Auditing the World’s Assets on Accumulate

Written by TJ

On May 10, 2022

Ever since the earliest days of the blockchain industry, the tokenization of real-world assets (or RWAs) has stood out as a major use case that could one day enable trillions of dollars in value to be unlocked from the global economy which could further launch blockchain and cryptocurrencies toward mainstream adoption. 

Tokenizing real-world assets like real estate, commodities, machinery, or even accounts receivables allows for these assets to become liquid and tradable across a globally distributed market. 

While this promising opportunity is still being explored by many builders, the broader narrative around tokenizing real-world assets has lost a great degree of momentum in the past 2 years as DeFi, NFTs and GameFi have moved most people’s attention towards the innovation that is occurring natively on-chain. 

One of the biggest barriers to tokenizing real-world assets is the lack of auditing capabilities that are needed to verify that the metadata embedded within these tokens accurately reflects the current state of the real-world asset and that this data is frequently updated as that state changes. 

This task requires an immense amount of coordination between the off-chain physical world and the on-chain protocols that will support these tokens. 

We can compare this challenge to the Oracle problem: a blockchain on its own is merely an isolated network that creates its own rules or consensus mechanisms to verify that transactions occurring within the network are recorded accurately and in the correct order. This, however, does not solve the problem of how to guarantee that the data inputted into the blockchain from an external environment is accurate in the first place. 

This is why we have decentralized oracle networks like Chainlink that feed data from the external world into the blockchain via smart contracts and are bound to their own set of rules to ensure that the data is both accurate and timely. 

In order for tokenized real-world assets to achieve adoption, there must be a similar mechanism for collecting, verifying, and then transmitting data about RWA’s to smart contracts that can continuously update the metadata of RWA tokens so that they reflect the current state of the RWA. 

While current Oracle networks are able to solve the data transmission and verification problem for certain types of assets, scaling this process to allow the collection and verification of the data representing trillions of dollars worth of traditional assets in a manner that is decentralized remains a highly complex challenge. 

This is where Accumulate can provide massive value. Through the use of Accumulate’s Digital Identifiers (ADIs), Accumulate can onboard the largest auditing firms in the world to form a decentralized network for the sole purpose of building a standardized auditing system for the tokenization of RWAs. 

A decentralized data network for global auditing firms 

Firms like PWC, Deloitte, E&Y, and KPMG could essentially operate as validator nodes tasked with verifying the accuracy of data submitted by companies that wish to tokenize their RWAs.

Accumulate’s ADI system would allow firms to create new organizational structures designed to promote collaboration amongst various departments and teams both within and between firms.

For example, one could envision an organizational structure that assigns special teams to verify commercial property ownership and maintenance data for SaaS companies with under $10 million in revenue in New York City. Or in another example, verify gold reserves produced by mining operations in Ghana or South Africa. 

These kinds of filters would allow firms to narrow down the scope of the project and determine the number of resources and manpower to deploy towards a specific auditing task. 

Teams would all be registered as sub-identities under their largest corporate ADI, with special permissions and access rights granted that would allow for data to be verified, submitted, and approved in a way that ensures full transparency and accountability. 

We can think about this structure as a network of oracle nodes within a larger network of oracle nodes. Each smaller network (made up of smaller auditing teams) would be delegated the responsibility of verifying and periodically updating data for a particular set of tokenized assets.  

Smaller teams tasked with collecting and verifying the data from a subset of clients’ RWAs would file a claim that the data is accurate according to their audits. This could be done while staking tokens as collateral to encourage honest behavior (or in the absence of staking, a reputation-based system could be used to encourage honest behavior). 

You could then have another team whose job it is to verify and authenticate the first team’s claim using their private keys. By having separate teams verify each other’s claims you can decrease the risk of errors and collusion while making the auditing process more decentralized. 

Similar to how oracle networks work today, you could have a 2 sided marketplace for requesting and submitting data for tokenized RWAs. For example, a DEX that wishes to list RWA tokens could submit requests to auditors on the Accumulate network for the latest data for the tokenized asset. Attached to the request could be a bounty of ACME tokens (Accumulate’s native token) to incentivize teams to quickly deliver correct data to the DEX liquidity pool. 

Accumulate’s authorization schemes could also provide an added layer of security to the process by implementing multi-sig transactions (transactions that require 2 or more digital signatures), delegated transactions (transactions that can be initiated by an external authority based on 3rd party verification), and managed transactions (transactions that include self-imposed limits on spending or frequency) schemes as a way for teams to efficiently determine who has authority to approve spending or certify data submissions for any given task. 

All audit firms could exist on one audit chain that consists of various smaller sub-chains represented as ADIs. 

Each audit chain could consist of audit teams from all firms coordinating to verify data from specific companies, industries, or assets. The data would then be verified by teams from other chains as well as the primary audit chain from each audit firm. Once verified, each firm could sign a transaction authorizing the data to be updated to the token on a different token metadata chain.

Opportunity for Tokenized RWAs: Create new markets for company assets

In effect, tokenization enables new markets to be created for company assets that have traditionally been difficult to value outside of the broader context of the company’s valuation. For example, a company’s valuation is primarily made up of its revenues, IP, and book value (i.e tangible assets like office buildings or factory machinery that shareholders of the company would receive if the company were to be liquidated).

With tokenization, each of these components of a company could be treated as an independent asset with its valuation and a liquid market for trading against similar assets. 

This would provide companies with much greater flexibility in how to leverage their assets. For example, equipment that is not being used could be tokenized and used as collateral for loan or lent out to other entities to use as collateral in exchange for a fee. This would allow the company to monetize a physical fixed-cost asset without even having to relocate it. 

Create opportunities to earn a yield on cash reserves through liquidity provisioning  

In another example, companies with large cash reserves that are looking to earn yield could become liquidity providers for other tradable real-world asset tokens and earn fees from the transactions.  In a low-interest rate environment, the search for yield has made steady investments like bonds less appetizing for companies and institutional investors, with very few alternatives to capture fixed returns for low-risk. 

Liquidity mining for RWAs could become the ideal substitute for bonds or other types of conservative fixed-income investments, giving pension funds, hedge funds, and other large institutions a steady yield while providing the global markets with billions of dollars in liquidity to trade RWA representing property, commodities, patents and other traditionally illiquid assets. 

Accumulate’s ADI systems would ensure that all of this could be conducted in a way that is both transparent and regulatory compliant. 

As a modular blockchain network that represents a ‘chain of chains’, Accumulate has the ability to enable entities to set up private permissioned networks as well as public and permissionless networks. 

This flexibility would give auditing firms the ability to receive sensitive information from companies looking to tokenize their RWAs, verify the accuracy of the data, and then submit a cryptographic proof to a public chain that would be used to confirm the accuracy of the data without needing to expose the data itself. 

It would also give liquidity providers (or LPs) the ability to select which individuals or entities can participate in trading RWA tokens based on customized criteria such as KYC-only, KYC plus specific company size or industry, KYC plus any individual with a net worth above a certain level, etc. 

Conclusion 

Ultimately, the market for trading tokenized RWA is still very nascent and many years away from reaching its true potential. By leveraging features like decentralized digital identifiers for onboarding large organizations, authorization schemes for managing and delegating transactions, and interoperability with popular smart contract chains to enable instant access to the web3 ecosystem,  Accumulate aims to create the infrastructure that will enable tokenized RWAs to become the largest sector of the blockchain space and eventually the traditional economy.

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