How Real World Assets Will Revolutionize Fashion in 2024
The Naked Collector is the home of the latest news and deepest analyses of Web3 Fashion and Culture.
Tokenizing real-world assets (RWAs) could have implications akin to the development of land registries in the 19th century.
These include:
Securing transactions involving land (or assets) for owners, buyers and sellers
Facilitating access to credit through the collateralization of land (or assets)
Increasing ownership visibility for governments (and/or issuing brands)
Enhancing effective taxation through improved transparency
Maintaining historical records for cultural heritage, like the provenance of land (or assets)
Such registries benefited not just buyers but also governments. RWAs have the potential to not only further improve land registry systems but also to implement a similar system for other overlooked asset classes, including fashion.
This article consists of two components:
An in-depth overview of RWA blockchain projects
How RWAs will impact fashion
If you’re interested just in the fashion side of things you can skip to the How RWAs Will Revolutionize Fashion section.
However, I recommend reading the first section as well as it is one of the most comprehensive overviews on the current state of RWAs I’ve seen online.
The 10 Trillion Dollar Asset Class
Real-world assets (RWAs) are tokenized, fungible or non-fungible assets that represent traditional IRL assets. These IRL assets could be real estate, vehicles, art commodities or financial assets.
The undeniable rise of real world assets (RWAs) may be the only thing traditional finance and many blockchain proponents agree wholeheartedly on.
It has been estimated that tokenized real world assets (RWAs) will significantly exceed $10 trillion by 2030.
We’re already witnessing involvement from the finance sector:
The London Stock Exchange announced its digital asset plans
Blackrock’s CEO Larry Finch called tokenized assets “the next generation for markets”
JPMorgan’s Onyx already processes one to two billion dollars of tokenized assets daily according to, Tyrone Lobban, the head of Head of JPMorgan’s Onyx Digital Assets
While understandably traditional financial institutions are looking toward permission (not public) blockchain solutions due to privacy and fee cannbialization concerns, as I predicted in my bachelor’s thesis in 2019, I’m sure we will see hybrid private/public blockchains coexist. At least until ZK tech develops sufficient privacy guarantees on public blockchains.
EY has also made a good visual on how an example public–private hybrid system could look like.
Thus, even traditional consultancies like EY, view private blockchains just as a stepping stone to public ones. In addition to the security guarantees of public blockchains, one of the core reasons for this is rent-seeking and unwillingness for corporations to join other corporation consortiums. After all the controlling factions of these consortiums have the majority power to change policy and set their own standards.
Purely from a consumer perspective, public blockchains are a better solution. They have the possibility to be:
Cheaper – Requires virtually zero employees. Public blockchain is essentially an automated ledger. Public blockchains are able to offer services for cheaper.
More transparent – Asset scores (e.g. ESG related scores) will be public, tamper proof and historical records immutable. This will be crucial for products like ESG scores (discussed later) and consumer facing investment vehicles. Investors or depositors will be able to see the real risk of their decisions.
More accessible – Retail investors will get access to more diverse asset classes. Historically, technology and startups have led the democratization of the financial sector (e.g. Robinhood, Kickstarter).
How Are Public Blockchain Projects Utilizing RWAs
Now that we’ve established why public blockchains be a key enabler of RWAs, the best way to learn about the matter is to look at some of the most interesting projects dealing with RWA tokenization in the crypto space.
Courtyard – User-Friendly Tokenization
Instead of dealing with esoteric assets like treasuries or other types of debt, Courtyard brings an entirely new asset class on-chain: collectible cards like Pokémon and sports cards. Their key differentiator is easy user onboarding and great UI.
The platform has a very intuitive interface and they obfuscate most of the Web3 tech.
The Courtyard customer process flow looks like this:
In the long term digitizing cards in such a way has some unique advantages. These include:
Build digital experiences on top of physical assets
Improved card (or other physical collectible) discovery
Fractionalization capability
Easy collateralization capability
There are two ways cards can go on the Courtyard platform: 1) users send physical cards to Courtyard and get an NFT in return, 2) Courtyard card drops.
Currently around 200-500 new assets are going on chain every week by users. As with many new NFT products the crypto aspect has been obfuscated and people can use credit cards to purchase cards via Courtyard.
The way Courtyard makes money is that it charges a 6% transaction fee and by buy buying the physical collectible cards in bulk below market prices.
The total Courtyard transaction volume thus far, in the past four months, is $320K+ and more than 7,000 digital cards have been minted using Courtyard.
4K – A Decentralized RWA Tokenization Platform
4K adopts a more decentralized storage model than Courtyard. The key difference being that instead of using a centralized physical asset custodian like Brink’s, 4K uses decentralized Guardians.
Also, 4K accepts more physical collectible types including: watches, art, books, Casascius coins, comics/magazines, physical crypto collectibles (e.g. forged RTFKT sneakers, Unisocks, fashion, general collectibles, jewelry, music collectibles, sneakers, sports memorabilia, trading cards and famous/one-of-a-kind collectibles. 4K is set to expand the collectible types to include: automobiles, airplanes, boats, real estate, yachts motorcycles, spirits and wine. In sum, they’re trying to be the one-stop shop for every type of physical collectible.
