Real World Asset Tokenization: Revolutionizing the Precious Metals Market
Blade Labs recently embarked on a journey into the domain of Real World Asset (RWA) Tokenization. Collaborating with the team at Diamond Standard, we proudly unveiled CARAT tokens on Hedera, empowering users to directly acquire DIGITIZED DIAMONDS through our signature B2C product Blade Wallet.[1]
This move can be marked as a historic step in the world of blockchain technology where diamonds are being tokenized for the first time on Hedera. Infact, the inaugural awareness campaign saw an impressive response with over 45,000 accounts receiving 5,000 Diamond Standard CARAT tokens from Diamond Standard seamlessly with the scan of a QR code powered by BladeLink technology.
With a focus on RWA tokenization and collaborations with projects like Diamond Standard, Blade has positioned itselves not only as an early participant in this fast evolving space, but also as a pioneer actively contributing to reshape the landscape of digital assets and redefine the future of tokenized commodities.
The process of tokenizing commodities encompasses RWAs that can be both tangible and intangible assets existing in the physical world. Tangible assets may include real estate, commodities (eg. gold, diamonds, cattle, etc) and collectibles whereas intangible assets may include bonds, equities and carbon credits.[2]
The market for RWAs is still in its early stages, but it has witnessed a notable surge in adoption and a substantial increase in total value locked (TVL). According to a report published by Binance Research, data from DeFi Llama as of September 1st 2023, indicates RWAs rank as the eighth-largest sector within the DeFi space, boasting a collective TVL of $1.3 billion. It's worth noting that just a few months earlier, at the close of June, RWAs held the 13th position, making this ascent a compelling testament to the growing acceptance of RWA protocols.
Moreover, the number of RWA token holders has demonstrated a steady upward trajectory as per this report. As of July 24, 2023, there were over 41.3 thousand RWA token holders on the Ethereum blockchain, which marked a remarkable doubling of numbers compared to approximately a year ago when the count stood at around 17.9 thousand token holders. Moving ahead as of September 3, 2023, this figure has continued its upward march, exceeding 43.4 thousand RWA token holders.
A paper published by the Federal Reserve Board in August emphasizes the prominence of tokenized gold, a market valued at approximately $1 billion as of May 2023[3]. In this sector, Pax Gold (PAXG) and Tether Gold (XAUt) collectively command 99% of the market share as per this report. These digital representations of gold go beyond mere reflections of reality; they are fully redeemable, allowing holders to lay claim to the underlying physical gold, albeit subject to certain restrictions and fees. For digital investors, this presents a new world of exciting opportunities.
As a matter of fact as per reports, HSBC recently introduced a platform utilizing distributed ledger technology (DLT) to tokenize ownership of their institutional clients' physical gold stored in the bank's London vault, effectively creating a digital representation of the precious metal. With this innovative step HSBC has reportedly become the first bank in the world to offer tokenized gold[4].
Nevertheless, venturing into this domain demands a thorough understanding of redeemability features and a keen awareness of the associated risks and rewards.
It is worth mentioning here that as per another report published by Binance, commodity tokenization has the potential to significantly bolster economies of African nations like Ghana and Botswana. For instance, tokenizing commodities like gold, cocoa, and oil in these countries can lead to significant economic empowerment.[5]
As per reports in 2022, Ghana produced 3.7 million ounces of gold, valued at $6.7 billion, 689,000 tonnes of cocoa, valued at $1.65 billion, and oil production of approximately 150,000 barrels per day. With high market prices for these commodities, reduced transaction fees through tokenization, and the ability to set tokenization premiums and fees, the resulting economic activity could substantially increase Ghana's revenue.
Similarly, Botswana can maximize its diamond reserves through tokenization. By digitizing these traditionally undervalued traded assets, the country could tap into substantial revenue streams. Tokenization not only enables the sale of diamonds at international market rates but also introduces the potential for a tokenization premium and fee, creating new sources of income.
The tokenization of real-world assets therefore offers a plethora of advantages like seamless, transparent and effective trading, fractional ownership and easy administration of assets. In our previous article, "Redefining Ownership: The Promise of Real-World Asset Tokenization” (https://bladelabs.io/real-world-asset-tokenization/), we have discussed these aspects in detail.
On that note, there has been various discussion and deliberations about auditing and authenticity when it comes to precious metals and stones which have been considered as a store of value for centuries. Silvana Da Luca, Chair of the Tokenized Commodities Council and Managing Director at Diamond Standard in a recent article writes, “When these metals are tokenized, it becomes essential to establish mechanisms that verify the authenticity, purity and ownership of the physical assets represented by the tokens”. In the same article she also quotes Eyal Alon’s (VP, Malca-Amit, USA) statement, “Establishing the authenticity and provenance of the underlying physical assets is not as simple as creating a digital twin but must be integrated into a robust ecosystem. Gold is no exception, and some of that ecosystem already exists in the form of the LBMA Good Delivery List, the secure and trusted chain of custody provided by the custodians, and continual audits. Standardisation globally would be critical for full tokenization to truly function properly.”[6]
On a concluding note, the tokenization of real-world assets represents a compelling and transformative application of blockchain technology, offering transparency and efficiency that rivals traditional systems. As we move forward, it is imperative to recognize the critical need for robust infrastructure that can support the growing demands of this promising ecosystem. The early signs of institutional interest signal a transformative future as the industry continues to evolve and bridge the gap between conventional and blockchain-based financial systems.
Blade Labs is a trusted professional in the Web3 space, backed by third-party security audits and penetration testing of its products, including digital wallets and integration with multiple hardware wallets. These measures demonstrate their adaptability and deep understanding of the diverse security needs in the rapidly evolving blockchain ecosystem. As the industry moves towards bridging the gap between traditional and blockchain-based systems, Blade Labs plays a crucial role in ensuring the secure and efficient advancement of blockchain technology in the realm of asset tokenization. Recently, Blade Labs achieved SOC2 Type 1 certification, which is a significant milestone in ensuring comprehensive security and operational integrity.[7] The company is also pursuing additional SOC2 certifications and GDPR compliance, demonstrating its commitment to data protection and privacy.
Authored by
Kasturi Sharma
Senior Manager – Content & Compliance
