RWA (Real-World Assets) tokenization has taken the center stage in crypto in 2024 and the industry has already made big leaps tokenizing all kinds of RWA like equity, bonds, private debt, treasury bills, funds, real estate, commodities, art, etc. Tokenization of RWAs is transforming the financial market by enhancing transparency, efficiency, accessibility and liquidity for all kinds of assets that wasn’t possible before. As the landscape evolves, several blockchain platforms have emerged as frontrunners in this space and existing ones have built out their chain’s capabilities for RWA tokenization to be compliant to institutional requirements.
With the development of all those blockchain protocols, another challenge arose – the interoperability between them. This is already a well-known problem and those blockchains have taken different solution approaches. Either directly integrated in their main concept, or though partnerships with other specific interoperability solutions such as Chainlink’s CCIP (Cross-Chain Interoperability Protocol), Axelar or LayerZero, as demonstrated in Project Guardian of the Monetary Authority of Singapore (MAS) together with major institutions and blockchain solution providers.
As we’ve shown in our research about “Institutional Blockchain Adoption — The Top 30 Global Banks on the Forefront”, the financial industry is getting ready for the transformation to tokenized asset management. Start-up’s like we at RIVA Markets building infrastructure for on-chain RWA serving the institutional world and connecting the TradFi (Traditional Finance) with the new world of DeFi (Decentralized Finance). For RWA tokenization, especially in the institutional context, it’s crucial to understand the different types of blockchains, how they apply to institutional RWA tokenization to tackle the specific requirements for issuance and management of digital on-chain and tokenized investment products.
The blockchain technology as such is already a complex topic, and with the development of the technology it’s even more complex to understand the nuances and how new developments address the challenges and the specific requirements for institutional RWA.
Since we at RIVA Markets are building a sustainable and interoperable capital markets infrastructure for the future of tokenized asset management, we’re constantly spending significant time researching and working on interoperability solutions with multiple blockchain deployments. Here we want to shed a light on the different blockchain technologies, the solutions on the forefront and their specifics.
Types of Blockchains
First, we want to go into the types of blockchains that exist and how they’re applying to RWA. There are several pro’s and con’s for each concept, especially for RWA tokenization and their use in regulated institutional context. It is a controversial discussion as the benefits of blockchains can only really be embraced through open standards, but privacy and control is a crucial element in the institutional financial world. In this article we provide some insights in those blockchains we believe provide the best technologies and solutions for RWA tokenization so far, and we also leverage for our capital markets infrastructure.
Public Blockchains
Public blockchains, or permissionless as they’re also being called, like Bitcoin, Ethereum, Solana, Cardona and many more of the well-known blockchains, offer high transparency and decentralization, allowing anyone to participate in the network. This open nature ensures broad participation and trust. However, these blockchains often face scalability issues, higher transaction costs, and slower speeds due to their open and decentralized nature. For institutional requirements, public-permissionless blockchains are seen critical due to its open accessible transparency and lack of control thereof. The Bank for Institutional Settlement (BIS) has taken even an official stance agains public-permissionless blockchains for the institutional use case.
Permissioned Blockchains
Permissioned blockchains, such as Hyperledger Fabric, R3 Corda or Polymesh provide enhanced security and controlled access, making them suitable for industries requiring strict data privacy and compliance such as the regulated financial industry. These networks are tailored to specific regulated needs, offering more higher control and privacy. However, the trade-off is reduced decentralization, which can lead to lower trust from participants outside the organisation. Permissioned blockchains create several obstacles for an open accessible market where assets can flow frictionless.
Private Blockchains
Private blockchains, exemplified by platforms like JP Morgan’s Quorum and Ripple, offer high control over the network, improved privacy, and efficient performance. These blockchains are often used within organizations to streamline operations and secure sensitive data. The downside is their centralization, which can pose risks of single points of failure and reduced trust from external stakeholders.
Hybrid Blockchains
Hybrid blockchains blend elements of both private and public blockchains. They allow to set up a private, permissioned system that can also interact with public blockchains. This structure enables them to control who sees what data while still communicating across blockchain networks, offering flexibility in how they handle transactions and data privacy. They use a private layer for sensitive data and a public layer for transaction verification and are built mainly on layer-0 and layer-2 chains as further elaborated.
