Author: YBB Capital Researcher Zeke

Preface

“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 how Coinbase defines RWA, and it’s a common explanation found in many educational pieces. However, in my view, this statement is neither precise nor entirely accurate. This article seeks to interpret RWA from a personal perspective, within the context of our current era.

I. A Fractured Prism

The convergence of crypto and real-world assets can be traced back over a decade to the advent of Colored Coins on Bitcoin. By adding metadata to Bitcoin’s UTXO, this approach “colored” specific satoshis to represent external assets such as stocks, bonds, and real estate, enabling the labeling and management of real-world assets on the Bitcoin blockchain. This protocol, reminiscent of today’s BRC-20, marked humanity’s first systemic attempt at non-monetary functionality on a blockchain, and signaled the dawn of blockchain intelligence. However, limited by Bitcoin’s constrained scripting capabilities, asset rules had to be interpreted through third-party wallets, requiring users to trust these tools’ logic for color assignments. The mix of centralized trust and insufficient liquidity led to a failed proof of concept for RWA at the time.

In the years that followed, Ethereum marked a turning point with its Turing-complete infrastructure. Many narratives enjoyed moments of frenzy, but RWA — aside from fiat-backed stablecoins — remained mostly thunder without rain. Why is that?

I recall stating in a previous article on stablecoins that a true dollar has never existed on-chain. USDT or USDC are essentially “digital bonds” issued by private companies, and theoretically more fragile than the US dollar itself. Tether’s success stems from the blockchain world’s desperate need for, yet inability to create, a stable value medium.

In the RWA ecosystem, decentralization is a myth. Trust assumptions must be built upon a centralized entity, and the risk management of that entity relies entirely on regulation. This contradicts the anti-authoritarian DNA of crypto. The foundational structure of every public chain is designed to resist regulation. The lack of regulatory foothold on public chains is the foremost reason why RWA has struggled to succeed.

The second issue lies in asset complexity. While RWA encompasses all tokenized real-world assets, we can roughly categorize them into financial and non-financial assets. Financial assets tend to be fungible by nature, and the link between the underlying asset and the token can be established via regulated custodians. Non-financial assets, however, are far more complex. Their tokenization solutions largely rely on IoT systems, which still cannot prevent human malfeasance or natural events. In my view, RWA acts as a prism for real-world assets, but the light it refracts is far from infinite. For non-financial assets to persist on-chain in the future, they must meet two conditions: fungibility and ease of valuation.

Thirdly, compared to the highly volatile nature of digital assets, it’s rare to find real-world assets with comparable volatility. In DeFi, APYs reaching dozens or even hundreds of percent make traditional finance pale in comparison. Low yields and a lack of participation incentives constitute yet another pain point for RWA.

Given all this, why has the crypto space once again turned its focus to this narrative?

II. Top-Down Policy Constraints

As mentioned above, the advancement of regulation within TradFi is a fundamental prerequisite for the existence of RWA. Only when the trust assumption is established can the concept truly move forward. In regions that are currently friendly toward Web3 development — such as Hong Kong, Dubai, and Singapore — regulatory frameworks surrounding RWA have only recently begun to take shape. So while the starting point has appeared, RWA’s journey has only just begun. However, fragmented regulations and TradFi’s deep-rooted risk aversion still cast a veil of uncertainty over the entire sector.

Below is a summary of the current RWA regulatory frameworks in major global jurisdictions as of April 2025:

United States

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

Key Regulations:

• Security Tokens: Subject to the Howey Test to determine if classified as securities; must comply with the 1933 Securities Act via registration or exemptions (e.g., Reg D, Reg A+).

• Commodity Tokens: Regulated by the CFTC; Bitcoin and Ethereum are explicitly classified as commodities.

Notable Measures:

1. KYC/AML: BlackRock’s BUIDL fund is open only to accredited investors (net worth ≥ $1 million) and requires on-chain identity verification (e.g., Circle Verite).

2. Expanded Securities Classification: Any RWA involving dividends may be deemed a security — for instance, the SEC’s enforcement against tokenized real estate platform Securitize for unregistered securities issuance in 2024.

Hong Kong

Regulators: HKMA (Hong Kong Monetary Authority), SFC (Securities and Futures Commission)

Core Framework:

The Securities and Futures Ordinance classifies security tokens under regulatory oversight, requiring suitability assessments, disclosures, and AML compliance.

Non-security tokens (e.g., tokenized commodities) fall under the Anti-Money Laundering Ordinance.

Notable Measures:

1. Ensemble Sandbox Program: Tests dual-currency settlement for tokenized bonds (HKD/CNH), cross-border real estate mortgages (in cooperation with the Bank of Thailand), involving institutions like HSBC, Standard Chartered, and AntChain.

2. Stablecoin Gatekeeping Policy: Only HKMA-approved stablecoins (e.g., HKDG, CNHT) are allowed; USDT and other unregistered stablecoins are prohibited.

