RWA: The Elephant in the Room

Preface

The tokenization of real-world assets (RWA) aims to enhance liquidity, transparency, and accessibility, allowing more people to access high-value assets. While this explanation is common, it is not entirely accurate. This article will attempt to interpret RWA in the current context from a personal perspective.

1. Shattered Prism

The combination of blockchain and real-world assets can be traced back to Colored Coins on Bitcoin. By adding metadata to Bitcoin UTXOs to achieve "coloring", specific Satoshis are endowed with attributes representing external assets, thus marking and managing real-world assets on the chain. This is humanity's first systematic attempt to implement non-monetary functions on blockchain, marking the beginning of blockchain's move towards intelligence. However, due to the limitations of Bitcoin's scripting, the asset rules of Colored Coins need to be interpreted by third-party wallets, and users must trust these tools' logic of defining the "color" of UTXOs. Factors such as centralized trust and insufficient liquidity led to the failure of the first proof of concept for RWA.

Subsequently, blockchain took Ethereum as a turning point and entered the era of Turing completeness. Various narratives have had their crazy moments, but RWA has remained largely insignificant over the past decade except for legally backed stablecoins. Why is that?

There has never been a real dollar on the blockchain. USDT or USDC are essentially just "digital bonds" provided by private companies, which are theoretically more fragile than the dollar. The success of Tether stems from the urgent demand for a stable value medium in the blockchain world.

There is no true decentralization in the RWA world, and trust assumptions must be built upon centralized entities, whose risk control can only rely on regulation. The anarchistic nature inherent in crypto essentially contradicts this idea, as the underlying architecture of any public chain is designed to resist regulation. It is difficult for regulation to exist above public chains, which is the primary reason why RWA has always struggled to succeed.

RWA, while covering the tokenization of all physical assets, can be roughly divided into two categories: financial assets and non-financial assets. Financial assets inherently possess homogenous attributes, and the link between the underlying assets and the tokens can be established under the oversight of regulated custodians. Non-financial assets, on the other hand, are much more complex; solutions can primarily rely on IoT systems, but they still struggle to respond to sudden factors such as human malfeasance and natural disasters. Therefore, as a prism of real assets, the light that RWA can refract is not infinite. In the future, for non-financial assets to persist on-chain, they must meet the dual prerequisites of being homogenous and easily valued.

Compared to the extremely volatile digital assets, it is difficult to find assets in the real world with comparable volatility. The APY of dozens or even hundreds in DeFi makes traditional finance look pale in comparison; low returns and lack of participation incentives are another pain point for RWA.

If that's the case, why is there currently a focus on this narrative within the community?

2. There are policies from above

The advancement of regulation in traditional finance is a key factor for the existence of RWA. This concept can only progress when the trust assumption is established. Currently, regions friendly to the development of Web3, such as Hong Kong, Dubai, and Singapore, have only recently implemented relevant regulatory frameworks for RWA. Therefore, the journey of RWA has just begun, but the current fragmentation of regulation and the high vigilance of traditional finance regarding risks still cast a shadow over this field.

As of April 2025, the regulatory framework regarding RWA in major global jurisdictions is as follows:

United States

Regulators mainly include the SEC and CFTC. Core regulations classify tokens into securities and commodities, each subject to different regulatory requirements. Key measures include KYC/AML requirements and an expansion of securities designation.

Hong Kong

Regulated by the Monetary Authority and the Securities and Futures Commission. The core framework incorporates security tokens into the Securities and Futures Ordinance, while non-security tokens are subject to the Anti-Money Laundering Ordinance. Key measures include the Ensemble Sandbox Program and the stablecoin gateway policy.

European Union

ESMA is responsible for regulation. The core regulation MiCA will come into effect in 2025, requiring RWA issuers to establish EU entities and undergo audits. Key measures include liquidity restrictions and compliance shortcuts.

Dubai

The DFSA is responsible for regulation. The core framework includes a tokenization sandbox program that allows for the testing of security tokens and derivative tokens. The advantage lies in its equivalence with EU regulations, supporting DLT applications.

Singapore

Securities-type tokens are included in the "Securities and Futures Act", while functional tokens must comply with anti-money laundering regulations. MAS promotes pilot projects through a sandbox.

Australia

ASIC classifies RWA tokens that grant rights to income as financial products, which require holding a financial services license and disclosing risks.

