RWA has become one of the most powerful use cases of Blockchain technology

Real-world asset (RWA) tokenization is becoming one of the most promising applications of blockchain technology globally. This technology is expected to bring greater efficiency and security to financial markets, ushering them into a digital new era.

Benjamin Stani, the Business Development Director at Matrixport, believes that with the compression of on-chain yields and the Federal Reserve's interest rate hikes, there is a significant divergence between on-chain and off-chain interest rates. RWA is expected to bridge this gap and address the underutilization issues in the stablecoin market. In 2023, RWA has become a disruptive force, unlocking the potential of this asset class and fundamentally changing the ways value is created, transferred, and stored.

The trend of promoting risk-free real-world yields has shifted the industry's focus towards the tokenization of regulated financial instruments. Treasury bills, real estate, precious metals, and artworks are seen as the most viable tokenized assets. The tokenized product for short-term Treasury bills, STBT, raised $123 million in just over five months, demonstrating strong market demand for such products.

As tokenized government bonds are widely adopted in the industry, exploring the tokenization of other liquid listed securities will also become easier. RWA can extend to areas such as real estate, corporate bonds, and fine wines. In the coming years, the RWA industry is expected to become an important theme in the digital asset ecosystem, adding hundreds of trillions of dollars to the market.

As risk-free interest rates continue to rise, it is expected that in the coming quarters, various institutions will adopt tokenized notes due to economic incentives, while further innovations will also emerge in the DeFi space. Although RWA is still in its early stages, interest from both native cryptocurrency and traditional financial participants is growing.

The Monetary Authority of Singapore's Project Guardian has successfully applied DeFi to the wholesale financing market, conducting experiments in foreign exchange trading and government bond trading. Deutsche Bank is also testing tokenized funds on the Ethereum public network. These advancements indicate that the adoption rate of RWAs is rapidly increasing. Continuous innovation in clearing strategies and smart algorithms is driving this momentum, with significant progress expected by the end of the year.

One of the biggest benefits of tokenization is the democratization of financial markets by eliminating intermediaries, speeding up transactions, and reducing costs, while also opening up investment opportunities that were previously available only to high-net-worth individuals. RWA has the potential to fundamentally change the financial landscape, create new sources of income, and even new markets.

Compared to traditional lending, on-chain lending has greater international accessibility, accessibility to crypto financial instruments, and a more democratic decision-making process. These factors help make loans more inclusive, transparent, and facilitate a wider range of borrowers and lenders, while also promoting the stability of the lending ecosystem and reducing risks. In the future, we may see a fusion of traditional finance and DeFi, creating conditions for a smarter and more programmable global economy.

One of the biggest obstacles currently facing RWA is regulatory uncertainty. The legal framework is struggling to keep up with the rapid development of tokenization technology. This is particularly evident in the RWA infrastructure area integrated with DeFi, where regulators must confront the scalability issues of Blockchain to accommodate the capacity of traditional financial markets.

To overcome this barrier, it is recommended to adopt a progressive regulatory approach focused on establishing a comprehensive framework fully compatible with DeFi standards. Such a framework must strictly enforce risk management protocols to enhance transparency and security. The success of Singapore's pioneering stablecoin regulation demonstrates the power of clear and strong guidelines. They not only protect investors but also create a favorable environment for issuers and financial institutions to innovate and explore new investment channels.

Technical issues are relatively easy to solve because there are already feasible solutions. The bottleneck lies more in regulation and compliance, requiring a clear definition of securities and how to handle on-chain ownership off-chain. Some jurisdictions are more advanced in this regard than others, and we may see these areas driving innovation.

The biggest obstacle may be that the internal compliance team wants to apply traditional frameworks to these new asset classes, but many traditional practices may no longer be applicable or feasible in a blockchain environment. Although the current issues related to regulatory compliance have led to delays in the adoption of RWA, these obstacles will eventually be overcome, allowing RWA to thrive globally.

The future demand for on-chain deep liquidity will remain strong, especially for large protocols. Although Security Token Offerings (STO) come with restrictions and licensing requirements, there will be a certain degree of flexibility in using securities as underlying assets for other products. The industry is actively exploring these possibilities in pursuit of innovation.

Once RWA reaches sufficient scale in the industry, the end result will be the integration of traditional finance and the cryptocurrency world into a unified financial domain. This integration will be markedly different from past bull market trends and may bring about astonishing transformations.