Remember the frenzy around NFTs in 2021? Everyone from celebrities to your favorite sports team was jumping on the bandwagon. There was a lot of speculation about NFTs in fashion and consumer goods, predicting that the time had finally come for web2 brands to adopt web3 at scale.
Well, as we all know, the NFT bubble burst, leaving some people feeling cheated, sitting on a speculative yet now (almost) worthless NFT purchase that seemed like a great idea at the time.
Even so, the broader concept of tokenization has expanded from crypto coins and NFTs since then. In fact, you could say the sleeping giant in blockchain’s future is the tokenization of Real World Assets (RWAs).
RWAs in blockchain are digital tokens representing physical and traditional assets. In the financial sphere, they refer to currencies, commodities, equities, and bonds. Most are “fungible” tokens, which are divisible and not unique.
Non-fungible tokens (NFTs) are unique digital assets with no physical form.
This post provides an update on NFTs. We also discuss the emergence of RWA tokenization, signaled by BlackRock, a Tradfi investment firm titan that launched an RWA fund.
Web2 Brands, NFTs and RWA tokens: Beyond Collectibles
Now, let’s rewind and revisit NFTs (Non-Fungible Tokens). We mentioned the initial hype and the use of NFTs as digital collectibles – think unique trading cards or exclusive artwork in the digital world. The digital collectibles space continues to evolve in fits and starts.
While the January 2022 crash certainly seemed fatal at the time, what many people don’t realize is that NFTs continued to be popular among a select audience. Even as the bad news persists on a macro level (NFT trading volume dropped 41% in Q2 2023), global interest in NFTs is shifting, showing strength in Asia, the Middle East, and Southeast Asia, with blockchain gaming emerging as a powerful segment.
Luxury brands continue to offer exclusive experiences or virtual goods tied to NFT ownership. Gaming companies are integrating NFTs into their ecosystems, creating new avenues for player engagement and ownership of in-game assets.
Web3 Loyalty Programs: A Slow Start in Web2
Early forays into NFTs by prominent Web2 companies are yielding mixed results in 2023. Mercedes Benz’s recent NFT drop had disappointing results, and Starbucks shut down its Odyssey NFT program in March.
Traditional loyalty programs are familiar territory: You earn points for purchases at a specific store and eventually redeem them for rewards. However, these programs can feel restrictive, with points locked into one brand’s ecosystem.
Web3 loyalty programs, powered by blockchain technology, promise a more engaging experience. Rewards become tradable tokens, usable across different platforms, and offer greater transparency and control.
Despite these potential benefits, the complexity of crypto wallets, unfamiliar interfaces, and the ever-evolving Web3 space might outweigh the advantages for mainstream consumers, keeping them on the sidelines for now.
While there is potential, many Web3 loyalty programs launched by mainstream brands have experienced slow adoption, primarily because of the challenges for newcomers to Web3.
Challenges of Web3 Adoption for Digital Collectibles
While the potential for digital collectibles and RWAs is undeniable, here are some key obstacles:
Friction in Web3 Adoption
The user experience for beginners and casual crypto users is still a significant barrier to mainstream adoption. For many users, interacting with Web3 platforms can be daunting.
Complex crypto wallets, unfamiliar interfaces, and gas fees (transaction costs on blockchains) can create a barrier to entry. Simplifying the user experience and making Web3 more user-friendly is crucial for mainstream adoption.
Uncertainty About Regulation
The regulatory landscape surrounding digital assets is still evolving, which is a red flag for both consumers and businesses. Depending upon their classification, NFTs are subject to tax and securities regulation. Buyers using crypto must track cost basis and factor in capital gains for every NFT transaction. The bottom line is that buying and trading NFTs becomes much more complicated at tax time than collecting beanie babies or baseball trading cards.
On the retail side, Amazon has repeatedly delayed launching its NFT marketplace, where anyone with a credit card can buy an NFT—no crypto needed. There are likely multiple reasons for the delay, and we can imagine that regulatory implications for Amazon, NFT creators, and buyers are high on the list.
Real-World Asset (RWA) Tokenization
Now let’s look at real-world asset tokenization. RWA tokens move beyond the digital realm to encompass the representation of physical assets in the digital world. Imagine owning a piece of valuable artwork or a share of prime real estate.
Traditionally, buying and selling such assets can be complex and involve intermediaries. RWA tokenization disrupts this by creating digital tokens on a blockchain representing ownership of these real-world assets.
Think of it like this: instead of holding a physical deed to your property, you own a secure, digital token on a blockchain. This token verifies your ownership and allows more accessible fractional ownership. Imagine owning a token representing a percentage ownership of a Jackson Pollock masterpiece or a fraction of a ski resort.
Not only does tokenization increase access to expensive objects, it also opens doors for increased liquidity for what are now primarily illiquid assets.
In 2021, tokenized ownership of real assets just seemed like another crypto dream (or scam, depending on who you talk to.) Fast forward to today, and BlackRock, the world’s largest investment firm, has launched an RWA fund.
Their movement in the tokenization space signifies the potential of RWAs to revolutionize traditional asset management.
