RWA: The Elephant in the Room
The essence of RWA is the mapping of real assets on the chain, but its development has always been limited by the conflicts between regulatory frameworks, asset complexity, and decentralization logic. Although current RWA protocols have made initial achievements in the tokenization of financial assets, issues such as compliance silos, poor accessibility, and lack of interoperability remain prominent. In the future, to truly realize its value release, it is necessary to break down the barriers between traditional finance and the on-chain world, and build a more inclusive public ledger financial system.
Author: YBB Capital Researcher Zeke
Introduction
"The tokenization of real-world assets (RWA) aims to enhance liquidity, transparency, and accessibility, allowing a broader range of individuals to access high-value assets." This is Coinbase's explanation of the term RWA, and it is also a common interpretation in popular science articles about RWA. However, I find this statement unclear and not entirely accurate. In this article, I will attempt to interpret RWA from my personal perspective within the context of this era.
I. A Fragmented Prism
The combination of crypto and real-world assets can be traced back to the Colored Coins on Bitcoin over a decade ago, which achieved "coloring" by adding metadata to Bitcoin UTXOs, endowing specific Satoshis with attributes representing external assets, thus marking and managing real-world assets (such as stocks, bonds, and real estate) on the Bitcoin blockchain. This protocol, resembling BRC20, was humanity's first systematic attempt to realize non-monetary functions on the blockchain and also marked the beginning of blockchain's move towards intelligence. However, due to the limited opcode of Bitcoin scripts, the asset rules of Colored Coins needed to be interpreted by third-party wallets, requiring users to trust these tools' logic for defining UTXO "colors." Centralized trust, coupled with factors like insufficient liquidity, led to the initial concept validation of RWA ending in failure.
In the following years, blockchain pivoted with Ethereum, ushering in the era of Turing completeness. Various narratives have had their moments of frenzy, but RWA has remained a case of much sound but little fury over the past decade, aside from legal stablecoins. Why is this?
I still remember writing in an article about stablecoins that there has never been a true dollar on the blockchain. The essence of USDT or USDC is merely a "digital bond" issued by a private company, and USDT is theoretically much weaker than the dollar. The success of Tether actually stems from the blockchain world's urgent need for a value-stable medium that it cannot create.
In the world of RWA, there is no such thing as decentralization; trust assumptions must be established on a centralized entity, and the risk control of this entity can only rely on regulation. The anarchistic essence inherent in crypto fundamentally contradicts this idea, as the underlying architecture of any public chain is designed to resist regulation. The difficulty of regulation existing on public chains is the primary reason RWA has never been successful.
The second point is asset complexity. Although RWA encompasses the tokenization of all physical assets, we can roughly categorize them into financial and non-financial assets. For financial assets, they inherently possess homogeneity, and the link between the underlying assets and tokens can be established under regulated custodians. For non-financial assets, the issue becomes exponentially more complex, and the solution largely relies on IoT systems, yet it still cannot address unforeseen factors such as human malfeasance and natural disasters. Therefore, in my understanding, RWA, as a prism of real-world assets, can only reflect a limited spectrum of light; for future non-financial assets to persist on-chain, they must meet the prerequisites of homogeneity and ease of valuation.
Thirdly, compared to the highly volatile digital assets, it is fundamentally difficult to find assets in the real world that exhibit comparable volatility. The dozens or even hundreds of APY in DeFi make TradFi look pale in comparison, and the low returns and lack of participation motivation represent another pain point for RWA.
Given this, why is there a renewed focus on this narrative within the community?
II. Policies Above
As mentioned above, the advancement of regulation in TradFi is a key factor for the existence of RWA, as the concept can only progress when trust assumptions are established. Currently, regions friendly to the development of Web3, such as Hong Kong, Dubai, and Singapore, have only recently begun to implement relevant regulatory frameworks for RWA. Therefore, when this starting point emerges, the journey of RWA is just beginning. However, as it stands, the fragmentation of regulation and TradFi's heightened vigilance towards risk still shrouds this track in a layer of fog.
Below are the details of the regulatory frameworks for RWA in major jurisdictions worldwide as of April 2025:
United States:
Regulatory Bodies: SEC (Securities and Exchange Commission), CFTC (Commodity Futures Trading Commission)
Core Regulations:
Securities Tokens: Must be assessed through the Howey Test to determine if they are securities, subject to registration or exemption provisions of the Securities Act of 1933 (e.g., Reg D, Reg A+).
Commodity Tokens: Regulated by the CFTC, with Bitcoin and Ethereum explicitly classified as commodities. Key Measures:
KYC/AML: BlackRock's BUIDL fund is only open to accredited investors (net worth ≥ $1 million), mandating on-chain identity verification (e.g., Circle Verite).
Expanded Securities Classification: Any RWA involving dividends may be classified as securities. For example, the SEC's penalty against the tokenized real estate platform Securitize (unregistered securities issuance in 2024).