The Blockchain Layer Types
At the beginning there where only those types of permissionless, permissioned and private blockchains. Over time, new technologies evolved pretty quickly to resolve early identified issues and new forms of blockchains developed and formed the blockchain layers. With those new layers, first generation blockchains are categorized as layer-1 chains.
Layer-0 Blockchains
Layer-0 (L0) blockchains provide the underlying infrastructure for multiple Layer-1 blockchains, enabling them to interoperate, scale, and enhance security more efficiently. This base layer includes the hardware, protocols, and consensus mechanisms that facilitate the operations of other blockchains built atop it. The primary goal of Layer-0 is to create a seamless environment where different blockchain networks can communicate and interact effectively.
Layer-0 blockchains play a critical role in advancing the blockchain ecosystem by providing a scalable, interoperable, and flexible foundation for building diverse and efficient blockchain solutions. Platforms like Cosmos, Avalanche, Polkadot, Venom and Horizen are at the forefront of layer-0 blockchains, enabling new possibilities for blockchain integration and collaboration across various industries.
Key Features and Functions
Scalability: Layer-0 solutions address the scalability trilemma by allowing high transaction throughput without compromising security or decentralization. Techniques like sharding and parallel execution are commonly used to enhance scalability.
Interoperability: These blockchains provide cross-chain communication protocols that enable different Layer-1 blockchains to exchange data and assets seamlessly. This fosters a more integrated blockchain ecosystem, breaking down silos between disparate networks.
Flexibility: Developers can create custom blockchains (Layer-1s) tailored to specific use cases while leveraging the security and infrastructure of the Layer-0. This modular approach allows for optimized performance based on the needs of the application.
Shared Security: Layer-0 networks often provide a shared security model, where multiple chains can benefit from a robust and extensive validator network, enhancing the overall security of the ecosystem.
Notable Layer-0 Blockchains
Cosmos (ATOM): Often referred to as the “Internet of Blockchains,” Cosmos utilizes the Inter-Blockchain Communication (IBC) protocol to enable interoperability among independent blockchains called zones. Cosmos uses the Tendermint consensus algorithm to ensure secure and efficient transaction processing.
Avalanche (AVAX): Avalanche is a highly scalable Layer-0 platform that supports both permissioned and permissionless subnets. Its consensus mechanism allows for high transaction throughput and low latency, making it suitable for a wide range of applications from DeFi to institutional finance.
Polkadot (DOT): Developed by Ethereum co-founder Gavin Wood, Polkadot is a prominent Layer-0 blockchain known for its relay chain and parachain architecture. This setup allows for high scalability and interoperability among various blockchains. Polkadot uses a Nominated Proof-of-Stake (NPoS) consensus mechanism and facilitates cross-chain transfers through its Cross-Consensus Messaging Format (XCM).
Venom: Venom is noted for its high scalability and hybrid consensus mechanism that combines Proof-of-Stake (PoS) and Byzantine Fault Tolerance (BFT). It supports smart contracts and aims to process up to a million transactions per second.
Horizen: Known for its Cross-Chain Transfer Protocol (CCTP), Horizen allows sidechains to communicate with the main chain and each other, providing robust scalability and interoperability.
Institutional Use Cases
Layer-0 blockchains are particularly well-suited for institutional applications due to their scalability, security, and interoperability features. Financial institutions can benefit from:
- Enhanced Cross-Chain Transactions: Facilitating seamless and secure transactions across different blockchain networks.
- Custom Blockchain Development: Creating tailored blockchain solutions that can operate within a shared security and governance framework.
- Improved Efficiency: Leveraging high transaction throughput and low latency for financial operations, such as trading and settlements.
Layer-2 Solutions
Layer-2 (L2) blockchain solutions are designed to enhance the scalability, speed, and cost-efficiency of Layer-1 (L1) blockchains like Bitcoin and Ethereum. These solutions process transactions off the main blockchain while still leveraging the security and decentralization of the underlying L1 network.