European Union

Regulator: ESMA (European Securities and Markets Authority)

Key Regulation:

MiCA (Markets in Crypto-Assets), effective 2025, mandates RWA issuers to establish an EU entity, publish whitepapers, and undergo audits.

Token Categories: Asset-Referenced Tokens (ARTs), E-money Tokens (EMTs), and other crypto-assets.

Notable Measures:

1. Liquidity Restrictions: Secondary market trading requires licensing; DeFi platforms may be categorized as Virtual Asset Service Providers (VASPs).

2. Compliance Shortcuts: Luxembourg fund structures (e.g., Tokeny gold-backed tokens) offer low-cost issuance paths, though small RWA projects may face compliance cost increases of up to 200%.

Dubai

Regulator: DFSA (Dubai Financial Services Authority)

Core Framework:

Tokenization Sandbox (launched March 2025), in two phases (expression of interest, ITL test group), allows testing of tokenized securities (stocks, bonds) and derivatives.

Compliance Path: Partial exemptions from capital and risk control requirements; after 6–12 months of testing, participants can apply for full licenses.

Advantages:

Regulatory equivalence with the EU, supports DLT applications, and lowers financing costs.

Singapore

Security tokens are regulated under the Securities and Futures Act, with exemption thresholds (≤ SGD 5 million in small offers, ≤ 50 investors in private placements).

Utility tokens must comply with AML rules; MAS (Monetary Authority of Singapore) promotes pilots through regulatory sandboxes.

Australia

ASIC (Australian Securities and Investments Commission) classifies yield-generating RWA tokens as financial products. Issuers must hold an Australian Financial Services Licence (AFSL) and disclose associated risks.

In summary, Western jurisdictions emphasize high compliance thresholds, while Asia and the Middle East use experimental policies to attract projects — yet their regulatory barriers remain significant. As a result, the current state of RWA protocols is such that they can technically exist on public chains but must be augmented with compliance modules to fit into legal frameworks.

These compliant modules are not interoperable with traditional DeFi protocols, nor are they cross-compatible across jurisdictions. For example, a protocol that complies with Hong Kong’s regulations cannot interact with a compliant protocol in another jurisdiction. Presently, RWA protocols lack accessibility and are severely limited in interoperability. They resemble isolated “islands,” diverging from the interconnected vision of the RWA ideal.

But within these frameworks, is there truly no way to reclaim decentralization?

Not quite. Take Ondo, the leading RWA protocol, as an example. The team built a lending protocol called Flux Finance, which allows users to deposit both open tokens like USDC and restricted tokens like OUSG as collateral. Borrowers can receive a tokenized bearer note called USDY, a rebasing stablecoin. The 40–50 day lock-up design of USDY helps avoid classification as a security.

According to the SEC’s Howey Test, a security requires “an investment of money in a common enterprise with the expectation of profits primarily from the efforts of others.” Since USDY’s yield is generated from automatic compounding of underlying assets (e.g., U.S. Treasury interest) and does not depend on Ondo’s active management, it fails to meet the “efforts of others” criterion — thus not a security.

Ondo further employs cross-chain bridges to facilitate USDY’s movement across blockchains, enabling interaction with DeFi ecosystems.

However, this process remains complex and one-directional. It’s likely not the RWA experience we ultimately envision. Fiat-backed stablecoins succeeded due in part to their accessibility and ability to facilitate inclusive finance in the real world.

Solving the RWA island problem will require joint effort between TradFi and project teams to enable interoperability within jurisdictions and, where possible, on-chain integration. Only then can RWA truly reflect the broad, accessible potential described in mainstream definitions.

III. Assets and Yield Potential

According to data from rwa.xyz, a leading analytics platform for Real World Assets, the total value of on-chain RWA (excluding stablecoins) currently stands at $20.69 billion. The asset composition primarily includes private credit, U.S. Treasury bonds, commodities, real estate, and equities.

Looking at these asset categories, it becomes clear that RWA protocols are not primarily designed for native DeFi users, but rather target participants from traditional finance. Leading protocols such as Goldfinch, Maple Finance, and Centrifuge mainly cater to SMEs and institutional clients. So why bring these traditional financial services on-chain? The reasons — exemplified through the advantages offered by these protocols — include:

1. 24/7 Instant Settlement: Traditional finance relies heavily on centralized systems with limited trading hours. Blockchain, on the other hand, offers an always-on transaction layer, enabling features like instant redemption and T+0 disbursement.

2. Cross-Border Liquidity Access: Blockchain functions as a global financial network, allowing SMEs in developing countries to bypass local financial institutions and attract global investors at minimal cost.

3. Lower Marginal Service Costs: Through smart contract automation, managing an asset pool for 100 companies costs virtually the same as managing one for 10,000 companies, achieving significant economies of scale.

4. Access for Miners and Small Exchanges: These entities often lack traditional credit histories and are thus excluded from banking services. RWA protocols can use conventional supply chain finance logic to tokenize equipment and receivables as collateral for loans.

