractional ownership with better liquidity

One of the most attractive features of RWAs is how simple they are to divide on blockchains. Developers can preprogram as many fractional shares in an RWA as they choose, reducing the cost per token and increasing accessibility to a global community of investors. 

By breaking down ownership rights into percentages, RWAs allow investors to buy and sell smaller portions of high-value assets like real estate, fine art, or luxury goods instead of requiring full ownership. This fractionalization improves liquidity, making it easier to trade traditionally illiquid assets in secondary markets.

Round-the-clock global market access

Another perk RWAs offer is the crypto market's 24/7 availability. Instead of waiting for traditional market hours to open or close positions, traders can transfer RWAs on the blockchain at any time. In some cases, transactions settle instantly on the blockchain ledger, eliminating concerns about after-hours inaccessibility.

Secure, transparent transaction processes

Transparency and immutability are hallmark traits of public blockchains, and RWAs take advantage of both. All transaction details are recorded on distributed payment ledgers, giving RWA issuers and investors a clear, tamper-proof, and auditable trail that proves the ownership of every token and where they are on the blockchain. The precision and ease of access of these transactions adds an extra layer of legitimacy and security to RWAs.

Flexible ownership and management options

Beyond dividing RWAs into fractional shares, digital technology also allows for diversified ownership across multiple assets. This gives traders access to a broader range of investments within a single cryptocurrency ecosystem while lowering transaction costs by reducing intermediaries and enabling direct peer-to-peer transfers. RWA token holders can also benefit from customizable management options, such as earning passive income through staking or participating in decentralized governance mechanisms. 

Opportunities for portfolio diversification

Crypto investors often feel limited to Web3-centric digital assets. While different coins and tokens serve unique purposes, participating in the decentralized economy typically requires investing directly in crypto protocols. RWAs change this by giving crypto-native traders access to a wider range of assets in traditional financial markets, allowing them to diversify without leaving Web3. This integration bridges the gap between conventional finance and blockchain, making traditional investments more accessible in the crypto space.

How to tokenize real-world assets

Tokenizing RWAs is a complex process, but many blockchains and third-party platforms offer infrastructure and legal frameworks to help simplify it. Here’s a general overview of the tokenization process:

Identify and value the asset

The first step is figuring out what kind of asset you’re tokenizing: real estate, precious metals, fine art, physical trading cards, or even something less tangible, like royalties or legal rights. Then, the asset needs a professional valuation to determine its worth and assess whether fractional shares are viable. This depends on factors like market demand, liquidity, and practicality. High-value assets with broad investor interest are generally better suited for fractionalization, while niche or low-liquidity assets may not attract enough buyers to justify the split.

Ensure legal compliance

Because RWAs represent off-chain assets, they often fall under specific financial regulations to ensure investor protection and compliance with existing laws. In many cases, developers need approval from agencies like the U.S. Securities and Exchange Commission (SEC) or the U.K.'s Financial Conduct Authority (FCA) before launching a tokenized asset, particularly if it qualifies as a security.

Choose the right blockchain

Not every blockchain supports tokenized assets – a network must allow smart contracts for RWAs to function properly. Ethereum (ETH) and Solana (SOL) are popular RWA blockchain options, but others like Avalanche (AVAX), Hedera (HBAR), or VeChain (VET) may offer other unique advantages depending on the project's needs. Developers can use third-party crypto price aggregators like CoinGecko and CoinMarketCap, which offer RWA crypto lists, to explore blockchains that support RWA tokens.

Determine custody solutions for RWAs

Similar to ensuring legal compliance, RWA token issuers also need a reliable way to prove and safeguard the actual underlying asset. This often involves third-party custodians who physically or legally safeguard the asset and transparency measures like ownership reports to verify its existence and value. 

Create and issue the tokens

Now, it's time to create the official RWA tokens on the chosen blockchain. To digitally represent an RWA, developers must decide whether to issue a unique non-fungible token (NFT) or a fungible token with fractional ownership (e.g., ERC-20 or ERC-721 on Ethereum). Developers use these coding instructions to build compliant smart contracts for their RWAs, which makes it possible to transfer these digital assets on the blockchain without a third party.