Key Features and Functions
- Scalability: L2 solutions significantly increase transaction throughput by processing transactions off-chain, thereby reducing congestion on the main blockchain.
- Cost Efficiency: By bundling multiple transactions into a single batch for on-chain settlement, L2 solutions dramatically lower transaction fees.
- Speed: L2 solutions offer faster transaction processing times, which is crucial for applications requiring quick interactions.
- Interoperability: These solutions facilitate seamless interactions between different blockchain ecosystems, enhancing the overall utility and liquidity of digital assets.
Types of Layer-2 Solutions
State Channels: Allow transactions to be conducted off-chain between parties, with only the final state recorded on the blockchain. Examples include the Lightning Network for Bitcoin and the Raiden Network for Ethereum.
Rollups: Bundle multiple transactions into a single batch that is processed on the L1 blockchain.
- Optimistic Rollups: Assume transactions are valid by default and only run computations if there is a dispute. Examples include Arbitrum and Optimism.
- zk-Rollups: Use zero-knowledge proofs to validate transactions, offering enhanced privacy and immediate finality. Examples include zkSync and Loopring.
Plasma: Creates child chains anchored to the main blockchain to process transactions more efficiently, mainly used for specific applications like payments.
Sidechains: Independent blockchains running parallel to the main chain, linked via a bridge. Examples include the Liquid Network for Bitcoin and xDai for Ethereum.
Notable Layer-2 Projects
Polygon (MATIC): A multichain ecosystem providing various L2 solutions, including zkRollups and Proof-of-Stake (PoS). It supports fast transactions and low fees, ideal for DeFi and NFT applications.
Arbitrum: Uses optimistic rollup technology to enhance Ethereum’s scalability, significantly reducing gas fees and increasing transaction speed.
Optimism (OP Mainnet): Another optimistic rollup solution for Ethereum, known for its low-cost and fast transaction processing.
Immutable X: A specialized Layer-2 network for gaming and NFTs, offering high throughput and minimal transaction fees through zkRollup technology.
Starknet: Utilizes STARK proofs for off-chain validation, providing unmatched speed and security for transactions.
Base: Developed by Coinbase, Base is built on Optimism’s OP Stack and provides a scalable, low-cost solution for Ethereum transactions. It aims to onboard millions of Coinbase users to DeFi, offering full EVM compatibility and low gas fees.
Institutional Use Cases
Layer-2 solutions are particularly well-suited for institutional applications due to their scalability, security, and interoperability features. Financial institutions can benefit from:
- Enhanced Cross-Chain Transactions: Facilitating seamless and secure transactions across different blockchain networks.
- Custom Blockchain Development: Creating tailored blockchain solutions that operate within a shared security and governance framework.
- Improved Efficiency: Leveraging high transaction throughput and low latency for financial operations such as trading and settlements.
Promising Blockchains for RWA
Provenance Blockchain is a purpose-built blockchain for the financial services industry, emphasising regulatory compliance and transparency. Built on Cosmos SDK, it enables the issuance, tracking, and trading of RWAs such as asset-backed securities and various financial products. This focus on a regulated environment makes Provenance particularly attractive to institutions looking to tokenize financial instruments and projects aiming to partner with institutions.
Key Features and Benefits
Provenance Blockchain’s core capabilities include:
Confidentiality: Provenance ensures the confidentiality of sensitive financial data through advanced encryption and access controls. This protection is critical for maintaining the trust of participants and complying with regulatory requirements.
Identity: The platform employs robust identity management solutions to verify and authenticate participants. This identity management reduces the risk of fraud and ensures that only authorised users can access sensitive information.
Interoperability: Provenance Blockchain is designed to be interoperable with existing financial systems and other blockchain networks. This interoperability facilitates seamless data exchange and integration, enhancing the efficiency of financial operations.
Markers: Markers are unique digital representations of assets on the Provenance Blockchain. They enable the tracking and transfer of ownership rights, providing a transparent and efficient way to manage assets.