Hong Kong:
Regulatory Bodies: HKMA (Hong Kong Monetary Authority), SFC (Securities and Futures Commission)
Core Framework:
The Securities and Futures Ordinance includes securities tokens under regulation, requiring compliance with investor suitability, information disclosure, and anti-money laundering requirements.
Non-securities tokens (e.g., tokenized commodities) are subject to the Anti-Money Laundering Ordinance.
Key Measures:
Ensemble Sandbox Program: Testing dual-currency settlement for tokenized bonds (HKD/offshore RMB) and cross-border real estate mortgages (in cooperation with the Bank of Thailand), with participating institutions including HSBC, Standard Chartered, AntChain, etc.;
Stablecoin Gate Policy: Only allows the use of stablecoins recognized by the HKMA (e.g., HKDG, CNHT), prohibiting unregistered coins like USDT.
European Union:
Regulatory Body: ESMA (European Securities and Markets Authority)
Core Regulations:
MiCA (Markets in Crypto-Assets): Effective in 2025, requires RWA issuers to establish EU entities, submit white papers, and undergo audits.
Token Classification: Asset-Referenced Tokens (ARTs), Electronic Money Tokens (EMTs), and other crypto assets.
Key Measures:
Liquidity Restrictions: Secondary market trading requires licensing, and DeFi platforms may be defined as "Virtual Asset Service Providers" (VASP).
Compliance Shortcuts: Luxembourg fund structures (e.g., Tokeny gold tokens) become low-cost issuance channels, with compliance costs for small RWA platforms expected to increase by 200%.
Dubai:
Regulatory Body: DFSA (Dubai Financial Services Authority)
Core Framework:
Tokenization Sandbox (launched in March 2025): Divided into two phases (intent application, ITL testing group), allowing testing of securities tokens (stocks, bonds) and derivatives tokens.
Compliance Path: Exemptions from certain capital and risk control requirements, with a testing period of 6-12 months before applying for a formal license.
Advantages: Equivalent to EU regulation, supports the application of distributed ledger technology (DLT), reducing financing costs.
Singapore:
Securities tokens are included under the Securities and Futures Act, subject to exemption provisions (small offerings ≤ 5 million SGD, private placements ≤ 50 people).
Functional tokens must comply with anti-money laundering regulations, with MAS (Monetary Authority of Singapore) promoting pilot projects through sandboxes.
Australia:
ASIC (Australian Securities and Investments Commission) classifies RWA tokens that confer rights to income as financial products, requiring a financial services license (AFSL) and risk disclosure.
In summary, Western countries focus on compliance thresholds, while regions in Asia and the Middle East attract projects through experimental policies, yet compliance thresholds remain high. Therefore, the current state of RWA protocols is that they can exist on public chains but must be supplemented with various compliance modules to fit regulatory frameworks. These compliance protocols cannot directly interact with traditional DeFi protocols, and due to differences in jurisdictions, a protocol compliant with Hong Kong's regulatory framework cannot interact with compliant protocols in other regions. From the current situation, RWA protocols lack sufficient accessibility and are extremely deficient in interoperability, resembling "islands" that diverge from the ideal form.
Is there really no path to reclaim decentralization within these frameworks? Not necessarily. Taking Ondo, a leading protocol in RWA, as an example, the team has built a lending protocol called Flux Finance, allowing users to use open tokens like USDC and restricted tokens like OUSG as collateral for loans. They issue a tokenized bearer note called USDY (a compound stablecoin), which avoids being classified as a security through a design involving a 40-50 day lock-up period. According to the SEC's Howey Test standards, securities must meet conditions such as "investment of money in a common enterprise, with profits to be derived from the efforts of others." The yield of USDY comes from the automatic compounding of underlying assets (like treasury bond interest), allowing users to passively hold it without relying on Ondo's active management, thus not meeting the "reliance on the efforts of others" criterion. Ondo further simplifies the circulation of USDY on public chains through cross-chain bridges, ultimately achieving a path for interaction with the DeFi world.
However, such a complex and non-reversible approach may not be the RWA we desire. Another key factor in the current success of legal stablecoins is excellent accessibility, which can achieve low-threshold inclusive finance in the real world. RWA still requires collaboration between TradFi and project parties to explore how to first achieve interconnection within different jurisdictions and interact with the on-chain world within possible ranges. Only then can it align with the common interpretation of RWA mentioned in the introduction.
III. Assets and Returns
According to data from rwa.xyz (a professional analysis site for RWA), the total value of on-chain RWA assets is currently $20.69 billion (excluding stablecoins), primarily composed of private credit, U.S. Treasury bonds, commodities, real estate, and stock securities.
