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After years of hype and unfulfilled promises, the timing finally seems right for real-world asset tokenization. With conservative estimates showing a $2-4 trillion market by 2030 and more bullish predictions suggesting the market for RWA tokens could soar as high as $30 trillion over the next decade, it’s no surprise that enthusiasm is overflowing for this emerging opportunity.
Before we can break open, what will certainly be the well-deserved champagne for upgrading the planet’s entire financial infrastructure? However, the digital assets industry must solve a truly thorny issue: How do you verify real-world assets in a scalable way?
For an asset to be sold, investors need to understand exactly what they are buying. Whether you are trading fractional shares of a money market fund, a real estate portfolio, or next year’s vintage from your favorite wine region, basic questions come up, like: What exactly is the asset, who owns it, and who has possession of it? Important regulatory questions also have to be addressed, like: What type of investors are allowed to buy the asset, and what taxes are owed on trading?
For the liquidity and trading efficiencies promised by RWA tokenization to be realized, the traditional ways sellers vouch for their assets will require major upgrades. This is where verification—and verified computation—comes in. Verification is the process of proving the integrity and compliance of tokenized assets. Verified computation underpins verification by providing a decentralized computing network where verification processes can operate off-chain safely.
While blockchain technology provides the foundation for trading tokenized assets, blockchains alone do not ensure the accuracy of essential off-chain data. Verified compute platforms step in where blockchains leave off—providing a neutral and transparent place to run critical functions such as proof-of-reserves checking, document validation, KYC auditing, and more.
Verification is also crucial to attracting more financial institutions into the RWA space. Blackrock’s entry into money market tokenization is a nice start, but to support a more diverse range of investable assets, these institutions demand rigorous standards of accuracy and trust. They need assurance that off-chain data—such as asset authenticity, digital identity, and custody arrangements—is accurate and reliably represented on-chain and in real-time.
Simple assets, complex data
While the first wave of RWA tokenization may be backed by well-known financial institutions, the breadth of assets and the speed at which they can be traded will break traditional trust models. As more assets and new asset classes are tokenized, markets will need instant access to high-quality, standardized data.
To understand what’s at stake, consider what it would take to create a highly liquid token market for an easy-to-understand asset like collectible Rolex watches. First, a watch must be authenticated as real and properly tokenized to represent that asset. This involves verifying the watch’s serial number, model, condition, location, and more. Traditional methods require physical inspections and certificates of authenticity, which now must be replicated into an immutable, real-time ledger.
Buyers and sellers need to trust the other party is who they say they are. Identities must be verified to ensure the transaction is legitimate and compliant with regulations such as KYC and AML. The watch’s value must be verified as accurate in real-time, 24/7.
If you’re not taking physical custody of the watch, its custody or proof of reserve must be verified. Traditionally, the watch would be stored in a secure location, and periodic audits would confirm its presence. Given the increased automation demands of RWA markets, this, too, would require constant, real-time verification.
Finally, the history of the watch’s ownership history, or provenance, needs to be tracked. Blockchain provides a reliable way to record transaction activity, but without a reliable and trusted verification of the off-chain data being fed into the ledger, how can investors be confident?
The complexities illustrated by the Rolex example underscore the need for robust, scalable verification solutions. Despite blockchain technology providing a foundation for transparency and immutability, additional layers of verification are necessary to bridge the gap between physical assets and their digital representations.
Solving the verification dilemma
For this $30 trillion market of financial assets to become truly tradeable, liquid, and automated, verification must be addressed. Emerging technologies offer promising approaches to these challenges. Advanced cryptographic techniques can enable the verification of off-chain computations without revealing sensitive data. This allows for the creation of durable proofs that confirm the accuracy of asset information, identity verification, and custody arrangements without compromising privacy or security.
While verified compute has been a hot topic in the blockchain world for many years, we are just beginning to see verification technologies enter the mainstream. With highly scalable verification platforms based on interactive proofs already in production and zero-knowledge proof-based systems rapidly improving in performance, we have the infrastructure to maintain the integrity of tokenized assets even as their real-world status changes.
Moreover, by integrating off-chain verified compute with smart contracts, it’s possible to provide a reliable bridge between off-chain data sources and on-chain functions. By aggregating data from multiple sources and leveraging decentralized consensus mechanisms to ensure accuracy, verified compute networks provide a trustworthy stream of real-world information to support tokenization.
The key to unlocking the full potential of RWA markets lies in combining these technologies to create comprehensive, user-friendly verification systems. Such systems must be scalable, cost-effective, and capable of handling the diverse range of assets that can be tokenized—from luxury goods like our Rolex example to real estate, stocks, bonds, derivatives, complex financial instruments, and even intangible assets like intellectual property rights or carbon credits.
Until human-based verification becomes automated, on- and off-chain verification will dictate the pace at which RWA markets can grow. To achieve this, the industry must be pragmatic and start solving the verification challenge piece by piece.
The future of RWA tokenization hinges on our ability to create and implement industry-wide standards for verification processes. These standards must encompass mechanisms for real-time asset verification, ensure regulatory compliance, and establish transparent proof of reserves. By collaboratively addressing these challenges, the blockchain industry can build the foundation of trust necessary to realize the full potential of this $30 trillion market.