Settlement: The platform supports real-time, atomic settlement of transactions, reducing settlement risk and enhancing the efficiency of financial markets. This capability is particularly beneficial in reducing the time and cost associated with traditional settlement processes.
Provenance Blockchain for Financial Services
Provenance Blockchain offers a sophisticated solution with pre-built modules for the issuance and management of alternative assets and funds. Provenance is the blockchain behind Figure and Figure Markets, and has developed specific modules to serve lending, tokenized marketplaces, funds, insurance and other financial markets on an abstracted flexible way. Especially the lending solution of Figure demonstrates the capabilities of Provenance for lending and asset-backed securities (ABS).
Key Benefits:
- Enhanced liquidity through tokenization
- Improved transparency and auditability
- Automated compliance and reporting
Capital Markets
In capital markets, Provenance Blockchain streamlines the issuance, trading, and settlement of securities. By utilising smart contracts and a decentralized ledger, the platform reduces the need for intermediaries, cutting costs and accelerating transaction times. Provenance supports various financial instruments, including equities, bonds, and derivatives, providing a more efficient and secure infrastructure for capital markets.
Key Benefits:
- Reduced costs and increased efficiency
- Faster settlement times
- Enhanced security and transparency
Lending
Provenance Blockchain aims to transform the lending process by offering a transparent and efficient platform for loan origination, servicing, and securitization. The blockchain ensures the integrity of loan data, reduces the risk of fraud, and enables real-time tracking of loan performance. This innovation helps lenders to manage risk more effectively and provides borrowers with greater access to credit.
Key Benefits:
- Improved data integrity and security
- Reduced risk of fraud
- Real-time loan performance tracking
Trade Finance
In trade finance, Provenance Blockchain addresses the complexities and inefficiencies of traditional trade finance processes. The platform digitizes trade documents, automates workflows, and provides real-time visibility into transactions. This digitization reduces the risk of fraud, accelerates transaction times, and enhances the overall efficiency of trade finance operations.
Key Benefits:
- Digitized trade documents
- Automated workflows
- Real-time transaction visibility
Insurance
Provenance Blockchain offers solutions for the insurance industry, focusing on improving transparency, reducing fraud, and streamlining claims processing. By leveraging smart contracts, the platform automates policy management, claims verification, and payouts. This automation not only increases efficiency but also enhances customer trust by ensuring that claims are processed fairly and transparently.
Key Benefits:
- Automated policy management and claims processing
- Reduced fraud
- Enhanced customer trust
Decentralised Finance (DeFi)
Provenance Blockchain supports the growth of DeFi by providing a secure and scalable infrastructure for alternative asset platforms and marketplaces. The platform enables the creation and trading of digital assets, supports decentralised lending and borrowing, and facilitates the development of innovative financial products. This support for DeFi fosters financial inclusion and democratizes access to financial services.
Key Benefits:
- Secure and scalable infrastructure
- Support for digital asset creation and trading
- Enhanced financial inclusion
Investment Funds
For investment funds, Provenance Blockchain offers a robust solution for fund administration, investor onboarding, and regulatory compliance. The platform’s immutable ledger ensures the accuracy of investor records, automates compliance checks, and provides real-time reporting capabilities. These features enhance operational efficiency and ensure that investment funds meet regulatory requirements.
Key Benefits:
- Accurate and immutable investor records
- Automated compliance checks
- Real-time reporting
The Canton Network stands out for its strong privacy features and interoperability, designed with institutional applications in mind. It is particularly suited for financial institutions that require secure and private transaction capabilities with interoperability in mind. The open network approach aims to resolve the fragmentation and inefficiencies inherent in traditional financial systems by enabling secure, synchronised data exchanges across institutions, thereby fostering a more integrated and efficient financial ecosystem.
Key Features and Benefits
Decentralisation with Control: Canton Network employs a decentralized approach, allowing financial institutions to maintain control over their data while benefiting from the transparency and security of blockchain technology. Unlike traditional centralized systems, Canton facilitates direct interactions between participants, reducing the need for intermediaries and thus lowering transaction costs and time delays.
