In the context of Real World Asset (RWA) tokenization, public blockchain protocols play a vital role as the foundational technology layer, enabling the creation and issuance of RWA tokens. However, their role is limited to providing the infrastructure for token creation. The real complexity and critical elements of RWA tokenization lie beyond the protocol itself and within the regulated ecosystem required for compliant issuance, custody, and trading.

The Role of Public Protocols

Public protocols provide the underlying infrastructure to tokenize assets, but their function stops there. Most RWA tokens, by nature, are classified as securities. Consequently, their lifecycle—from issuance to trading—must operate within a framework of compliance governed by licensed entities. These include:

• Licensed Broker-Dealers: Facilitate the primary issuance of tokens.
• CEX: Centralized Exchanges enable compliant secondary market trading.
• Custodians: Securely manage the custody of tokenized assets.
• DEX: Decentralized Exchanges for secondary trading.

Public protocols lack the capacity to handle these regulated activities. Suggesting that a blockchain protocol alone can facilitate the issuance and trading of RWA tokens is akin to a paper manufacturer claiming that their paper is all that’s needed to sell company shares or transfer real estate ownership. While the paper (or protocol) is a critical medium, it is far from sufficient.

Misconceptions Stemming from Decentralized Applications (DApps)

The confusion often arises from the capabilities of decentralized applications (DApps), which can be developed and deployed on any public protocol without requiring external permissions or oversight. This autonomy is central to the ethos of blockchain technology.

However, when dealing with real-world assets, a legal and compliant infrastructure is mandatory. Tokenizing RWAs involves a complex ecosystem of service providers to ensure compliance with Know Your Customer (KYC), Anti-Money Laundering (AML) requirements, securities regulations, and other legal mandates. This is a stark contrast to the unregulated environment typical of purely digital-native blockchain applications.

The Critical Components of RWA Tokenization

RWA tokenization relies on an interconnected ecosystem, where the public protocol is just one piece. The more critical components include:

1. Regulatory Compliance: Ensuring the asset and token conform to securities laws.
2. Licensing: Issuance, custody, and trading require licensed entities to operate legally.
3. Ecosystem Services: Handling primary issuance, KYC/AML checks, custody, and secondary trading within a regulated framework.

Public Protocols Are Important, but Not Central

While public blockchains are an indispensable layer of the tokenization process, they are far from the most critical element in delivering compliant RWA solutions. Public protocols provide the foundation, but the regulated services built on top of them are what enable the real-world application of tokenized assets. Without these, the tokenization of RWAs would lack the legal, secure, and scalable framework required for practical adoption.

In summary, public protocols are necessary but insufficient for RWA tokenization. The true value lies in the integration of these protocols with a robust, licensed infrastructure that ensures compliance, security, and functionality in real-world financial markets.

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This insight is part of the RWA Tokenization Masterclass by our CEO and Co-Founder Julian Kwan. Watch the full masterclass recording below.

Conclusion: Choose the Right Tokenization Platform and then choose which protocol or choose in tandem

When entering the tokenization market, it’s critical to align with a platform that understands both the technological and regulatory complexities of RWA tokenization. InvestaX stands out as a leader in the licensed tokenization platform model, offering clients the tools and infrastructure to navigate this transformative industry.

Contact us to start your tokenization journey today!