Launch an initial token offering (ITO)

Similar to initial coin offerings (ICOs), ITOs are events where developers release their RWAs to a group of preselected investors or the general public. For a smooth and successful ITO, RWA creators have to determine the number of tokens they’ll issue, their price, and how they'll be distributed. Developers also need to decide whether to list them on a centralized exchange (CEX) or a decentralized exchange (DEX) and market the offering to attract investors.

Enable secondary market trading

After the ITO, RWAs typically enter the secondary market, where they're easier to buy and sell. Listing an RWA on multiple exchanges increases its liquidity, makes the RWA easier to discover, and encourages broader participation.

Challenges facing RWAs

RWAs open up new possibilities in blockchain, but they’re not without challenges. Before trading or issuing these assets, it’s important to understand the obstacles that could impact their adoption and integration into the market.

Lack of regulatory clarity

Governments are still figuring out how to regulate digital tokens like RWAs, and laws vary from country to country. Without clear regulations, crypto projects may face legal complications when tokenizing RWAs, depending on the jurisdiction.

Legality of ownership rights

Another legal gray area is whether RWA tokens actually count as proof of ownership. Many legal systems still rely on traditional documents – like deeds or certificates – rather than smart contracts. Until regulations catch up, questions remain about how legally binding these tokens really are.

No standardization framework

Just as there’s no universal legal framework for RWAs, there’s also no standard way to create and issue them. Different platforms use their own rules, making it difficult for users to compare or trust tokenized assets. Also, without cross-chain compatibility (interoperability), RWAs may be locked into a single blockchain, limiting their transferability and liquidity.

Smart contract security risks

RWAs rely on smart contracts to link onchain tokens to offchain assets, often through decentralized oracle networks like Chainlink (LINK). But if these smart contracts contain bugs, security loopholes, or weak points in their execution, they become prime targets for exploits. And since there’s no traditional safety net – like a fraud department or regulatory oversight – a hacked RWA could mean irreversible losses.

Which industries are tokenizing real-world assets?

Even though RWAs are a new crypto category, their versatility makes them applicable in virtually all asset categories, opening the doors to limitless possibilities for Web3's future. Here are a few prominent industries that are already experimenting with RWAs: 

Real estate

Some realtors and investors see RWA tokenization as a way to make real estate more accessible and liquid. Converting properties into digital tokens allows owners to sell fractional shares around the clock, opening the market to a wider range of investors. Tokenization also simplifies the transfer process by reducing reliance on intermediaries and lowering transaction costs for buyers and sellers.

Financial instruments

Tokenization could change how traditional assets like stocks are traded by creating digital representations of securities. These tokenized assets mirror the price of their real-world counterparts but offer traders a globally accessible, intermediary-free way to speculate on price movements. Beyond trading, financial RWAs could also introduce new passive income opportunities, such as earning interest from tokenized debt securities.

Fine art and collectibles

Masterpieces and memorabilia are common investment choices for high-net-worth individuals, but they're usually out of reach for everyday retail investors. RWA tokenization changes that. Through fractional ownership rights, investors can buy shares in things like rare paintings, fine wine, or trading cards. This simultaneously provides collectibles holders with a new income stream and improves liquidity by making these types of assets more accessible to others.

Commodities

From raw materials and agricultural goods to precious metals, there are many digitized representations of commodities in the RWA market. For example, the Paxos Trust Company issues a blockchain-based token called PAX Gold (PAXG) that represents physical gold stored in secure vaults. Each PAXG token equates to one troy ounce of the gold in Paxos's custody, which helps investors gain exposure to gold's price without the logistical challenges of storing gold bars. 

Unlock RWA value with CoinTracker 

Considering adding RWAs to your Web3 portfolio? Tracking them for tax purposes doesn’t have to be a headache – CoinTracker makes it easy. 

CoinTracker's Portfolio Tracker automatically recognizes and records transactions from exchanges, DeFi protocols, and wallets – all in one real-time dashboard. With tax-loss harvesting tools and profit-and-loss calculations, CoinTracker helps you maximize savings while keeping your records organized. When tax season rolls around, CoinTracker imports your transaction data into IRS-compliant tax forms, ready for a CPA or TurboTax.

Get started with a free CoinTracker account today to see how easy monitoring your digital net worth can be.

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.