Privacy and Security: A cornerstone of the Canton Network is its robust privacy framework. By leveraging advanced cryptographic techniques, Canton ensures that sensitive financial data remains confidential and accessible only to authorized parties. This privacy-centric design is crucial for regulated financial institutions that handle vast amounts of sensitive information.
Interoperability: One of the major challenges in the financial industry is the lack of interoperability between different systems. Canton addresses this by enabling seamless connectivity and data sharing across diverse financial applications. This interoperability not only enhances efficiency but also enables institutions to offer more integrated and comprehensive services to their clients.
Real-Time Synchronisation: Canton’s blockchain technology supports real-time synchronization of financial data and transactions. This feature is particularly beneficial for activities such as clearing and settlement, which traditionally involve significant delays. By enabling instant synchronization, Canton reduces counterparty risk and improves the overall efficiency of financial markets.
Advanced Smart Contracts with DAML
Central to the functionality of the Canton Network is the use of DAML (Digital Asset Modeling Language). DAML is a powerful smart contract language that allows for the precise modelling of complex financial workflows. This specificity ensures that financial contracts are executed exactly as intended, reducing the risk of errors and discrepancies.
Precision and Flexibility: DAML’s precision allows financial institutions to automate complex processes and enforce strict compliance with regulatory requirements. Its flexibility means it can be adapted to various financial instruments and use cases, from simple transactions to intricate multi-party agreements.
Enhanced Compliance: Given the stringent regulatory environment in which financial institutions operate, DAML’s ability to provide clear, auditable records of all transactions is invaluable. This feature helps institutions demonstrate compliance and manage regulatory reporting more efficiently.
Collaborative Ecosystem
The Canton Network is supported by a broad coalition of industry leaders. With participation from nine of the top ten global investment banks, the network has a strong foundation in the financial sector. These institutions manage a significant portion of the world’s syndicated loans and process billions in transactions monthly, highlighting the network’s scalability and reliability.
Global Synchroniser Foundation: To ensure transparent governance and organizational neutrality, the Canton Network has established the Global Synchroniser Foundation. This entity oversees the development and adoption of the Global Synchroniser, which is the decentralised backbone of the network, ensuring all participants can collaborate effectively.
Canton Network Global Synchroniser
The Canton Network core innovation is the Global Synchroniser, a decentralised service that enables atomic transactions across independently operated blockchains. The pilot set out to achieve three primary objectives:
- Atomic Transactions: Execute transactions across blockchains without sacrificing privacy or control.
- Global Synchroniser Viability: Prove the effectiveness of the synchronisation service in a real-world setting.
- Unified Experience: Provide a seamless experience for buy-side, sell-side, and Financial Market Infrastructures (FMIs).
Use Cases and Impact
Capital Markets: In capital markets, Canton facilitates faster and more secure trading, clearing, and settlement processes. By reducing the reliance on central intermediaries, it enhances market transparency and liquidity.
Banking: For the banking sector, Canton offers streamlined processes for cross-border payments, trade finance, and syndicated loans. Its real-time capabilities and privacy features make it ideal for handling high-volume, sensitive transactions.
Payments: In the payments industry, Canton enables instantaneous, secure transfers, reducing the settlement time and operational risks associated with traditional payment systems.
Canton Network Pilot with Major global Financial Institutions
The Canton Network pilot, conducted over six weeks in November-December 2023, gathered 155 participants from 45 financial institutions to explore the transformative potential of blockchain technology in capital markets. The pilot aimed to demonstrate that a network of permissioned blockchains could interoperate seamlessly, maintaining privacy and control while enabling atomic transactions. This initiative, the most comprehensive of its kind for tokenised real-world assets, sought to address inefficiencies and unlock new opportunities within the financial sector.
Participants and Execution
The pilot included a diverse group of financial entities such as BNY Mellon, Goldman Sachs, BNP Paribas, State Street, and Standard Chartered. The participants represented a broad spectrum of the capital markets value chain, including asset managers, banks, custodians, exchanges, and technology providers.
During the pilot, over 350 transactions were conducted across 22 independently operated Canton blockchains. Each participant operated their own Canton node, ensuring complete control over their data and interactions. The use cases focused on complex workflows like collateral and margin management, demonstrating how digital assets, cash, and data can be mobilized efficiently.
