How Tokenizing Real-World Assets Unlocks New Opportunities

Today I am speaking with Manuel Rensink, co-Founder Fathom Protocol, alongside Anton Grigorev and Tyler Carter. We'll discuss the democratization of investment access and the impact on traditional business financing.

Can you provide insights into the importance and potential impact of tokenizing trillions of dollars in assets, particularly democratizing access to investment opportunities and enhancing liquidity in the market?

It is largely a distribution play for issuers, reaching a global investor base and cutting out several layers of intermediaries. Furthermore, as the assets are now programmable, they can be used in ways hitherto not available, for instance, as collateral in lending platforms. 

For investors, it gives them a wider choice of assets at much reduced ticket sizes (in the case of bonds, for instance) and the choice of how and where to house their assets—e.g., in a crypto wallet that enables cross-collateralization. 

What key challenges do traditional businesses face in effectively utilizing RWAs, and how does tokenization address these challenges?

An important challenge for businesses, especially SME’s, is obtaining financing. The ability to efficiently post RWAs as collateral to borrow liquid stablecoins is a game-changer. 

Furthermore, if one counts stablecoins as RWAs, it changes the format of a dollar in a bank account into a much more functional smart-contract format—enabling cheaper and faster cross-border payments, for instance.

Can you discuss Fathom Protocol's market presence within the DeFi landscape? How have users and the broader cryptocurrency community received the platform?

Fathom’s stablecoin FXD aims to be the life blood of the hybrid XDC Network, which is focused on global finance, particularly trade finance. While it is pegged to the dollar, it is overcollateralized by on-chain XDC and RWA and hence not subject to bank failure risk or regulations aimed at tokenized bank deposits. 

Its decentralized nature, combined with its ability to take in institutional RWAs for scaling, combines the best of both worlds and makes FXD a future-proof asset for collateralization, trading, investing, and even cross-border payments.

Can you provide insights into the process of tokenizing real-world assets on the Fathom Protocol platform, particularly regarding the recent successful pilots such as the one with InvoiceMate?

As a liquidity protocol, Fathom answers what to do with an asset after it has been tokenized. It allows the asset to be used as borrowing collateral, deposited into an investment vault or traded in defi pools.

How does the tokenization of RWAs create new investment opportunities for institutional and retail investors?

Due to the nature of blockchain, tokenization allows for global accessibility and fractionalization—opening investments to virtually anyone anywhere and at any ticket size. 

Furthermore, because of the programmability of smart contracts, assets can now be used in various ways and held in custodial or non-custodial wallets and/or defi protocols. 

What are some specific ways in which tokenizing RWAs can democratize access to investment opportunities, particularly for individuals who may not have had access to traditional investment markets?

In principle, all you need to invest in RWAs is access to the Internet. Depending on how the RWA is accessed, there might be an online KYC process, which normally only takes minutes. 

This greatly democratizes access for the unbanked and underbanked in both the developed and developing worlds, including SME’s. 

How does Fathom Protocol collaborate with traditional businesses and industries to tokenize real-world assets, and what benefits do these partnerships bring to the ecosystem?

Fathom is looking to partner with investors and tokenization platforms to use those assets as collateralized debt positions (CDP) in its investment vaults or DEX pools. 

DeFi adheres to the motto “truth over trust,” but with RWA, a certain level of trust is introduced, and that’s where our partnerships with custodians come into play. 

A custodian has an important role in the governance of RWA, including valuation, legal certainty and the liquidation protocol to be followed. Furthermore, we seek to work with market makers and OTC desks with deep liquidity. 

How do you see the role of decentralized finance (DeFi) platforms evolving with the integration of real-world assets, and what opportunities does this present for investors and businesses alike?

Non-custodial defi platforms like Fathom provide important market mechanics to aid financial institutions and their customers with yield, borrowing liquidity, trading venues and market data for RWA. 

For investors, it provides more choice of investments, cross-collateralization and self-sovereignty on how to store and use those investments, including into payments.

What potential future developments or innovations in the tokenization of RWAs should investors be aware of, and how might these shape the investment landscape?

Tokenization will lead to the Internet of Value, where any asset can be stored and transferred as easily as an email. Knowing best how antiquated much of the global financial infrastructure is, institutions want it to reduce costs, enhance distribution and access and create new asset classes. 

SME’s and individual investors want it to access liquidity, earn real yields and take back ownership. Last but not least, in a world of AI, blockchains are the only global rails conceivable to provide the rails for use cases we are only now starting to fathom.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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