Preface

"The tokenization of real-world assets (RWA) aims to enhance liquidity, transparency, and accessibility, enabling a broader range of individuals to access high-value assets," this is Coinbase's explanation of the term RWA, which is also the common explanation in popular science articles. However, in my view, this sentence is neither clear nor entirely accurate. This article will attempt to interpret RWA from my personal perspective in the context of this era.

I. A Broken Prism

The combination of Crypto and real-world assets can be traced back to Colored Coins on Bitcoin over a decade ago, which achieved "coloring" by adding metadata to Bitcoin UTXOs, giving specific Satoshis the attributes of representing external assets, thereby marking and managing real-world assets (such as stocks, bonds, real estate) on the Bitcoin chain. This protocol, similar to BRC20, was humanity's first systematic attempt to implement non-monetary functions on the blockchain, and also the beginning of blockchain's move towards intelligence. However, due to the limited opcodes of Bitcoin scripts, the asset rules of Colored Coins needed to be parsed through third-party wallets, and users had to trust these tools' logic for defining UTXO "colors". Centralized trust mixed with insufficient liquidity led to the initial proof of concept for RWA ultimately failing.

In the following years, blockchain opened the Turing-complete era with Ethereum as a turning point. Various narratives have had their crazy moments, but except for legal stable coins, RWA has always been a case of thunder but little rain. Why is this?

I 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 just a "digital bond" from a private company, and USDT is theoretically much more fragile than the US dollar. Tether's success actually stems from the blockchain world's urgent need and inability to create a value-stable medium.

In the world of RWA, there is no such thing as decentralization; the trust assumption must be established on a centralized entity, and the risk control of this entity can only be pinned on regulation. The anarchist nature inherent in Crypto's genes is fundamentally contrary to this concept, and the underlying architecture of any public chain is designed to resist regulation. The difficulty of regulation on public chains is the primary factor why RWA has never succeeded.

The second point is asset complexity. Although RWA encompasses the tokenization of all physical assets, we can roughly divide them into financial and non-financial asset categories. For financial assets, they inherently have homogeneous attributes, and the link between underlying assets and Tokens can be established under a regulated custodian. For non-financial assets, this problem is a hundred times more complex, and its solution can basically only rely on IoT systems, but still cannot address human malice and sudden natural disasters. So in my understanding, RWA as a prism of real-world assets can only refract limited light, and future non-financial assets wanting to exist on-chain must necessarily meet two prerequisites: homogeneity and ease of valuation.

Third, compared to highly volatile digital assets, it is basically difficult to find assets in the real world with comparable volatility. Moreover, the APY of tens or even hundreds of percent in DeFi makes TradFi pale in comparison. Low returns and lack of participation motivation are yet another pain point of RWA.

Given this, why is the industry now refocusing on this narrative?

II. Policy from Above

Based on the above, TradFi's advancement of regulation is the key factor for RWA's existence, and the concept can only be advanced when the trust assumption is established. Currently, regions friendly to Web3 development, such as Hong Kong, Dubai, and Singapore, have basically landed their RWA regulatory frameworks recently. So when this starting point appears, RWA's journey is just beginning, but the current situation of regulatory fragmentation and TradFi's high vigilance towards risks still cast a layer of mist over this track.

Below are the details of RWA regulatory frameworks for major global jurisdictions as of April 2025:

United States:

Regulatory Agencies: SEC (Securities and Exchange Commission), CFTC (Commodity Futures Trading Commission)

Core Regulations:

· Security Tokens: Need to pass the Howey Test to determine if they are securities, applicable to registration or exemption clauses of the 1933 Securities Act (such as Reg D, Reg A+).

· Commodity Tokens: Regulated by CFTC, Bitcoin, Ethereum, etc. are explicitly classified as commodities.

Key Measures:

1. KYC/AML: BlackRock's BUIDL fund is only open to qualified investors (net assets ≥ $1 million), mandatory on-chain identity verification (such as Circle Verite).

2. Expanded Securities Classification: Any RWA involving dividends may be deemed a security. For example: SEC's punishment of tokenized real estate platform Securitize (unregistered securities issuance in 2024)

[The translation continues in the same manner for the rest of the text]

In summary, Western countries focus on regulatory thresholds, while Asia and the Middle East attract projects through experimental policies, but regulatory barriers remain high. Currently, RWA protocols can exist on public chains but must be equipped with various compliance modules to adapt to the compliance framework. These compliance protocols cannot directly interact with traditional DeFi protocols, and due to different judicial jurisdictions, a protocol compliant with Hong Kong's framework cannot interact with compliance protocols in other regions. From the current situation, RWA protocols lack sufficient accessibility and are extremely lacking in interoperability, resembling "isolated islands" that deviate from their ideal form.

Is there really no path back to decentralization within these frameworks? Not necessarily. Taking Ondo, a leading RWA protocol, as an example, the team built a lending protocol called Flux Finance, allowing users to use open tokens like USDC and restricted tokens like OUSG as collateral for lending. They issue a tokenized bearer note called USDY (a compound interest stablecoin), designed with a 40-50 day lock-up period to avoid being classified as a security.

According to the SEC's Howey Test standard, securities must meet conditions such as "investing funds in a common enterprise, relying on others' efforts to generate profits". USDY's returns come from automatic compound interest of underlying assets (like Treasury interest), and users passively holding can earn returns without relying on Ondo team's active management, thus not meeting the "relying on others' efforts" element. Ondo then simplifies USDY's circulation on public chains through cross-chain bridges, ultimately creating a pathway to interact with the DeFi world.