Key Findings
Atomic Transactions and Privacy: The pilot successfully demonstrated that atomic transactions could be executed across multiple blockchains using the Global Synchroniser. This ensured operationally risk-free transactions while maintaining the privacy and control necessary for regulated institutions. Participants highlighted the potential to reduce counterparty and settlement risks, which are significant pain points in traditional financial systems.
Operational Efficiency: The ability to synchronise and execute transactions in real-time was a significant advancement. This real-time capability reduces the reliance on intermediaries, lowers operational costs, and shortens settlement cycles. The pilot showcased how assets could be mobilized across the network, enhancing liquidity and capital efficiency.
Interoperability: The Canton Network’s design allows for true interoperability without the need for message-based integrations or bridges, which often reintroduce risks. This interoperability enables different blockchain applications to connect and transact seamlessly, providing a cohesive experience for users across the network.
Use Cases
- Margin Management: The pilot demonstrated a scenario where an investor used tokenised money market funds to meet a margin call. The process involved purchasing tokenized funds, executing a Delivery versus Payment (DvP) transaction, and pledging the funds as collateral. This highlighted the efficiency and potential of using tokenized assets in daily financial operations.
- Repo Financing: Another scenario involved intraday repo financing, where the investor used tokenized bonds as collateral to secure financing. The transaction was executed atomically, demonstrating how the Canton Network can facilitate real-time, secure collateral management.
Feedback and Future Directions
The feedback from participants was overwhelmingly positive. 90% of respondents agreed that the Canton Network effectively demonstrated the ability to perform secure, atomic transactions. Participants emphasised the importance of interoperability and the potential for new business models and efficiencies.
Moving forward, the Canton Network aims to make its Global Synchroniser service permanently available, enabling broader adoption and integration. The network plans to continue developing application templates and fostering collaboration among participants to drive innovation and efficiency in capital markets.
Avalanche is a high-performance blockchain platform designed to facilitate efficient tokenization of real-world assets (RWA). By leveraging its unique consensus mechanism and robust infrastructure, Avalanche offers a decentralized environment for asset management, trading, and deployment of decentralized applications (dApps). The platform is powered by the Avalanche consensus protocol, known for its high throughput, low latency, and strong security guarantees. Its innovative consensus mechanism ensures fast and secure transactions, making it suitable for a wide range of applications. Especially the deployment on its subnets is seeing an increasing adoption of RWA projects and use cases.
Key Features and Benefits
- X-Chain (Exchange Chain): Facilitates the creation and exchange of assets.
- P-Chain (Platform Chain): Manages metadata and validator sets for custom subnets.
- C-Chain (Contract Chain): Fully compatible with the Ethereum Virtual Machine (EVM), enabling seamless deployment of Ethereum-based dApps.
Avalanche for Real-World Asset Tokenization
Avalanche offers an appealing approach RWA tokenization in terms of scalability, security and efficiency, paired with compliance and control through its subnets. Those subnets provide the possibilities to create use-case tailored custom chains for specific requirements, while sharing network security and interoperability of its network.
Benefits of Tokenization on Avalanche
- Increased Liquidity: Tokenized assets can be easily traded on secondary markets, providing liquidity for assets that are typically hard to sell.
- Transparency: Blockchain’s immutable ledger ensures transparent and tamper-proof records of ownership and transactions.
- Efficiency: Smart contracts automate various processes, reducing administrative overhead and enhancing operational efficiency.
- Compliance: Built-in compliance features ensure adherence to regulatory requirements, such as KYC/AML checks.
Custom Subnets:
- Tailored Blockchains: Subnets allow the creation of custom blockchains optimized for specific use cases or regulatory environments.
- Parallel Processing: Enhances scalability by enabling multiple subnets to operate simultaneously without interference.
Avalanche Consensus:
- High Throughput: Capable of processing thousands of transactions per second, ideal for high-volume markets.
- Low Latency: Provides near-instant transaction finality, crucial for time-sensitive financial operations.