5. Lowering Barriers to Entry: While most early successful RWA protocols were designed for enterprises, institutions, or high-net-worth individuals, the emergence of regulatory frameworks is enabling fractionalization of financial assets — making them more accessible to retail participants.

For the crypto ecosystem, if RWA succeeds, it could unlock a multi-trillion-dollar opportunity. Beyond that, a future RWAFi sector seems inevitable. For DeFi protocols, integrating tokens with real-world yield will strengthen their asset base. For native DeFi users, it offers a broader menu of asset combinations and strategies.

Especially in today’s volatile geopolitical environment and uncertain economic outlook, real-world assets may present more stable, lower-risk investment alternatives than simply yield-farming with stablecoins. Here are a few existing or potential RWA-based investment opportunities:

• Gold: From early 2023 to April 2025, gold has seen an 80% increase in value.

• Russian Ruble Deposits: Offer annualized rates of 20.94% (3 months), 21.19% (6 months), and 20.27% (1 year).

• Sanctioned Energy Assets: Often trade at discounts exceeding 40%.

• Short-Term U.S. Treasuries: Currently yield 4–5%.

• Undervalued Nasdaq Stocks: Many have been halved and now present stronger fundamentals than altcoins.

• More Niche RWAs: Items like EV charging stations or even Pop Mart mystery boxes may also emerge as creative collateralized assets.

These diversified options suggest that RWA is not merely a narrative — but a real, evolving toolkit that could blend TradFi scale with DeFi composability.

IV. The Swordbearer

In The Three-Body Problem universe, Luo Ji becomes humanity’s Swordbearer by deploying a nuclear deterrent in the solar orbit, using the Dark Forest Theory to create a standoff against the Trisolaran civilization. In our world, too, certain forces must serve as the “swordbearers” in a decentralized landscape.

“Dark Forest” is also a common metaphor used in crypto circles to describe blockchain — a term born out of the intrinsic “original sin” of decentralization. For certain sectors, RWA might be able to take on the role of the swordbearer in this parallel world. While PFP (Profile Picture) NFTs and GameFi narratives have largely faded into obscurity, it’s worth recalling that just three to four years ago, projects like Bored Ape Yacht Club, Azuki, and Pudgy Penguins achieved recognition rivaling that of traditional IP brands.

But did we ever truly purchase the IP rights to these assets? The truth is: not really. NFTs, in many cases, resemble consumer goods more than intellectual property. The blockchain’s definition of a 10K PFP collection remains vague. While NFTs did lower the barrier to entry and created iconic IP moments, the control over decision-making and financial returns rested firmly in the hands of the “Trisolarans.”

Take Bored Ape Yacht Club (BAYC) as an example. The core IP belongs to its issuer, Yuga Labs LLC. As per the official terms and site, Yuga Labs retains copyright, trademark rights, and all key IP assets. NFT holders receive ownership and usage rights only over specific avatar tokens — but not the underlying copyright.

When it came to BAYC’s development path, Yuga Labs pivoted toward building a Metaverse, issuing an expanding series of derivative IPs to raise capital — shifting away from its original “luxury collectible” narrative. Holders had no right to information, no role in governance, and no share in revenues. In traditional IP investment, investors often secure direct usage rights, revenue participation, governance input, or even development leadership.

And Yuga Labs, to its credit, is still one of the more structured actors in the PFP world. Many other NFT projects had even messier rights structures. But if a sword were hanging over their heads — if pressure mounted from regulation or market demands — would they become more community-respecting?

V. Beyond the Vessel

All things considered, RWA holds the potential to reshape global finance. It can onboard real-world opportunity into the on-chain world and potentially serve as a correction mechanism for the blockchain industry’s excesses. Yet under the constraints of existing TradFi regulatory frameworks, RWA protocols still resemble “private entities” hosted on public chains — far from achieving their full imaginative potential.

As time passes, we may need a new kind of leader or alliance to break through these barriers.

Assets radiate vastly different power depending on the vessel that carries them. From Western Zhou dynasty bronze inscriptions to the Ming Dynasty’s cadastral land maps, asset registration has long served as a cornerstone of social stability and development. If RWA reaches its ultimate form, what would it look like?

Imagine buying Nasdaq stocks during the day from Hong Kong, depositing funds into the Russian Federation Savings Bank at midnight, and the next day co-investing in Dubai real estate alongside hundreds of anonymous shareholders from around the world.

Yes, a world running on a massive, public ledger — that is what RWA could be.

About YBB

YBB is a web3 fund dedicating itself to identify Web3-defining projects with a vision to create a better online habitat for all internet residents. Founded by a group of blockchain believers who have been actively participated in this industry since 2013, YBB is always willing to help early-stage projects to evolve from 0 to 1.We value innovation, self-driven passion, and user-oriented products while recognizing the potential of cryptos and blockchain applications.

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