The basic concept is that the physical assets are custodied all around the world with 4K Guardians who need to stake stake tokens and are slashed in case of poor performance (similar to Ethereum blockchain validators). Guardians are compensated for their services in tokens.
The 4K customer process flow looks like this.
Overall, the 4K Protocol seems more complex and takes a a more general product approach by focusing on multiple physical assets types. While the mechanics are more decentralized they’re also more complex for the user to understand and perhaps even trust initially. However, the ability to insure physical assets alleviates some of the potential trust concerns. On the other hand this requires subscription payments from users.
4K takes a long-term view and wants to revolutionize the entire custodial process as we know it. While the user experience may be clunkier initially, the protocol could reap benefits in the long term if successful.
Centrifuge – Tokenizing Credit Markets
Built on the Layer 1 Centrifuge Chain, Centrifuge seeks to tokenize financial assets. It currently has a $250.7M of total value locked. The protocol focuses on tokenizing credit such as different types of debt and carbon credits.
In essence, Centrifuge uses NFTs which are linked to detailed off-chain data. The assets are pooled together and securitized by the issuer.
How Credit Tokenization Works
To create an on-chain representation of the off-chain, real world asset, each borrower mints an NFT (Non-Fungible Token). The token is a legal claim for ownership of the credit pool.
This NFT contains the most important information required for pricing, financing and valuation and can be locked into pools on the Centrifuge protocol as representations of the collateral used for the financing.
Traditionally, financial assets contain non-public information for investors. While all information on public blockchains is by default public, Centrifuge solves this privacy issue via the Private Data Layer. It allows issuers and investors to access additional asset data securely and privately. The asset data is hashed and the hash anchored on-chain and added to the NFTs metadata to create a verifiable link to the NFT without making the data publicly available
All actors using this network can decide with whom and how to share the asset level or private data. This is an example of a public-private blockchain implementation.
Conveniently, investors can invest in and withdraw from the asset pool at any time as the Centrifuge Protocol uses revolving pools. The protocol uses a decentralized mechanism to achieve this.
It is to be noted that currently only KYCd, non-US and accredited investors are able to invest in these tokens.
While there are still regulatory uncertainties, RWAs could form the the next frontier of private credit whether by improving capital formation via better transparent and flexibility.
Centrifuge is closely collaborating with Chronicle Labs (team behind the MakerDAO’s oracle) to provide accurate and timely real-world data on chain.
Overall, while crypto is still facing regulatory headwinds a comprehensive blockchain registry of credit could revolutionize the credit markets the same way land register revolutionized real estate (see intro section).
Propy and Roofstock – Real Estate as NFTs
Tokenized real estate has been hyped up since the 2017 –2018 ICO boom era. Some of you may remember Propy or even Rentberry ICOs.
For readability sake I’ll keep this section short but two of the more interesting developments in tokenized real estate space have been
Tech Crunch’s founder selling his apartment as an NFT
Roofstock selling property on-chain as NFTs
Each house is owned by a specific LLC. By purchasing the NFT you become the owner of that LLC i.e. you get sole ownership of the house.
Some benefits to the different stakeholders:
Homebuyers – Instant ownership and low fees due to minimization of middlemen
Home owners – Access to crypto liquidity e.g. collateralization
Investors – Portfolio diversification
How RWAs Will Revolutionize Fashion
Physical to Digital to Physical
As I wrote a year ago, fashion derives its value from two sources: craftsmanship and communication value. While the two aren’t mutually exclusive, communication value is increasingly taking precedence.
Countless sneakers remain unused in their boxes, as owners strive to keep them in mint condition for the highest resale value. Additionally, millions of artworks, including thousands of Picassos, sit idle in freeports, like the 1.2 million pieces in Geneva's Free Port as of 2017.
While some collectors prefer anonymity and view collectibles solely as investments, I believe many would proudly showcase their ownership if it could be done safely (not everyone can wear their physical collectibles like Logan Paul). This may soon become feasible.
This also has an implication for what we perceive as fashion. Fashion is fundamentally about status and self-expression communication. By this definition, Pokémon cards, artwork, and antique vases all qualify as fashion. Essentially, any intellectual property or historically significant item conveys something about its owner.
Concerning museum pieces, possessing a digital twin linked to an NFT offers dual benefits: 1) preservation, as the items aren't subjected to wear and tear, and 2) accessibility, allowing owners to possess a 1/1 virtual counterpart while the physical item resides in a museum, for instance.
In this example, investors could create an investment basket of sustainable physical sneakers.
Virtual displays open up innovative avenues for showcasing collectible items. This not only markets the products but could also boost their resale value.
Let’s take the collectible sneakers example, users may pay for the optionality to display their sneaker in their house where anyone can see it (marketing) instead of keeping just keeping it in a box in a warehouse or closet.
