When the CEO of the world’s leading asset manager urged the SEC to “rapidly approve the tokenisation of bonds and stocks”, we know it’s worth a listen.
BlackRock’s Larry Fink says this will democratise investments and improve market efficiencies in “ways we cannot imagine”, but we see the real opportunity in their ability to bring substantial economic activity, rather than speculative memecoins, back onto decentralised rails.
Other players are taking this trend seriously too. Ondo Finance launched its Ondo GM platform to give non-US investors exposure to thousands of US publicly traded securities, including stocks, bonds and ETFs. TradFi heavyweights are launching new tokenised funds on public blockchains, and many projects are becoming regulatory compliant for the sole purpose of bringing capital markets on-chain.
The tokenised real-world asset (RWA) market has quietly tripled since early 2024, reaching an all-time high of USD 17.7 billion this year. But for now, the bulk of this growth consists of tokenised private credit and US Treasury debts, and a steady rise in tokenised gold.
Total tokenised RWA value
Source: RWA.xyz
Traditional markets are clogged with inefficiencies, such as settlement delays, closing hours and high operational costs that eat into margins. So it makes sense that TradFi institutions are pushing to use decentralised rails to streamline the entire asset lifecycle for their own efficiency gains.
If US and global regulators decide to align with Larry Fink’s wishes, the inflow of bringing capital markets on-chain could provide a tremendous opportunity for blockchains to capture real economic value.
We see a few main avenues for how this will work.
- Blockchains are the ultimate settlement layer – If TradFi institutions move their assets on-chain, value accrues not just to the underlying blockchain but to all decentralised applications, exchanges and Layer 2s that handle the issuance, trading and custody of tokenised assets. This is where the multi-trillion-dollar opportunity lies. If more RWAs are issued on-chain, a greater share of this activity is captured in the form of protocol fees. For Ethereum, this would be even more beneficial if scaling solutions like based rollups were to proceed, bringing centralised L2 transaction sequencing back to Ethereum’s validators (essentially meaning more protocol revenue).
- Higher quality transaction activity – The memecoin mania on Solana drove its network activity and token price to all-time highs, but it also amplified a sharper 50 percent crash when the market corrected. If more RWAs move on-chain, each issuance, redemption or trade would be tied to real economic value and create protocol revenue. This would help Solana build a more sustainable growth trend and capture a larger share of the tokenisation market.
- Institutions are pushing on-chain markets – Market leaders like BlackRock, Franklin Templeton, and UBS, are already leveraging Ethereum and scalable alternatives like Solana, Aptos and Avalanche. Project Guardian, DTCC, Cboe are also very active. But there also private ledgers like JPMorgan’s Kinexys (formally Onyx) and the R3 consortium’s Corda network. Scalability bottlenecks still need to be overcome for public blockchains to prove they can handle institutional volumes at scale and if so, this would certainly open the flood gates for Wall Street’s DeFi ambitions.
- Tokenised RWA integrations with DeFi protocols – Projects like Aave, Sky (formally MakerDAO), Ethena and newcomer Frax Finance are now leveraging tokenised money market funds to collateralise their reserves, stablecoins and offer more dependable yields. This could lead other DeFi projects to follow suit, and bring in traditional investors who are hesitant to engage with the more high-risk/high-reward protocols. The USD 10 billion Terra Luna collapse was a perfect example of a project that worked technically well but relied almost entirely on a crypto asset for collateral.
Why should investors care about tokenised RWAs?
DeFi yields can be lucrative in a bull market but rewards fluctuate and are highly dependent on uptrends. RWAs carry an intrinsic yield tethered to real-world cash flows, such as interest or principal payments from treasury bills or corporate bonds. If tokenised stocks were to come to market, this would extend to dividend distributions from corporate earnings, but with the added benefit of DeFi’s 24/7 markets. Projects like INX and Backed, Ondo Finance and WhiteRock are doubling down on this opportunity.
The volatility of crypto prices can also be difficult for institutions and their clientele to stomach, so tokenised assets could offer them a more stable exposure vehicle. A smaller niche segment of DeFi protocols, like Kasu, are now leveraging tokenised RWAs to provide competitive yields that are less tied to crypto prices and on-chain activity – i.e., bridging liquidity from DeFi users and real-world yield providers.
Lastly, many altcoins, including Ethereum, are underperforming and Bitcoin’s dominance and a saturated altcoin market are challenging the so-called “altseason”. This has made it harder for crypto protocols to attract and retain liquidity, while the current volatility has led to record-high liquidations on DeFi lending platforms like Aave.
After a string of high-profile memecoin collapses, market liquidity may now be forced towards more stable sectors like tokenisation, where strong backing from TradFi institutions and regulators could help the sector stand on its own.
Regulatory shifts are accommodating tokenised RWAs
The tokenisation sector could benefit from changing tune in the US and will now get direct and indirect support from the highest echelons of US leadership. One of Trump’s executive orders stands out for being the most comprehensive federal policy adjustments towards crypto assets in US history, halting all CBDC initiatives and favouring private sector innovation instead.
This could place regulated stablecoins as bricks in the foundation, creating legal clarity for stable value transfer (thanks to their fiat currency peg) for tokenised assets (which are tied to the value of financial instruments/RWAs).
The new Presidential Working Group, comprising of crypto-friendly leaders from the Treasury, Justice, the SEC, and the CFTC, also have a mandate to craft a unified federal framework by mid-2025.
Meanwhile, the EU’s MICA is now fully in effect. It is the world’s first comprehensive framework for crypto assets and will likely ramp up tokenisation efforts in Europe. But with US dollar stablecoins still accounting for the majority of Europe’s trading volume, US policy shifts will continue to have an influence over the broader market. Regulators in Hong Kong, Singapore, Japan, the UK and the UAE are also actively pursuing their own tokenisation efforts.
Tokenised RWAs by blockchain
Source: Dune
Ethereum could be well-positioned to be the major beneficiary of this regulatory shift as it is already the preferred blockchain of choice for projects that merge TradFi with DeFi. With its Layer 2 ecosystem seemingly ready to unify liquidity and strengthen Ethereum’s settlement activity, its already overwhelming market share of tokenised activity makes it a strong contender for more RWA adoption.
But new RWA-focused Layer 1 competitors like Ondo Chain, Nexera and Mantra Chain are also emerging outside of Ethereum’s ecosystem, each with their own unique features and goals to capture a piece of the tokenised market share.
Concluding thoughts
RWA tokenisation is still just a tiny fraction of the total crypto market capitalisation, but it is one of the few niche sectors where regulators, financial institutions and crypto projects come together.
And with the support from leading Wall Street giants, many of whom are already building the infrastructure to move their operations onto decentralised rails, perhaps the tokenisation trend could provide a much-needed dose of optimism as the broader crypto market works through its current headwinds.
The potential is enormous, so we plan to keep a close eye on these developments.
ENDS
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