The tokenization of real-world assets (RWAs) in the crypto markets has gained significant traction in 2024. Notably, traditional finance entities are also embracing blockchain technology and asset tokenization. Cointelegraph Markets interviewed Victor Sanchez and Alan Keegan, co-founders of Kinto, a blockchain project focused on RWAs, to discuss the market potential of tokenized assets. They shared their insights on the factors driving the rapid growth of RWAs and why major institutions like BlackRock are optimistic about this asset class.
Sanchez highlighted that the advantages of RWAs, such as eliminating intermediaries, operating in a highly liquid and efficient market, and having a transparent ledger, have always attracted interest. He emphasized that RWAs and traditional finance have found a secure and efficient space in projects like Kinto.
Regarding BlackRock’s bullishness on RWAs, Sanchez stated that these institutions recognize the multitrillion-dollar opportunity presented by RWAs. He believes that big institutions are aware of blockchain technology’s potential to experience exponential growth during a bull market.
When asked about the types of liquidity that can be unlocked from RWAs and how this benefits money managers, Keegan explained that blockchain offers the advantage of transferring assets globally with instant settlement. Overcollateralized borrowing, yield stripping, claiming collateral on bad debt, and issuing dollar-pegged stablecoins as liquidity against treasury collateral can be easily executed on-chain. Keegan expressed optimism that almost any transaction type can be improved by leveraging blockchain technology.
The discussion then shifted to the issue of fragmented and stranded liquidity. Sanchez noted that RWAs face liquidity and usability challenges. While DeFi infrastructure offers benefits for certain transaction types, most tokenized RWAs are not usable on-chain. Sanchez emphasized the importance of conducting KYC on the chain level to unlock the value that institutions are seeking.
Differentiating between DeFi and RWAs, Sanchez stated that there are a few distinctions, but the lines between the two are becoming blurred. He mentioned that many tokenized RWAs are highly regulated products with strict counterparty requirements.
Addressing the composability issue that affects DeFi, Sanchez explained that RWAs require their own compliance framework and KYC systems. This results in different DApps and protocols having their own processes that do not “talk to each other.” He argued that KYC at the L2 level would enable RWAs to freely flow, compose, and interact.
The interview then delved into the counterparty challenges in TradFi and how Kinto is bridging the gap between traditional finance and RWAs. Sanchez highlighted that Kinto is a safety-first L2 solution. It ensures that every individual or corporation is KYC/KYB at the chain level while preserving user-owned KYC information. This approach resolves the counterparty requirements and enables composability for RWAs.
Regarding retail investors’ access to RWAs, Sanchez acknowledged that regulations have made it easier for institutions and accredited investors to access these products. However, as Kinto facilitates counterparty requirements and enhances security measures, they aim to offer products to a wider audience.
When asked about their vision of full RWA mainstreaming in TradFi and its benefits for average investors, Keegan painted an ideal future for Kinto. He envisioned tokenized traditional ETFs being provided as liquidity on AMMs like Uniswap or Curve. He also imagined a scenario where banks are linked to wallets used for payroll on-chain, facilitating automatic mortgage approvals using funds from on-chain money markets and tokenized property deeds as collateral. Additionally, he envisioned corporate treasuries being held in on-chain assets, and debt issuance happening through DApps. Keegan concluded that any modern financial asset and service can be issued and traded on-chain.
The article concludes by emphasizing that it does not provide investment advice or recommendations, and readers should conduct their own research before making any investment decisions.