Moreover, this introduces new digital functionality to the physical collectible as discussed in the next section “Digital Storytelling”.
Below, I introduce the “Physical-Digital-Physical” visual.
Based on the type of collectible, owners could exhibit authentic digital representations of their physical items through various means: digital frames for paintings, holographic displays for sneakers, digital pendants for Pokémon cards, or even AR and VR placeholders for playing cards. This would require a token-gated platform, such as a company creating authentic blank canvases and managing NFT token gating on the backend. Utilizing these displays also signals to the viewer that they are derivatives of the original piece.
It’s also crucial that these digital assets are NFTs, as non-NFT digital twins don’t guarantee the provenance and authenticity of the collectible in the same way NFTs do.
The link between the NFT and the physical object could be facilitated by a third party, similar to how Courtyard or 4K Protocol operate (see above), or through an NFC chip embedded in the physical item.
Digital Storytelling
Tokenizing physical assets extends the customer relationship beyond the point of purchase, allowing for ongoing engagement. Collectors could receive digital rewards from The Pokémon Company for completing full sets. This is a prime example of how Web3 enhances the connection between customers and brands, transforming the customer relationship from a unilateral to a bilateral one.
Interestingly, companies like The Pokémon Company don’t necessarily need to develop products themselves. For example, they benefit when Courtyard tokenizes their physical cards and another Web3 protocol, say PokéSwap, creates a gamified experience for tokenized Pokémon card holders. If these digital experiences gain popularity, the physical Pokémon cards also rise in demand. While there are intellectual property issues, including brand perception control, strategic partnerships can help grow or rejuvenate a brand. This approach is particularly useful for emerging brands or traditionally brick and mortar brands, as interactive media is becoming increasingly important.
By extension, investing at least a portion of their marketing budget in a Web3 development fund could be a wise strategic move for certain brands.
Moreover, brands could gain access to new customer data, enabling them to craft customized loyalty offers for different customer segments, such as 'whales' (e.g. owners of 10 or more cards) or wallets with a history of purchasing a certain amount of NFTs.
ESG Transparency in Fashion
Tokenization can spur financial innovation.
The concept is already being explored in the ESG sector, as seen with BNP Paribas tokenizing green bonds. Extending this to the fashion industry, tokenization of physical assets could give rise to new investment categories. For example, consider high-value collectible sneakers with sustainability data of the sneaker or brand embedded in the NFT's metadata.
This offers investors novel investment classes and finer control over their portfolios. An investor might, for instance, invest in a collection of premium sneakers produced by a brand with under $10M in annual revenue, manufactured in Europe, and meeting a certain sustainability score.
If many investors share this preference, it influences capital allocation. Brands would gain immediate insights into the types of products and origins favored by investors, aiding in more precise supply and production planning.
After all ESG is a game of incentives. If activist investors collectively decide against buying products failing certain sustainability standards, it could drive companies to adapt to such standards. Setting aside the volatile securities laws for a moment, this approach aligns closely with ESG legislative objectives.
Overall this could create positive outcomes for more sustainable brands.
Implementation
This won’t happen overnight but I foresee more sustainability focused DAOs investing in sustainable products whether this is a fashion collector DAO supporting sustainable fashion or a climate-focused DAO purchasing carbon credits.
A way to implement sustainable investments across individual fashion products would be to link individual NFTs with sustainability metadata to physicals. These NFTs would give access to physical asset redemption could be held in an escrow smart contract. To invest in the basket, the NFTs themselves could be fractionalized one by one or a pool of assets could issue tokens (either ERC20 tokens or ERC721 tokens with different investment tiers like is the case with the Centrifuge model described above).
Investor groups or DAOs could raise funds in a decentralized manner via Web3 native protocols like PartyBid or directly through a protocol offering the fashion investment products, akin to the Centrifuge model but tailored for the fashion sector.
Monetizing Real-World Assets
To bring this discussion into practical terms for brands, here are six concrete ways they can generate revenue from real-world assets (RWAs):
Higher product lifetime value – By extension the utility and longevity of the physical asset
Increased revenue from secondary sales – By providing a secondary marketplace (e.g. collaborating with a third party such as Archive) while tracking item resale via unique item IDs.
Tokenization fees + subscription revenue– Offering tokenization services for own brand assets in return for a fee. Providing on-going utility for digital twins/digiphysical NFTs in return for a subscription.
Improved product storytelling – Animating otherwise inanimate physical objects via an on-demand backstory and asset history
Higher revenue per buyer due to increased authenticity confidence – As more brands adopt this method, physical authentication methods may become less trusted in comparison.
Future-proofing your products – The more digital our world becomes the stronger the link between physical and digital needs to become. Without a digital fingerprint, physical objects could become obsolete in the world of AR and VR.
If you need help with your Web3 project or need proprietary data feel free to DM me on Twitter or send me an email.
If you found value in this post, I’d highly appreciate you shared it with a friend.