However, such a complex and non-reversible approach may not be the RWA we desire. Another key factor for successful legal stablecoins is excellent accessibility, enabling low-threshold inclusive finance in the real world. RWA still needs TradFi and project parties to jointly explore how to first achieve interconnection within different judicial jurisdictions and interact with the on-chain world within possible scopes. Only then can it meet the general explanation of RWA in the preface.

III. Assets and Yields

According to rwa.xyz (a professional RWA analysis website), the total value of on-chain RWA assets is currently $20.69 billion (excluding stablecoins), primarily consisting of private credit, US Treasury bonds, commodities, real estate, and stock securities.

In fact, from the asset categories, we can easily see that RWA protocols primarily target traditional financial users rather than DeFi native users. Top RWA protocols like Goldfinch, Maple Finance, and Centrifuge mainly serve small and medium enterprises and institutional-level users. So why move this to the blockchain?

1. 7*24 hour instant settlement: A pain point of traditional finance dependent on centralized systems, blockchain provides a non-stop transaction system. It can also achieve instant redemption and T+0 lending;

2. Geographic liquidity fragmentation: Blockchain is a global financial network that allows third-world country SMEs to attract external investor funds at the lowest cost, bypassing local institutions;

3. Reducing marginal service costs: Through smart contract management, the cost of serving 100 enterprises is almost the same as serving 10,000;

4. Serving mining enterprises and small trading platforms: These enterprises generally lack traditional credit records and struggle to obtain bank loans, but can use equipment and accounts receivable for financing through traditional supply chain financial logic;

5. Lowering entry barriers: While early successful RWA protocols were designed for enterprises, institutions, or high-net-worth users, with the introduction of regulatory frameworks, many RWA protocols are now trying to divide financial assets to lower investor thresholds.

For Crypto, if RWA succeeds, it indeed has a trillion-dollar imagination space. Moreover, I believe RWAFi will eventually arrive. For DeFi protocols, adding Tokens with real yields will make the asset base more solid, and for DeFi native users, it adds new flavors to asset selection and combination. Especially in this geopolitically turbulent world with uncertain economic prospects, some real-world assets might be a better low-risk choice compared to just financing with USDT.

I provide some currently available or potential RWA product choices: For example, gold has risen 80% from early 2023 to this month in 2025; Russian ruble deposit rates are 20.94% for 3 months, 21.19% for six months, and 20.27% for a year; energy assets in sanctioned countries are typically discounted over 40%; short-term US Treasury yields are 4%-5%; various halved Nasdaq stocks might have more fundamentals than your Altcoins; and even more specifically, charging piles or Pop Mart blind boxes could be good choices.

IV. The Sword Bearer

In the Three-Body world, Luo Ji deployed nuclear weapons in the solar orbit using his own life as a trigger mechanism, constructing a deterrence system against the Trisolaran civilization through the dark forest theory. In the human world, he is Earth's sword bearer.

"Dark forest" is also the nickname most blockchain insiders use, an inherent "original sin" of decentralization. For certain special fields, RWA might serve as the sword bearer in this parallel world. Although PFP avatars and GameFi stories have now turned to foam, remembering the crazy era three to four years ago, we once birthed projects like BAYC, Azuki, and Pudgy that rivaled traditional IPs. But did we really purchase IP intellectual property rights? The fact is we never did. NFTs are more like consumer goods, and blockchain's definition of 10K PFP is very blurry. It indeed created some momentary glorious IPs by lowering investment thresholds, but in terms of revenue and project development, the "Trisolaran" side completely controls everything.

Taking BAYC as an example, its original intellectual property rights clearly belong to its issuer Yuga Labs LLC. According to user agreements and official website information, Yuga Labs, as the project's operational entity, owns the copyrights, trademark rights, and core intellectual property rights of BAYC works. Buyers only obtain ownership and usage rights for a specific numbered avatar, not the copyright itself.

In terms of decision-making, Yuga Labs' route for BAYC design is Metaverse, obtaining funds by infinitely issuing sub-IPs, departing from the original luxury goods narrative. Regarding this, BAYC NFT holders have no right to know, no decision-making power, and no revenue rights. In the traditional world, IP investors usually have direct usage rights, direct revenue distribution, decision participation, and even development leadership.

Yuga Labs is at least among the top-tier PFP projects. Many NFT projects had even more chaotic rights distributions. When a huge sword hangs overhead, will they choose to respect their community more?

V. Beyond the Carrier

In conclusion, RWA has the potential to reshape finance and bring opportunities from the real world to the blockchain, possibly offering a new path to rectify blockchain chaos. However, limited by TradFi's current regulatory framework, its form still resembles a private protocol existing on public chains, unable to unleash its highest imaginative space. As time passes, I hope a guide or alliance will emerge to break down this barrier.

Assets can release unimaginable potential across different carriers. From bronze inscriptions in the Western Zhou period to fish scale archives in the Ming Dynasty, asset confirmation has ensured social stability and development. What would the ultimate form of RWA look like? I could purchase Nasdaq stocks during the day in Hong Kong, deposit money in the Russian Federal Savings Bank in the early morning, and invest in Dubai real estate with hundreds of anonymous shareholders the next day.

Yes, a world running on a massive public ledger is RWA.

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