What’s the Difference Between an NFT and an RWA?
An NFT can be a type of Real-World Asset (RWA) token, but not all NFTs qualify as RWAs. It can be a little confusing, so here’s a more detailed explanation:
Understanding RWAs and NFTs
- Real-World Asset (RWA) Tokens. These digital tokens represent ownership or fractional ownership of tangible physical assets. Examples include tokenized real estate, commodities, and even art. The primary characteristic of RWAs is their direct link to physical, real-world assets.
- Non-Fungible Tokens (NFTs). NFTs are unique digital tokens representing ownership or proof of authenticity of a specific item, digital or physical. Due to their unique properties, they are distinct and non-interchangeable from other tokens.
- Physical Assets. When the NFT represents unique physical assets (like art, real estate, or luxury goods), they function as RWA tokens.
- Digital Assets. NFTs are not RWAs when they represent digital-only assets without a tangible physical counterpart.
Being classified as an RWA depends on an NFT’s underlying asset. If the NFT is linked to a real-world physical asset, it can be considered a type of RWA token.
Web2 and RWA Tokens
From the standpoint of mainstream adoption, it’s possible that tokens representing real-world objects will make sense to people in a way that NFTs don’t. The name is clear: unlike the term “non-fungible token,” the term “Real World Asset” doesn’t require a dictionary to understand. NFTs as RWA tokens may also gain traction by showcasing real-world utility.
For example, one innovative application of RWA NFTs is for supply chain transparency. Imagine a clothing brand using NFTs of each garment to track its journey through the production process, from cotton farms to factories to final sale, documenting the garment’s lifecycle.
This transparency provides consumers (and labor or supplier watchdogs) with verifiable proof of a garment’s history, fostering trust and brand loyalty.
Does that sound like a great idea that could never happen? Well, never say never.
Digital Product Passports (DPPs) will be the norm in the EU by 2030. The European Union (EU) has a mandatory requirement for all products sold in the EU to have a DPP by 2030. The DPP is a digital record that tracks and shares information about a product’s supply chain, including:
- Who made the product, and where
- The materials used
- Environmental impact
- Chemical compliance
- Care instructions
- Circularity potential
You can imagine this legislation’s future impact on the blockchain space as fashion begins to move on-chain.
Moving Ahead
The world of digital assets is rapidly evolving. We’ve seen a shift in focus from the initial NFT hype towards RWAs and established brands’ strategic adoption of Web3 technologies.
Do you still trade in NFTs, or are you eyeing an RWA offering? Simplify your life at tax time with ZenLedger. We offer a user-friendly platform to help you track, manage, and report your crypto transactions for tax purposes. Sign up for a free trial today and see how ZenLedger can simplify your crypto tax journey!
This material has been prepared for informational purposes only and should not be interpreted as professional advice. Please seek independent legal, financial, tax, or other advice specific to your particular situation.
Just Don’t Call It An NFT: RWA’s and Web2 Brands Adopting Web3
Remember the frenzy around NFTs in 2021? Everyone from celebrities to your favorite sports team was jumping on the bandwagon. There was a lot of speculation about NFTs in fashion and consumer goods, predicting that the time had finally come for web2 brands to adopt web3 at scale.
Well, as we all know, the NFT bubble burst, leaving some people feeling cheated, sitting on a speculative yet now (almost) worthless NFT purchase that seemed like a great idea at the time.
Even so, the broader concept of tokenization has expanded from crypto coins and NFTs since then. In fact, you could say the sleeping giant in blockchain’s future is the tokenization of Real World Assets (RWAs).
RWAs in blockchain are digital tokens representing physical and traditional assets. In the financial sphere, they refer to currencies, commodities, equities, and bonds. Most are “fungible” tokens, which are divisible and not unique.
Non-fungible tokens (NFTs) are unique digital assets with no physical form.
This post provides an update on NFTs. We also discuss the emergence of RWA tokenization, signaled by BlackRock, a Tradfi investment firm titan that launched an RWA fund.
Web2 Brands, NFTs and RWA tokens: Beyond Collectibles
Now, let’s rewind and revisit NFTs (Non-Fungible Tokens). We mentioned the initial hype and the use of NFTs as digital collectibles – think unique trading cards or exclusive artwork in the digital world. The digital collectibles space continues to evolve in fits and starts.
While the January 2022 crash certainly seemed fatal at the time, what many people don’t realize is that NFTs continued to be popular among a select audience. Even as the bad news persists on a macro level (NFT trading volume dropped 41% in Q2 2023), global interest in NFTs is shifting, showing strength in Asia, the Middle East, and Southeast Asia, with blockchain gaming emerging as a powerful segment.
Luxury brands continue to offer exclusive experiences or virtual goods tied to NFT ownership. Gaming companies are integrating NFTs into their ecosystems, creating new avenues for player engagement and ownership of in-game assets.
Web3 Loyalty Programs: A Slow Start in Web2
Early forays into NFTs by prominent Web2 companies are yielding mixed results in 2023. Mercedes Benz’s recent NFT drop had disappointing results, and Starbucks shut down its Odyssey NFT program in March.