- Security: Asynchronous Byzantine Fault Tolerance (aBFT) ensures robustness against attacks and network failures.
EVM Compatibility:
- Seamless Integration: Compatibility with the Ethereum Virtual Machine (EVM) allows developers to deploy existing Ethereum dApps on Avalanche with minimal modifications.
- Smart Contracts: Solidity-based smart contracts facilitate complex financial transactions and automations.
Governance and Sustainability
Avalanche is governed by a decentralized community that drives decision-making processes and protocol updates. The platform emphasises sustainability, with its proof-of-stake consensus mechanism ensuring low energy consumption and minimal environmental impact compared to traditional proof-of-work systems.
Hedera is a distributed ledger technology (DLT) platform designed to provide security, scalability, and decentralization. By leveraging its unique Hashgraph consensus algorithm, Hedera addresses the limitations of traditional blockchain technologies and aims to deliver a high-performance, enterprise-grade solution for various use cases. The Hashgraph algorithm uses a unique consensus mechanism known as gossip-about-gossip and virtual voting. This mechanism allows the network to achieve high throughput, low latency, and asynchronous Byzantine Fault Tolerance (aBFT), making it both fast and secure.
Key Features and Benefits
Hedera offers high transaction speeds and low fees, making it ideal for enterprise applications and the tokenisation of RWAs. Its unique governance model, involving major corporations, ensures stability and security. Hedera’s performance optimized Etherum Virtual Machine (EVM) smart contracts, and its native tokenization and consensus service API’s enable the development of real-time web3 applications and ecosystems. Hedera has also taken a strong focus on RWA with a number of high-profile financial institutions and innovative start-ups leveraging the technology for different use cases.
- Speed: Hedera can handle up to 10,000 transactions per second (TPS), far surpassing most blockchain platforms.
- Security: The aBFT consensus ensures that the network is resilient to attacks and maintains data integrity.
- Fairness: The consensus algorithm ensures fair transaction ordering and time-stamping.
- Stability: Hedera is governed by the Hedera Governing Council, consisting of leading global organizations, ensuring stability and decentralized governance.
Real-World Asset Tokenisation on Hedera
- Liquidity: Tokenized assets can be traded on secondary markets, increasing liquidity for traditionally illiquid assets like real estate and fine art.
- Transparency: The immutable nature of the ledger ensures transparent ownership records and reduces the risk of fraud.
- Compliance: Hedera supports regulatory compliance through account-level configurations, including KYC/AML checks and token supply management.
- Efficiency: The Hedera Token Service (HTS) enables the creation, management, and transfer of tokens with low, predictable fees.
Use Cases:
- Real Estate: Platforms like RedSwan CRE use Hedera to tokenize commercial real estate, making high-value properties accessible to more investors.
- Stablecoins: Hedera’s infrastructure supports stablecoins like USD Coin (USDC), facilitating fast, low-cost, and secure cross-border payments.
- NFTs: Hedera also supports the creation and management of NFTs, with applications in digital art, gaming, and collectibles.
Hedera’s Core Services
Hedera offers a suite of services that empower developers and enterprises to build robust applications:
Hedera Token Service (HTS):
- Enables the issuance and management of native tokens.
- Supports both fungible and non-fungible tokens.
- Ensures compliance and regulatory adherence.
Hedera Consensus Service (HCS):
- Provides decentralized, verifiable timestamps and ordering of events.
- Enhances transparency and auditability for various applications.
Smart Contracts:
- Supports Solidity-based smart contracts for complex decentralized applications.
- Benefits from Hedera’s fast and secure infrastructure.
HBAR:
- The native cryptocurrency of the Hedera network.
- Used to pay for transaction fees and secure the network through staking.
Key Use Cases
Capital Markets:
- Hedera streamlines the issuance, trading, and settlement of securities.
- Reduces costs and enhances the efficiency of financial markets.
Payments:
- Facilitates fast, low-cost, and secure transactions.
- Supports stablecoins for cross-border payments.
Supply Chain/ Trade Finance:
- Improves traceability and transparency in supply chain operations.
