Real World Assets, onchain
Real World Assets (RWAs) are tangible assets or financial primitives found in the traditional financial markets that are brought on-chain through a process called tokenization. RWAs vary from stocks, real-estate, commodities... and bonds as well.
Bringing RWAs on-chain improves the overall cryptocurrency market stability because a specific token’s value is correlated to the underlying asset that supports it. In other words, it backs the tokens with an asset that is present in the traditional markets, similarly to USDC being backed by real-world US Dollars in a bank.
Additionally to adding transparency, it helps increase liquidity, have faster transactions, reduce costs, and reinforce risk management.
A sovereign bond, also called government bond, is a debt security issued by a national government to raise money for financing government programs, paying down old debt, paying interest on current debt, and any other government spending needs. Sovereign bonds can be denominated in a foreign currency or the government’s domestic currency. Sovereign bonds are a source of government financing alongside tax revenue.
The mechanics are similar to a loan that an individual would make at a bank:
- An Individual borrow money from a bank through a loan. In return for this service, the individual pays an interest to the bank.
- For a sovereign bond, a government borrows money from investors through a bond. In return of the service, the government pays an interest to the investors.
At start, a specific focus is put on sovereign bonds due to the inherently low risk nature of this type of asset.