In fact, from the perspective of asset categories, it is not difficult to see that the primary target group of RWA protocols is not DeFi native users but traditional financial users. Leading RWA protocols such as Goldfinch, Maple Finance, and Centrifuge primarily target small and medium-sized enterprises and institutional users. So why move this to the blockchain? (The first four points are merely examples of the advantages of these protocols)
24/7 Instant Settlement: This is one of the pain points of traditional finance's reliance on centralized systems; blockchain provides an uninterrupted trading system. It also enables instant redemption, T+0 lending, and other operations;
Regional Liquidity Fragmentation: Blockchain is a global financial network that allows small and medium-sized enterprises in third-world countries to attract external investors' funds at minimal costs by bypassing local institutions;
Lower Marginal Service Costs: Through smart contract management, the cost of servicing 100 enterprises in an asset pool is nearly the same as servicing 10,000 enterprises;
Serving Mining Enterprises and Small Exchanges: Such enterprises generally lack traditional credit records, making it difficult to obtain loans from banks. Through traditional supply chain finance logic, equipment and receivables can be used for financing;
Lowering Entry Barriers: Although early successful RWA protocols were generally designed for enterprises, institutions, or high-net-worth users, many RWA protocols are now attempting to segment financial assets to lower the investment threshold for investors.
For crypto, if RWA can succeed, it indeed possesses trillion-level imaginative potential. Moreover, I believe RWAFi will eventually arrive; for DeFi protocols, the underlying assets will become more robust after incorporating tokens with real yields, while for DeFi native users, new options will emerge in asset selection and combinations. Especially in today's world, characterized by geopolitical turmoil and economic uncertainty, some real-world assets may be a better low-risk choice than merely using USDT for investment. Here, I provide some currently available RWA product options or potential future choices: for instance, gold has increased by 80% from early 2023 to this month in 2025; the fixed deposit rate for rubles in Russia is 20.94% for three months, 21.19% for six months, and 20.27% for one year; energy assets in sanctioned countries are typically discounted by over 40%; short-term U.S. Treasury yields are between 4%-5%; various stocks on NASDAQ that have halved may have better fundamentals than your altcoins; and even more granular options like charging stations or Pop Mart's blind boxes could be good choices.
IV. The Swordbearer
In the world of "The Three-Body Problem," Luo Ji uses his life as a trigger mechanism to deploy nuclear bombs in the solar orbit, constructing a deterrent system against the Trisolaran civilization using the dark forest principle. In the human world, he is Earth's swordbearer.
"Dark Forest" is also a term used by most insiders to refer to blockchain, which is the inherent "original sin" of its decentralized nature. In some specific fields, RWA may serve as the swordbearer of this parallel world. Although PFP avatars and GameFi stories have now turned to bubbles, recalling the frenzied era three or four years ago, we once birthed projects like Bored Apes, Azuki, and Pudgy that rivaled traditional IPs. But did we really purchase IP rights? The fact is, we never did. NFTs, to some extent, resemble consumer goods; the definition of 10K PFPs on the blockchain is quite vague. They did create some momentarily brilliant IPs by lowering investment thresholds, but in terms of returns and project development, the "Trisolarans" monopolize power.
Taking Bored Apes as an example, the original intellectual property rights of Bored Apes clearly belong to its issuer, Yuga Labs LLC. According to user agreements and official information, Yuga Labs, as the project operator, holds the copyright, trademark rights, and other core intellectual property rights of Bored Apes. Holders purchasing NFTs only gain ownership and usage rights to specific numbered avatars, not the copyright itself.
In terms of decision-making, Yuga Labs has designed the trajectory of Bored Apes towards the Metaverse, exchanging infinite sub-IP issuance for funds, thus departing from the original luxury narrative. In this regard, NFT holders have no right to know, no decision-making power, and no rights to profits. In the traditional world, investing in an IP typically grants investors direct usage rights, direct profit distribution, decision-making participation, and even development leadership.
Yuga Labs is at least a standout among PFP projects, but there were once many NFT projects with even more chaotic rights distributions. When a giant sword hangs overhead, will they choose to respect their community more?
V. On the Carrier
In summary, RWA has the potential to reshape finance and bring the opportunities contained in the real world onto the blockchain, which may also be a new path to rectify the chaos in blockchain. However, constrained by the current regulatory framework of TradFi, its form still resembles a private protocol existing on public chains, unable to unleash the highest imaginative potential. Over time, I hope there will be a guide or alliance to break through this barrier.
The light that assets can release on different carriers is truly unimaginable. From the bronze inscriptions of the Western Zhou period to the fish-scale albums of the Ming Dynasty, asset rights assurance has guaranteed social stability and development. What would the final form of RWA look like? I could buy NASDAQ stocks during the day in Hong Kong, deposit money in the Russian Federal Savings Bank at midnight, and the next day invest in real estate in Dubai alongside hundreds of shareholders around the world, none of whom know each other's names.
Yes, a world operating on a vast public ledger is RWA.
