What are STOs and RWAs?
Real World Asset Tokens (RWAs) and Security Token Offerings (STOs) integrate traditional finance with blockchain technology. RWAs are digital tokens representing ownership in tangible assets like real estate and commodities, facilitating easier transferability and fractional ownership while complying with securities laws.
STOs are a fundraising method where blockchain tokens represent ownership in financial instruments such as equities or debt. They are heavily regulated to ensure investor protection, offering the same security as traditional securities while leveraging blockchain benefits.
Supported by digital ledger technology, they both offer transparency, instant settlement, and consistent market availability.
$186 Billion Industry in 2024
Stablecoins have become an early success in the industry, with accounts surpassing 100 million in June 2024. At the same time, tokenized treasuries exceeded $2 billion for the first time. As of September 2024, the tokenized asset sector is valued at $186 billion, with stablecoins making up a large portion according to RWA.xy.
Investors are optimistic about the industry’s future. Standard Chartered predicts the tokenized asset market will reach $30 trillion by 2034, while Citi estimates the tokenized digital securities market will hit $5 trillion by 2030.
BlackRock’s Tokenized Treasury Market
BlackRock’s BUIDL fund, launched in March 2024, has quickly become a leader in the tokenized government debt sector, surpassing $500 million in assets by mid-year and distributing $7 million in dividends.
The fund invests in U.S. Treasury Bills, cash, and repurchase agreements, providing investors with digital access to traditional financial instruments with enhanced liquidity. This move highlights a broader trend towards real-world asset tokenization, with other financial giants like Goldman Sachs also planning to introduce tokenized products.
Problems/Challenges regarding Enterprises’ public chain integration
Financial institutions operate under strict regulations, including AML, KYC, and data protection laws. To comply, many banks are adopting blockchain technology for its ability to store immutable records and demonstrate regulatory adherence.
However, private blockchains limit access to Web3’s public chain liquidity and user base. Bridging these two realms is challenging due to the full transparency of public blockchains, which can hinder adoption by inadequately protecting sensitive information.
Key sensitive data categories include:
- Sensitive Personally Identifiable Information (SPII): Biometric data and passport identification data, some categories of which are specially protected by GDPR.
- Financial Information: Account details and transaction reports are safeguarded by PCI compliance.
- Protected Health Information (PHI): Health records and medications regulated by HIPAA.
Intellectual Property (IP): Patents and trade secrets protected by commercial law.
ZK is the Solution
So far, the ZK space has mostly involved scaling blockchains, with ZK rollups now being a crucial part of many public blockchain tech stacks. Mina Protocol itself is, in fact, just one big rollup that allows it to stay super succinct and allows for verifying the chain in constant time.
Off-chain Computation, On-chain Verification
Zero-Knowledge Proofs (ZKPs) enable efficient and secure handling of complex computations by processing them off-chain and verifying proofs on-chain. This approach optimizes blockchain resource use while maintaining strong security measures, enhancing the operational efficiency of financial products and data processing.
Programmable ZKPs = Flexible Selective Disclosure
Programmable ZKPs offer flexible selective disclosure, distinguishing them from single-purpose ZKPs that focus solely on privacy or scalability. By enabling general-purpose use cases, programmable ZKPs allow issuers and investors in the RWA and STO markets to verify ownership, compliance, or credentials without revealing sensitive information. This flexibility is crucial for meeting compliance requirements.
Previously, creating ZKPs required cryptographers and DSL engineers to write complex circuits, limiting adoption. However, projects like Mina Protocol have simplified this process by abstracting complexities, allowing ZKPs to be integrated similarly to writing smart contracts. They offer programmability through a TypeScript framework, leveraging the popularity and extensive toolset of this widely-used language.
The First Institution Building RWA/STO Solutions on Mina
In a strategic partnership with Mina Foundation, Mirae Asset Financial Group is leveraging zkAttestations to enhance security and efficiency in private blockchain computations. Mirae Asset Financial Group is a global investment specialist providing competitive services in sectors such as Global, IB, Trading, WM, and PI. In December 2023, the group’s worldwide assets under management totaled about $600 billion.
This collaboration allows security token issuers to verify transaction validity while maintaining data confidentiality, thus streamlining compliance processes. Mina’s succinct recursive ZKPs facilitate this verification with minimal data, reducing operational costs and improving regulatory adherence. The application of zkAttestations extends beyond traditional asset classes in Web3, enabling privacy-preserving credit score verification and marketing analytics without compromising user data.
Additionally, Mirae Asset is exploring innovative uses such as issuing NFTs or utility tokens based on attestations of K-POP super fandom, offering perks like concert tickets and exclusive event access to top listeners, thereby expanding the utility of security tokens beyond dividend allocation.
Mirae’s Industry Frustrations
Due to traditional blockchain lack of privacy, Mirae Asset had been grappling with significant challenges in adopting STOs and RWA tokenization. While full transparency is a defining feature of Ethereum and similar blockchains, it presents obstacles to institutional adoption, where enhanced privacy is often necessary.
Traditional investors and corporations frequently demand greater privacy for their transactions, which current blockchain solutions do not provide.
As interest in the tokenization market grows—fueled by the recent greenlight of spot Bitcoin and Ethereum ETFs by the SEC—there is an increasing need for solutions that balance regulatory compliance with privacy.
How Does it Work?
Mirae Asset Financial Group utilizes a private ledger, to manage customer data and publish STOs and transactions. Their solution uses Mina’s technology to securely commit tokenized securities data, enabling asset owners to claim proof of ownership without compromising privacy.
The solution consists of two parts: a ZK rollup to extract selected data from the private ledger and publish commitments on the public blockchain (this process is executed securely on premise).
Then a zkApp verifies the stored commitments of the STO data and generates a proof of ownership on the client’s computer, again ensuring privacy and security by running everything locally.
Why is Mina the Best ZK Blockchain for the Job?
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Client-side (off-chain) Proving – The key to bringing institutions on chain is privacy and with Mina technology’s off-chain computation, computation can be run client-side providing complete privacy.
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ZK Programmability – Mina zkApps use o1js, a TypeScript library that is a widely recognized language by many developers. Additional community built Layer 2 solutions like Protokit and Zeko aim to streamline system and DSL complexity even more to deliver better scalability and performance.
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Interoperability – Builders can reuse proofs and parts of verifiable code across different chains and applications, enabling powerful composability. This means that proofs of RWAs or STOs can be reused in other applications.
Succinct, Constant-sized Blockchain – Mina Protocol is the first succinct blockchain which can be verified by a single proof. This is important as it means that users can verify the blockchain directly, this gives confidence to users knowing that they do not have to interact through intermediaries. It also means that verification is quick, cheap and scalable.
Resources
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About Mina Protocol
Mina is the world’s lightest blockchain, powered by participants. Rather than apply brute computing force, Mina uses advanced cryptography and recursive zk-SNARKs to design an entire blockchain that is about 22kb, the size of a couple of tweets. It is the first layer-1 to enable efficient implementation and easy programmability of zero knowledge smart contracts (zkApps). With its unique privacy features and ability to connect to any website, Mina is building a private gateway between the real world and crypto—and the secure, democratic future we all deserve.
