Unified Global Framework Crucial for Multi-Trillion-Dollar RWA Market, Says Finance Veteran

The real-world assets (RWAs) tokenization sector is predicted to become a multi-trillion-dollar market, but achieving this growth will likely require a unified global regulatory framework, according to Shy Datika, founder and CEO of INX. Datika, a veteran of both traditional and digital finance, argues that such a framework would not only provide clarity but also ensure that industry players are not hampered by the complexity and cost of navigating diverse regulations.

INX Founder Urges Harmonization of RWA Standards

However, in written responses shared with Bitcoin.com News, Datika concedes that achieving this ideal framework might not be possible due to the varying legal, economic, and regulatory priorities of different jurisdictions. This reality, he says, makes it incumbent on RWA tokenization players to learn to operate within a “fragmented regulatory landscape, adapting to a patchwork of regional requirements.” While far from ideal, he insists that this allows for “localized adaptation to address specific market needs and regulatory concerns.”

When asked how regulators can help foster an ecosystem that mitigates risks without hindering innovation, Datika advocates for establishing a body similar to the Global Financial Regulation (GFR). Such an institution, he said, would help “harmonize standards and practices across different jurisdictions.” Datika also recommends greater collaboration and information sharing between regulatory bodies if establishing a global body proves impossible.

Datika also provided his perspective on the rate of RWA adoption and his projections for the next five years in his answers to a wider range of questions on the same subject. Below are the INX founder’s answers to the questions sent.

Bitcoin.com News (BCN): According to research from Boston Consulting Group, the Real-World Asset (RWA) tokenization sector could reach $16 trillion, equivalent to almost 10% of the global GDP, by 2030. How do you view the current state of the RWA sector? Dividing the RWA development into very early, early, middle, and final stages, what stage would you classify the current RWA era?

Shy Datika (SD): We see that RWA has hatched from its egg, and the chick is starting to walk. It’s now in the growth stages. The RWA sector is in the early stages of its development phase. While there are significant advancements and promising pilots, widespread adoption and regulatory frameworks are still evolving. The growth trajectory could exceed current projections. CoinDesk initially estimated the sector could reach $1 trillion by 2030 back in 2021, but by 2023, this projection has escalated to $16 trillion.

This upward trend suggests the RWA market could grow significantly faster than initially anticipated. Much like Bitcoin a decade ago, which started at $0.10 and was initially underestimated, RWAs are at a similar juncture—low in price and high in potential but still relatively unknown. As the sector matures and gains broader acceptance, it could drive substantial growth, potentially surpassing even the most recent projections by 2030.

BCN: Although RWAs now seem to be part of present-day Web3 investment discussions, it would appear many investors have yet to comprehend the idea behind them and how they can capitalize on this emerging technology. As a financial sector veteran, could you briefly explain to our readers in simple terms the basics of RWAs, what they represent, and how they can extract value from the sector?

SD: Real-world assets (RWAs) are physical assets like real estate, art, stocks, commodities etc that are represented digitally on a blockchain. For example, if you invest $100,000 in a $100 million multifamily project in New York, you own 1% of that project and receive 1% of the rental income. If this investment is tokenized, you hold a digital token that represents your share.

This token can be traded on platforms for other asset tokens—such as those representing hotels, sports teams, traditional stocks or even commodities like gold or diamonds. Essentially, RWAs turn real-world assets into digital tokens, which can be traded 24/7 in fractional amounts.

By tokenizing assets, you avoid traditional intermediaries like banks and brokers, enabling a more direct and flexible investment process. You can exchange your tokens globally, anytime, and for various assets, increasing liquidity and access to diverse investments. This system opens up new opportunities for investors to capitalize on the growing RWA sector.

BCN: Every new tech arrives with the objective of mainstream adoption. The situation is not different for RWAs, with so many new products flooding into the marketplace and seeking adoption. How would you characterize the overall adoption rate of real-world assets (RWAs) compared to other technological innovations introduced in previous eras?

SD: Technological advancements have surged over the last century, and our approach to new innovations has evolved significantly. For instance, Bitcoin, introduced in 2009, has grown from a niche interest to a globally recognized asset. As of 2024, approximately 4.5% of the global population owns cryptocurrency, with Bitcoin being the most popular. Bitcoin’s adoption has seen a compound annual growth rate (CAGR) of about 50% since 2010, and projections indicate it could surpass 10% of global adoption by 2030 (Cointelegraph).
Similarly, blockchain technology has experienced rapid adoption. The number of blockchain wallet users increased from around 20 million in 2019 to over 80 million in 2023, reflecting a fourfold growth in just four years (Statista).

When it comes to Real-World Assets (RWAs), the principle of ensuring security and regulatory compliance remains crucial. For example, INX has emphasized creating a secure and regulated environment before fully launching its platform. This focus has initially slowed adoption but is aimed at establishing a solid foundation for long-term growth.

Interestingly, Real-World Asset (RWA) tokenization outperformed other crypto sectors in May, showing a remarkable 58% performance increase.

The market for RWAs is emerging, with significant investments in secure infrastructure. The global market for tokenized assets, including RWAs, is projected to grow from $2 billion in 2023 to $20 billion by 2027, reflecting a CAGR of 50% (MarketsandMarkets). This deliberate approach to security and regulation may result in slower initial adoption compared to some past innovations but is expected to lead to more stable and widespread integration over time.

BCN: Your firm recently achieved a milestone when it reportedly began enabling eligible users to trade bNVDA, a tokenized security backed one-to-one by NVIDIA Corp (NVDA) stock. It is said to be among the first public offerings of digital security registered with the U.S. Securities and Exchange Commission (SEC). Can you briefly describe the role INX is playing within the emerging ecosystem of RWAs, noting any plans of the company and how that can enhance the technology’s adoption?