- Enables real-time tracking of goods and verification of their origins.
Identity Management:
- Provides robust solutions for verifying and managing digital identities.
- Reduces the risk of identity fraud and enhances privacy.
Governance and Sustainability
Hedera is governed by the Hedera Governing Council, comprising leading global organisations across various industries. This council ensures decentralized governance and the long-term stability of the network. Members include Google, IBM, LG, Deutsche Telekom, and others.
Hedera is also committed to sustainability. The network is designed to be energy-efficient, with low energy consumption per transaction. Hedera has pledged to be carbon-negative, purchasing carbon credits to offset its emissions.
Polygon is proably the most prominent layer-2 solution that has seen significant adoption for RWA tokenization. By providing a robust and scalable infrastructure, Polygon enables the creation, management, and trading of tokenized assets efficiently.
As a layer 2 scaling solution for Ethereum, Polygon significantly enhances scalability and reduces transaction costs, making it a popular choice for DeFi and NFT applications. Its compatibility with Ethereum ensures a robust ecosystem and high throughput. Polygon’s dependency on Ethereum’s underlying network can pose challenges, particularly during periods of high network congestion. However, Polygon is already battle-tested in the industry and an increasing number of RWA projects building on Polygon.
Institutional Use Cases
- Franklin Templeton: Launched its tokenized money market fund on Polygon, enhancing liquidity and access to high-quality investment strategies with faster settlement times.
- Hamilton Lane: Tokenised its flagship $2.1 billion fund through Securitize on Polygon, reducing minimum investment requirements and democratizing access to private equity investments.
- Sygnum Bank: Collaborates with various financial leaders to tokenize private debt and equity products, streamlining the issuance and trading process.
Advantage of Polygon
Polygon 2.0: Introduces a web of interconnected L2 chains on Ethereum, with a shared zero-knowledge (ZK) bridge, enhancing liquidity and ensuring efficient asset management across different platforms.
Developed by Coinbase, Base provides a secure and scalable environment for decentralized applications (dApps). Its strong backing by Coinbase offers enhanced security and support, making it a reliable choice for DeFi applications.
Base: Coinbase’s Layer 2 Solution
Base, developed by Coinbase, is an L2 network built on the Optimism stack, providing a secure and scalable platform for tokenizing RWAs. Base leverages the security of Ethereum while offering the scalability needed for large-scale financial applications. Deploying on Base might provide advantage in more retail oriented tokenized RWA project and access to a widely established network of Coinbase Exchange and Coinbase Wallet users.
Institutional Applications:
- Backed: Issued the first tokenized security on Base, showcasing the potential for RWAs in the DeFi ecosystem. This includes tokenised U.S. treasury bonds, providing a secure and tradable digital representation of traditional assets.
- bTokens: Fully collateralized ERC20 tokens that track the value of underlying securities, ensuring confidence in trading and using these tokens as collateral for other financial activities.
Advantage of Base
- Developer-Friendly: Encourages innovative use cases and supports the development of robust financial products.
- Regulatory Compliance: Designed to meet regulatory requirements, ensuring that tokenized assets are securely and legally managed.
- Coinbase Network: Embedded into the Coinbase ecosystem, Base can bring a faster adoption and network-effect for several use cases.
Conclusion
Selecting the right blockchain platform for tokenizing real-world assets involves considering several factors such as scalability, security, regulatory compliance, and the specific use case. Blockchains like Provenance and Canton are more tailored for institutional financial services, Avalanche and Hedera offer broader applications with high scalability, while L2’s like Polygon and Base offer high scalability at low costs from two well-established market players. As blockchain technology continues to evolve and the adoption accelerates on multiple fronts, interoperability and compliance are major topics to consider when building for the future of tokenized asset management, where all of those chains offer their specific solution.
We at RIVA Markets building a whole ecosystem for the capital markets, combining TradFi and DeFi with interoperability fully in-built for our own end-to-end solution, as well as modular API-based service modules for 3rd parties. Our aim is to offer an open hybrid infrastructure for on-chain financial services and investment products, full tokenization and seamless deployment on all major blockchains without limitations.