Traditional loyalty programs are familiar territory: You earn points for purchases at a specific store and eventually redeem them for rewards. However, these programs can feel restrictive, with points locked into one brand’s ecosystem.
Web3 loyalty programs, powered by blockchain technology, promise a more engaging experience. Rewards become tradable tokens, usable across different platforms, and offer greater transparency and control.
Despite these potential benefits, the complexity of crypto wallets, unfamiliar interfaces, and the ever-evolving Web3 space might outweigh the advantages for mainstream consumers, keeping them on the sidelines for now.
While there is potential, many Web3 loyalty programs launched by mainstream brands have experienced slow adoption, primarily because of the challenges for newcomers to Web3.
Challenges of Web3 Adoption for Digital Collectibles
While the potential for digital collectibles and RWAs is undeniable, here are some key obstacles:
Friction in Web3 Adoption
The user experience for beginners and casual crypto users is still a significant barrier to mainstream adoption. For many users, interacting with Web3 platforms can be daunting.
Complex crypto wallets, unfamiliar interfaces, and gas fees (transaction costs on blockchains) can create a barrier to entry. Simplifying the user experience and making Web3 more user-friendly is crucial for mainstream adoption.
Uncertainty About Regulation
The regulatory landscape surrounding digital assets is still evolving, which is a red flag for both consumers and businesses. Depending upon their classification, NFTs are subject to tax and securities regulation. Buyers using crypto must track cost basis and factor in capital gains for every NFT transaction. The bottom line is that buying and trading NFTs becomes much more complicated at tax time than collecting beanie babies or baseball trading cards.
On the retail side, Amazon has repeatedly delayed launching its NFT marketplace, where anyone with a credit card can buy an NFT—no crypto needed. There are likely multiple reasons for the delay, and we can imagine that regulatory implications for Amazon, NFT creators, and buyers are high on the list.
Real-World Asset (RWA) Tokenization
Now let’s look at real-world asset tokenization. RWA tokens move beyond the digital realm to encompass the representation of physical assets in the digital world. Imagine owning a piece of valuable artwork or a share of prime real estate.
Traditionally, buying and selling such assets can be complex and involve intermediaries. RWA tokenization disrupts this by creating digital tokens on a blockchain representing ownership of these real-world assets.
Think of it like this: instead of holding a physical deed to your property, you own a secure, digital token on a blockchain. This token verifies your ownership and allows more accessible fractional ownership. Imagine owning a token representing a percentage ownership of a Jackson Pollock masterpiece or a fraction of a ski resort.
Not only does tokenization increase access to expensive objects, it also opens doors for increased liquidity for what are now primarily illiquid assets.
In 2021, tokenized ownership of real assets just seemed like another crypto dream (or scam, depending on who you talk to.) Fast forward to today, and BlackRock, the world’s largest investment firm, has launched an RWA fund.
Their movement in the tokenization space signifies the potential of RWAs to revolutionize traditional asset management.
What’s the Difference Between an NFT and an RWA?
An NFT can be a type of Real-World Asset (RWA) token, but not all NFTs qualify as RWAs. It can be a little confusing, so here’s a more detailed explanation:
Understanding RWAs and NFTs
Being classified as an RWA depends on an NFT’s underlying asset. If the NFT is linked to a real-world physical asset, it can be considered a type of RWA token.
Web2 and RWA Tokens
From the standpoint of mainstream adoption, it’s possible that tokens representing real-world objects will make sense to people in a way that NFTs don’t. The name is clear: unlike the term “non-fungible token,” the term “Real World Asset” doesn’t require a dictionary to understand. NFTs as RWA tokens may also gain traction by showcasing real-world utility.
For example, one innovative application of RWA NFTs is for supply chain transparency. Imagine a clothing brand using NFTs of each garment to track its journey through the production process, from cotton farms to factories to final sale, documenting the garment’s lifecycle.
This transparency provides consumers (and labor or supplier watchdogs) with verifiable proof of a garment’s history, fostering trust and brand loyalty.
Does that sound like a great idea that could never happen? Well, never say never.
Digital Product Passports (DPPs) will be the norm in the EU by 2030. The European Union (EU) has a mandatory requirement for all products sold in the EU to have a DPP by 2030. The DPP is a digital record that tracks and shares information about a product’s supply chain, including:
You can imagine this legislation’s future impact on the blockchain space as fashion begins to move on-chain.
Moving Ahead
The world of digital assets is rapidly evolving. We’ve seen a shift in focus from the initial NFT hype towards RWAs and established brands’ strategic adoption of Web3 technologies.
Do you still trade in NFTs, or are you eyeing an RWA offering? Simplify your life at tax time with ZenLedger. We offer a user-friendly platform to help you track, manage, and report your crypto transactions for tax purposes. Sign up for a free trial today and see how ZenLedger can simplify your crypto tax journey!
This material has been prepared for informational purposes only and should not be interpreted as professional advice. Please seek independent legal, financial, tax, or other advice specific to your particular situation.
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