The convergence of blockchain technology and real-world assets (RWAs) has opened new doors for innovative financial mechanisms. Among these, staking has emerged as a transformative approach to incentivize participation and secure networks. Staking against tokenized real-world assets, such as energy projects, brings unique opportunities to align decentralized finance (DeFi) with tangible value creation in the physical world.
What is staking?
Staking involves locking up digital assets in a blockchain protocol to support its operations, such as transaction validation, network security, governance or the mere provision of liquidity. In return, participants earn rewards, typically in the form of additional tokens. While there are these two main applications of staking, being the validating of network transactions or the provision of liquidity, staking meant here in this article refers to the concept of liquidity provision with the specific purpose to unclock additional funding sources. While staking is traditionally associated with cryptocurrencies, it is increasingly being applied to tokenized real-world assets.
What are tokenized real-world assets?
Tokenization is the process of converting rights to a physical or financial asset into a digital token on a blockchain. Real-world assets, such as real estate, commodities, or energy projects, can be tokenized to make them more liquid, accessible, and tradable. When staking meets tokenized RWAs, participants can lock tokens representing real-world assets or that are paired with tokens representing those real-world assets in DeFi protocols, earning rewards while contributing to the funding and stability of these assets.
The relevance for Energyblocks
Energyblocks is a Dutch renewable energy producer based in Amsterdam. It owns and develops energy projects in several countries across Europe. Energyblocks aims to drive sustainability and financial inclusion. Although a plain vanilla energy producer, Energyblocks utilizes financial innovation and financial technology to obtain its objectives. Tokenization is a means for Energyblocks to offer participation in its asset base. Currently, the company’s asset tokenization involves creating digital tokens backed by renewable energy installations. Energyblocks issues tokenized bonds and tokenized depositary receipts – subject to securities law – to fund its operations. Innovative as it is, it still represents a fairly traditional way of financing where securities are registered and transacted on a blockchain but are settled off-chain in euro. For Energyblocks the real revolution in its funding operations would be to tie its real-world assets to staking protocols, unclocking the potential of DeFi and enabling a large community to participate in its energy projects while remaining on-chain. It would both diversify and deepen the investor base of the company.
The significance of liquidity pools
Liquidity pools are a collection of digital tokens that are traded using smart contracts. It allows digital assets to be traded in an automated and permissionless manner. Liquidity pools are mechanisms that provide liquidity – as the term suggests – for traders to swap between currencies. It is not unlike the practise in the traditional securities trading business where liquidity providers – banks, brokers and the like – support the trades in a certain stock. These liquidity providers earn a percentage of each trade. DeFi liquidty pools function much in the same way and participants can earn yield over their tokens that are locked – staked – in the protocol for a certain predefined period. Liquidity pools offer Energyblocks a flexible way to bridge conventional financing concepts into the DeFi space.
Crafting a resilient funding protocol
Using these parallels and its experience with asset backed securities, Energyblocks is developing its own DeFi protocols, largely based on the mechanics of DeFi liquidity pools. Under its current modus operandi Energyblocks issues synthetic assets based on its RWAs; tokenized versions of real world securities linked to real-world assets. In order to unlock the potential of on-chain liquidity Energyblocks transfers these security tokens to designated liquidity pools, that pair these tokens with a stablecoin, say USDC. Investors lock their USDC in the liquidity pool, and receive in return a digital token that represents their share in the liquidity pool. The returns linked to Energyblocks’ synthetic assets are paid to that liquidity pool and from there distributed to the holders of the LP tokens. By way of liquidity pools Energyblocks offers DeFi natives an alternative to customary staking protocols so they can now earn an income from real-world assets, on-chain.
Uping the ante
In a next step, Energyblocks will tokenize its asset base not using synthetic assets – the tokenized bonds and depositary receipts mentioned earlier – but the actual output of its energy projects instead. It means participants would have a direct exposure to the asset rather than the derivative by means of the tokenized securities Energyblocks currently issues. For Energyblocks this would mean a (logical) next step in tokenizing its real-world assets. In the execution Energyblocks can use several components tied in with its energy projects, such as:
1. Power Purchase Agreements (PPAs): tokens backed by long-term contracts for electricity sales,
2. Energy Production: tokens representing kilowatt-hours (kWh) of renewable energy generated,
3. Carbon Credits: tokens linked to verified emissions reductions or offsets.
Considering these, and focusing on the energy tokens, each has its advantages and drawbacks. While production tokens certainly have their value and drastically increase transparency as energy output is directly verifiable and traceable, they do not have the intrinsic long term price security PPA backed tokens offer. So, for the purpose of an asset pool with a stable store of value, Energyblocks is developing a protocol in which PPAs are tokenized. Energyblocks will transfer these tokenized PPA receivables to a liquidity pool. The process then follows the same path as described earlier. The PPA tokens are paired with a stablecoin. Stablecoins are staked. The liquidity pool distributes the income from the PPA tokens to the participants via LP tokens. The PPA settlements are instant, reducing counterparty risk and delays, decreasing costs and increasing transparency, and all this while remaining on-chain.
A future for decentralized funding protocols
The integration of staking mechanisms into tokenized real-world assets, exemplified by Energyblocks’ innovative approach, marks a transformative step toward aligning decentralized finance with tangible economic activities. By leveraging liquidity pools and tokenization, Energyblocks envisions a future where renewable energy projects are not only funded more efficiently but also made more accessible to a diverse global community of participants. This paradigm shift reduces barriers to entry, democratizes investment in energy assets, and enhances transparency and traceability through blockchain technology. By adopting strategies using proven financial concepts and linking them to liquidity pools, Energyblocks sets the stage for a robust, resilient, and decentralized funding protocol. This approach allows participants to gain direct exposures to real-world value, enabling a broader base of stakeholders to actively contribute to sustainable development. While challenges remain, such as balancing decentralization with regulatory compliance and operational efficiency, Energyblocks’ model exemplifies the potential of DeFi to reshape the traditional financial landscape. By bridging the gap between the physical and digital worlds, initiatives like these empower individuals and communities to play an integral role in driving the energy transition, all while remaining securely and transparently on-chain. In this evolution of asset-backed securities, Energyblocks isn’t just adapting to the future—it is helping to define it.
Energyblocks (previously Assetblocks) is a producer of energy from renewable sources. Energyblocks leverages its energy activities with Web3 functionality to reach its objectives of financial inclusion and energy transition. Energyblocks collaborates with 2Tokens on advancing the adoption of tokenization.
More on our tokenized securities here.