KEY POINTS
- Tokenized RWAs can be a suitable asset class for "risk-averse investors": HAQQ co-founder Alex Malkov
- HAQQ will launch a gold-backed stablecoin next month that combines tech and Shariah-compiant finance
- Tokenization was a key topic among experts at this year's WEF in Davos
In the bustling world of various digital assets, a lesser-known niche among retailers that is gaining attention in institutional markets is on the rise: tokenized real-world assets (RWAs). Tokenized RWAs are the digital representations of tangible assets on a blockchain, but what makes them a suitable investment among crypto traders?
For Alex Malkov, the co-founder of HAQQ Network, these assets open largely untapped opportunities for the crypto market. "I see tokenized RWAs, especially tokenized debt, as a perfect yield-generating asset class for risk-averse investors. They can potentially reduce the portfolio variance and hedge investors' positions against the crypto market systemic risk," he told International Business Times exclusively.
Investments in U.S. Treasuries have long been available through traditional brokers, but "more niche and geographically localized opportunities remain untapped," he pointed out.
Among the opportunities the crypto market can consider in relation to tokenization is Sukuk, also called Shariah-compliant bonds, which has been surging in volume and is projected to grow from a staggering $904.5 billion market last year to a massive $1084.8 billion market in 2024, as per market analysis provider Research and Markets.
"Tokenization provides seamless access to Sukuk and many similar opportunities not available through a conventional broker account," he said.
🛠️It's #TechTuesday, today let's explore how Shariah compliance can be enforced through code 🧑💻 on the HAQQ Network. For instance, HAQQ's custom IBC module, 'x/ibc/transfer' could be used to enforce Shariah-compliant rules on token transfers. 1/9 pic.twitter.com/biYvJEzt15
— HAQQ Network (@The_HaqqNetwork) May 28, 2024
HAQQ Network recognizes the potential of the tokenized RWAs subsector. Malkov said a gold-backed stablecoin will be launched in June on the community-driven decentralized blockchain that combines cutting-edge technology and ethical, Shariah-compliant finance. The stablecoin's price will be linked to gold's performance, and users can exchange the token for real physical gold with delivery.
"With this solution, we aim to address the problem of tangible store of value for individual investors, offering a secure, liquid, and easy-to-purchase alternative to stablecoins or staking," Malkov explained.
The gold-backed stablecoin will also cater to the Islamic Interbank Market through the Tawarruq platform, providing investors with tokenized commodities as a more efficient option compared to traditional Sharia-compliant interbank financing.
Unlike most cryptocurrency products such as Bitcoin that provide customers with an altogether new financial functionality that the traditional system doesn't have, tokenized RWAs seek to improve the existing contracts and securities in the system.
Many cryptocurrencies are also highly volatile. Tokenization banks on much fewer assumptions about a product's development roadmap. Investors can have a more transparent view of the product-market fit, and the competitive advantage is self-evident. Finally, the underlying technology is embedded on thoroughly examined blockchains. With a more predictable and certain environment around it, Malkov said tokenization increases liquidity, reduces execution costs, and minimizes tracking error.
Tokenization has been grabbing the attention of the world in recent months. It was one of the key topics during the World Economic Forum (WEF) in Davos earlier this year wherein experts discussed how it "introduced a new ownership dynamic" in the blockchain space. It was described at the event as having "the potential to impact multiple sectors of the economy and promote more inclusive financial participation."
In the next five years, Malkov sees the tokenized RWA subsector as potentially "providing institutional legitimacy to the crypto industry." He further predicted that with broader adoption, tokenized RWAs can have an impact potentially comparable to that of Bitcoin exchange-traded funds (ETFs).
The tech magnate believes tokenized RWAs will open a path for reducing the overall market volatility of crypto products and can help drive the fast-evolving industry into a more conventional and attractive investment option due to tokenization's provision of a convenient on-chain diversification opportunity.
HAQQ Network is considering tokenization for more commodities and is also planning new Sharia-compliant asset-backed tokens and possibly, the growing market for Islamic financial products. "One of the opportunities HAQQ considers is the tokenization of underlying real-world assets for Musharakah and Mudarabah contracts – core tenets of Islamic finance," Malkov revealed.
While some retailers may not see the true value behind tokenized RWAs yet, institutional interest may help spur more action in the subsector. With some traditional institutions still doubting the value of cryptocurrencies, tokenization just may be what investors are searching for to bridge the gap at the intersection of blockchain and traditional finance.
