Tokenized Assets Are Solving Real-World Problems in Emerging Markets

• Real-world assets are bridging financial gaps in emerging markets, offering innovative solutions for remittances, inflation protection, and global trade.
• By leveraging decentralized finance, RWAs empower individuals and businesses where traditional systems fall short, creating new opportunities for economic inclusion.
• The adoption of RWAs in emerging markets has the potential to revolutionize financial systems and overcome local challenges.

Emerging markets like Africa, Southeast Asia, and Latin America have always led the way in terms of web3 adoption. Recent reports show the trend  will not be bucking any time soon.

The reason is simple. In countries with (mostly) functional institutions, “decentralization,” “trust-minimization,” and other buzzwords only speak to an audience with a certain ideological bent. In emerging markets, however, they are immediately relatable to most users.

Remittances, inflation-hedging, and cross-border trade are all examples of where DeFi, and RWAs in particular, will solve problems that local institutions in emerging markets cannot.

The Importance of RWAs

RWAs are one of the most promising developments in DeFi. Bringing assets on-chain makes them more flexible, liquid, and accessible to broader audiences.

Anything, ranging from real estate to collectibles, can now be represented by smart contracts and turned into a programmable and permissionless asset.

Once they’re on-chain, they can be fractionalized, making them more available to individuals with less purchasing power than their usual buyers.

Many of these use cases are still a ways down the road, but some of the more basic forms of RWAs are already live.

Stablecoins, on-chain representations of stocks and commodities, and even private credit are driving economic inclusion in many of these markets, where Web3 adoption continues to grow.

RWAs and Remittances

The first, most obvious, and oldest example of how RWAs are particularly helpful for economic inclusion in emerging markets is remittances.

The transaction value for digital remittances is expected to reach over $150 billion  by the end of the year, and most of these recipients are individuals in emerging markets.

This is all thanks to stablecoins, which have established themselves as the most popular and relevant use case for RWAs.

By choosing to send a digital representation of a dollar or euro, many families and individuals in emerging markets are able to bypass expensive fees, arbitrary limits, and even censorship from authoritarian governments to ensure their economic stability.

Inflation-Hedging

Stablecoins also serve a second purpose in these markets, especially those affected by hyperinflation. In December 2023, the inflation rate in Argentina  reached 236.7 percent in a single month.

For many, stablecoins like USDT and USDC became the de facto currency they used to transact and go about their daily lives as a way to protect their funds and also bypass the infamous cepo laws  which placed artificial controls on the flow of the U.S. dollar in the country.

More so, thanks to the flexible and permissionless nature of DeFi markets, these holders also had the option to purchase yield-bearing stablecoins that would further protect their savings.

Other forms of RWAs, such as tokenized stocks, allow holders to gain exposure to established foreign markets without the usual gatekeeping that exists in traditional finance.

Cross-Border Trade

Businesses in emerging markets also stand to benefit greatly from the adoption of RWAs and participation in DeFi markets. Digital dollars provide a much more cost-effective and fast way to transact.

They also create trustless environments where businesses can engage safely in global trade even if the institutions that oversee these transactions locally are not particularly trustworthy.

Challenges of RWAs in Emerging Markets

None of this is to say that there aren’t any hurdles to the adoption of DeFi and RWAs in emerging markets.

Many of these challenges are similar to problems already existing in traditional finance. These include regulatory uncertainties, technological barriers, and lack of education—in this case, about DeFi and Web3 more broadly.

The difference is that in web3, these are easier to solve because there are fewer geographic limitations.

In the near future, we will see even greater adoption in use cases that are enabled by the tokenization of real-world assets in emerging markets.

This will be accompanied by a continuation of the revolution that stablecoins have brought to remittances and inflation hedging, as well as an expansion in cross-border trade. Web3 is positioned to grow even further with DeFi and the capacity to tokenize real-world assets.