Currently, RWA protocols can exist on public chains, but they must be supplemented with various compliance modules to fit regulatory frameworks. These compliance protocols cannot directly interact with traditional DeFi protocols, and compliance protocols from different jurisdictions also struggle to interoperate. The current RWA protocols lack sufficient accessibility and interoperability, resembling "islands," which is contrary to the ideal state.

However, there are still attempts to explore decentralized paths. Taking the leading RWA protocol Ondo as an example, its Flux Finance lending protocol allows the use of open tokens and restricted tokens as collateral to lend a tokenized bearer note called USDY. With a 40-50 day lock-up period design, USDY avoids being classified as a security. Ondo further simplifies the circulation of USDY on public chains through cross-chain bridges, creating a pathway for interaction with the DeFi world.

However, this complex and non-reversible approach may not be the ideal RWA solution. The key to the success of stablecoins lies in excellent accessibility, enabling low-threshold inclusive finance in the real world. RWA still needs traditional finance and project parties to explore together on the island problem, how to achieve interconnection across different jurisdictions, and interact with the on-chain world within possible limits, ultimately conforming to the general definition of RWA.

3. Assets and Income

According to data from rwa.xyz, the total value of on-chain RWA assets is $20.69 billion (excluding stablecoins), mainly including private credit, US Treasury bonds, commodities, real estate, and stock securities.

From the perspective of asset classes, RWA protocols are primarily aimed at traditional financial users rather than DeFi native users. Leading RWA protocols such as Goldfinch, Maple Finance, and Centrifuge mainly target small and medium-sized enterprises and institutional users. The advantages of moving these businesses on-chain include:

1. 24/7 instant settlement, addressing the pain points of traditional finance's reliance on centralized systems.
2. Solve the problem of regional liquidity fragmentation, allowing small and medium-sized enterprises in third world countries to attract external investment at low cost.
3. Reduce marginal service costs and significantly improve efficiency through smart contract management.
4. Serve enterprises such as mining companies and small and medium-sized exchanges that lack traditional credit records.
5. Lower the entry threshold and attempt to segment financial assets to reduce the investment threshold for investors.

For Crypto, the success of RWA holds a trillion-level imagination space. The emergence of RWAFi will provide a more solid asset foundation for DeFi protocols, offering users more asset choices. In the current context of geopolitical turmoil and uncertain economic prospects, some real-world assets may be a better low-risk choice than pure wealth management.

The current or potentially available RWA product options include:

• Gold (80% increase from the beginning of 2023 to this month in 2025)
• Ruble fixed deposit (3-month term 20.94%, 6-month term 21.19%, 1-year term 20.27%)
• Energy assets of sanctioned countries (usually discounted by more than 40%)
• Short-term US Treasury bonds (yielding 4%-5%)
• Nasdaq Halved Stocks
• Subfields such as charging piles, Pop Mart blind boxes, etc.

Four, Sword Bearer

"Dark Forest" is a nickname for blockchain among insiders, reflecting the inherent challenges of decentralization. In certain specific areas, RWA may become the "sword bearer" of this parallel world.

Although past PFP and GameFi projects have created some brilliance, they have not truly granted users IP intellectual property rights. Taking Bored Apes as an example, the intellectual property rights belong to the issuer Yuga Labs LLC. Holders only obtain ownership and usage rights of a specific numbered avatar, not the copyright itself. In project decision-making and revenue distribution, NFT holders have neither the right to be informed, nor the right to make decisions, let alone the right to profits.

In contrast, traditional IP investments usually grant investors more rights, including direct usage rights, profit distribution, decision-making participation, and even development control. RWA may provide new ideas for addressing these issues.

Five, On the carrier

RWA has the potential to reshape finance, bringing real-world opportunities onto the blockchain, and may also become a new way to address the chaos in the blockchain space. However, limited by the current regulatory framework, its form still resembles a private protocol on public chains, failing to fully realize its potential. In the future, guides or alliances will be needed to break through this barrier.

The potential of assets to be released on different carriers is unimaginable. From ancient bronze inscriptions to the Ming Dynasty fish scale atlas, asset confirmation has always ensured social stability and development. The ideal form of RWA may be: buying Nasdaq stocks in Hong Kong during the day, depositing funds into a Russian bank at midnight, and the next day being able to jointly invest in Dubai real estate with hundreds of shareholders from around the world whom one has never met.

The world running on a massive public ledger is the ultimate vision of RWA.