Real-world assets (RWAs) are financial and physical assets that exist outside of blockchain infrastructure. Common examples include bonds, equities, fund units, real estate, commodities, and private credit instruments.

In the context of digital capital markets, the term "RWA" is commonly used to describe these assets when they are brought on-chain through a tokenization process.

It is worth noting that in traditional finance, "RWA" also refers to risk-weighted assets, a concept used in bank capital adequacy calculations. The on-chain usage of the term emerged from the digital asset industry and has become widely adopted, though the terminology continues to evolve across jurisdictions and industry contexts.

Real-world asset tokenization is the process of creating a digital representation of an asset on a distributed ledger using blockchain technology. The resulting token reflects certain rights attached to the underlying asset through an established structure, such as a special purpose vehicle (SPV), trust, or fund vehicle.

Tokenization does not alter the economic terms of the underlying asset. It provides a different operational environment, one where issuance, investor onboarding, registry management, servicing, and reporting can be coordinated within a shared digital infrastructure.

Tokenization also supports fractionalization. In a regulated format, a token may represent a defined portion of the underlying asset, which can support more flexible distribution models while remaining within established regulatory boundaries.

For a deep dive, read our article: What Is Real-World Asset (RWA) Tokenization?

These terms describe different parts of the same process and are closely connected.

• Tokenized RWAs are real-world assets (such as funds, bonds, or real estate) that have been represented digitally on blockchain infrastructure.
• When these tokenized assets confer ownership, income rights, or other financial claims, they are typically classified as securities under applicable laws. In this form, they are referred to as security tokens.
• A Security Token Offering (STO) is the process through which these security tokens are issued and offered to investors.

In the context of the RWA tokenization market, a security token offering (STO) is increasingly referred to as a tokenized RWA offering, reflecting the industry's shift in terminology.

It is worth noting that the terms used may vary across jurisdictions, regulatory frameworks, and market participants.

The key difference between RWAs and cryptocurrencies lies in what the token represents.

Tokenized RWAs, such as Franklin OnChain U.S. Dollar Short-Term Money Market Fund, represent defined rights or interests in an underlying real-world asset, such as a fund unit, a bond, or a commodity holding. Their value is supported by the underlying asset and the legal structure that defines investor rights. Because they confer financial rights or claims, they are often classified as security tokens and typically require regulated custody, legal documentation, and compliance with applicable securities frameworks.

Crypto-native tokens, such as ETH, SOL, or governance and utility tokens, exist purely on-chain and do not correspond to an off-chain financial instrument. Their value is generally driven by network activity, use cases, or market demand. Their regulatory treatment varies across jurisdictions and often differs from frameworks applied to tokenized securities.

For a deeper comparison, read our article: Utility Tokens vs. Security Tokens