There is a lot of talk discussing the idea of real world assets (RWA) being tokenized. This is something companies like Blackrock are already working on.
It is likely that we will see this happen. I operate based upon the notion that everything will be tokenized at some point.
However, when it comes to growth, in total market cap, I think the impact of RWA will be less than the digital counterparts.
For this reason, let's look into this.
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Digital assets Will Dominate The Future
The idea of tokenizing something such as real estate is a fascinating idea. It would had trillions of dollars in value simply by taking what is existing. Actually, it might increase the value of many properties since it would make this sector liquid.
We all know buying and selling real estate is a slow proposition. It is also expensive. Tokenization would change that.
Where a problem arises is through the validation process. Real estate and a host of other forms of tokenization are going to require some type of proof. For example, what happens if the house is destroyed by a tornado. If we are dealing with prediction markets, how does the blockchain know what happened with the weather?
It doesn't.
Thus, oracles will be needed. Certainly, there is nothing wrong with this. The issue is they will likely be centralized which isn't a major problem. They would be pulling data from many sources, often governments as in the case with real estate.
Unless there are major shifts in this area, it is going to be, at most, a hybrid process.
None of this eliminates RWAs as a viable part of the digital asset world. It does, however, show the we are not looking at a radical alteration of things.
Also, we have to focus upon the idea of growth. What is the rate that these will experience?
Digital Assets: Exponential
The reason why digital assets will usurp RWA in value is the growth rate.
Is a piece of real estate going to do a 1,000x? Not likely. Even if you took a piece of raw land and turned it into condos, the ROI is nowhere near that great. As time passes, if the property is in a highly populated area with growth, the value will keep increasing. Again, the idea of a 1,000x is still tough to achieve.
This is not the case with digital assets. A 1,000x is very possible.
Why is this?
When we look at the network effects that can be generated, we can see how Web 3.0 really enhances this. By adding different layers, people who get involved with networks can enjoy the growth rate. This is where ownership takes things to a new level.
Can an application go from $100K to $100 million? That is possible. While it is not common, a move like this to $10 million, a 100x can be regularly found.
Again, try to do that with a plumbing company.
The advantage digital assets have is they operate solely in this realm. There is no need for intervention from the outside. Governments are not involved in the process since we can simply view the data where it is posted (on-chain).
How Big Can It Get?
Blackrock and Fidelity are two major institutions looking at developing RWA platforms. According to a paper they delivered, it is a $16 trillion opportunity by 2030. This sounds rather impressive.
To contrast, Bitcoin operates solely in the digital world. There is no physical counterpart. The total market capitalization is starting at $1.4 trillion. This is almost 1/10th of the total market that these banks are expecting for RWA in 6 years.
Consider where you think Bitcoin will be by that time.
The kicker is we are dealing with one digital asset. Also, with the $16T in RWA, what do you think the growth rate is on them? Could it he 10%? 20%? It is highly unlikely it will even be close to this.
How about Bitcoin? While it is likely the growth rate will slow as the market cap gets noticeably larger, the path to $1 million, if it does happen, means some significant growth.
Of course, this excludes all other projects which could also follow a similar pattern. It is common for start ups to have triple digit growth for half a decade.
What happens if there are hundreds of thousands of these?
Quadrillions Not Trillions
This is why I think the measurement will move from trillions to quadrillions.
The idea of a trillion dollar company was absurd at one point. Today, a number of companies hit that level. I believe the only one that was not a digital platform was Saudi Aramco. All others are involved in the technology realm, providing cloud, software, and communication on their platforms.
Sam Altman has speculated that OpenAi could become a $100 trillion company. To me, this is a shift in computing and how we generate information. Even if Altman is incorrect about OpenAI, someone will get there.
Of course, this is focusing upon centralization and traditional entities. What about all the smaller ones, the long tail, that are not on everyone's radar? Here is the true nugget.
Tens of millions adds up the more it is done.
Is this possible when billions of people from all over the world are holding assets? The idea of ownership is something foreign to most people when you think about it. Web 3.0 offers this up to them on a platter.
It is why this could be so transformative.
Dedication to the Web 2.0 services will diminish simply due to the fact that people do not own them. Consider the fact that Google, which owns YouTube, probably has around 80K shareholders, with institutions making up a large percentage of that. This might be extended through the holding of mutual funds. Whatever the number, it is much smaller than what is possible with cryptocurrency.
Due to the lack of friction, a network could have 100 million owners. After all, how many Bitcoin and Ethereum wallets are there? Naturally, each wallet is not a new owner but the point is clear. It is much larger than the biggest of our publicly traded institutions.
Another ironic twist is the growth in wealth through digital assets could actually enhance the value of RWA.