SD: INX is proud to be at the forefront of the Real-World Asset (RWA) ecosystem, as demonstrated by our recent milestone with bNVDA—a regulated and supervised tokenized security backed one-to-one by NVIDIA Corp (NVDA) stock. We position ourselves as the regulated marketplace where anyone interested in becoming an RWA, trading RWAs, or exchanging assets can do so securely. Our platform serves as a launchpad, trading platform, and exchange hub for RWAs, addressing regulatory challenges head-on.

With our current collaboration of bringing the stock market onto the blockchain, we know that once people understand the benefits of trading stocks on the blockchain, we anticipate a significant increase in tokenized assets. Since we launched bNVDA, there has been tokenization of Tesla, Microsoft, GameStop, Niu Technologies, the S&P 500, and more, all of which could be traded on our platform. We are actively working on creating partnerships with various companies and organizations worldwide to achieve this vision and drive the adoption of RWAs, ultimately transforming the way tangible assets are managed and traded globally.

BCN: INX claims that the security tokens are held directly in the user’s Ethereum wallet. But how do you assure users that they have the rights to the underlying stock that the security token supposedly represents?

SD: Easy. We are a regulated platform. There is no way we can offer anything that is not fully authorized and regulated. This is how:

At INX, every security token we offer is backed by the underlying stock and adheres to rigorous regulatory standards overseen by the relevant authority. Each token represents a 1:1 ownership of the actual stock, with the underlying assets securely held by a licensed custodian. This custodian ensures that the real-world assets are fully accounted for and managed.

Our blockchain technology further guarantees transparency, as every transaction is recorded in a secure and immutable ledger. This means you can trust that your token accurately represents the underlying stock, thanks to our comprehensive regulatory compliance and secure asset management practices.

For example, if you choose to trade our NVIDIA token, bNVDA, you have the flexibility to redeem it not only for USD or USDC but also to have the stocks transferred to your bank account. This offers you greater flexibility compared to traditional methods of trading, where such seamless options are often limited.

BCN: Regulations play a vital role in the development and propagation of emerging technologies. Often, regulation becomes fragmented across different jurisdictions, leading to varying levels of development in different regions. Is RWA tokenization better served by a fragmented approach across different jurisdictions, or is a more unified global regulatory framework preferred for fostering innovation?

SD: Ideally, a unified global regulatory framework would be the best approach for fostering innovation in RWA tokenization, offering consistency and clarity while reducing the complexity and costs of navigating diverse regulations. However, achieving such a global consensus is challenging due to varying legal, economic, and regulatory priorities across different jurisdictions.

Consequently, the RWA sector must operate within a fragmented regulatory landscape, adapting to a patchwork of regional requirements. While this fragmentation complicates compliance and creates barriers to cross-border activities, it also allows for localized adaptation to address specific market needs and regulatory concerns. Ultimately, though a global framework would be ideal, the practical reality requires working within this varied regulatory environment to advance RWA tokenization effectively.

BCN: How would you advise governments and regulatory agencies to approach RWA regulation to create a balanced ecosystem that mitigates risks without hindering innovation?

SD: To create a balanced ecosystem for RWA regulation that mitigates risks without stifling innovation, governments and regulatory agencies should focus on a cooperative approach that emphasizes both local and global perspectives. Ideally, a unified global regulatory framework, such as a Global Finance Regulation (GFR) body, could be established to harmonize standards and practices across different jurisdictions, similar to the UN’s role in social matters.

While achieving such global consensus is challenging, it would reduce regulatory fragmentation and provide clarity for businesses operating internationally. In the absence of a global framework, regulatory bodies should work towards greater collaboration and information sharing to create more coherent regional regulations that support innovation while managing risks effectively.

BCN: What are some potential risks and drawbacks of real-world assets (RWAs)? How can users best identify, prevent, or mitigate these risks?

SD: When dealing with real-world assets, you need to be aware of several risks. Market changes can affect values, so spreading investments and getting professional appraisals helps. Liquidity issues mean it might be hard to sell assets quickly, so keep some money in easy-to-access investments. Operational problems and legal changes can impact performance, so regular checks and compliance are important. You should also consider environmental and physical risks with insurance and maintenance, and for assets abroad, manage currency and political risks with hedging and diversification. By staying informed and taking these steps, you can handle the risks of investing in RWAs.

BCN: In terms of projections, where do you see the RWA industry in the next five years?

SD: In the next five years, I see the real-world asset (RWA) industry experiencing significant growth and transformation. Technological advancements, especially in blockchain and digital platforms, will likely enhance transparency and efficiency, making it easier to track and trade RWAs. We can expect increased integration of RWAs into digital finance ecosystems, with more innovative financial products and investment opportunities emerging.

Regulatory frameworks will evolve to better accommodate these changes, aiming to protect investors while fostering market growth. Overall, the RWA industry is poised to become more accessible and dynamic, presenting exciting opportunities for both investors and stakeholders.

For instance, major financial institutions like BlackRock and JPMorgan are already making strides in the RWA space, with BlackRock exploring tokenized assets as part of their investment strategies and JPMorgan launching its own digital asset platform. Additionally, platforms like Robinhood are likely to incorporate RWAs into their offerings, reflecting a growing acceptance in the retail investment space. Financial conferences now regularly feature segments dedicated to RWAs, indicating their increasing importance in the broader financial ecosystem. As these developments continue, RWAs are expected to become an essential component of every broker-dealer portfolio.

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