Eva Meng, Head of RWAs at Matrixdock, shares her thoughts on why real world assets are more than just a buzzword in decentralised finance.
Claiming the title as the next trillion-dollar opportunity for finance, a resurgence in interest in real-world
asset (RWA) tokenization has been driven by macroeconomic dynamics alongside an anticipated
comeback of stablecoins.
More importantly, RWA tokenization offers a pathway to unlock a ‘risk-free rate’, currently missing in the highly volatile crypto markets. Industry recognition of such a benchmark is expected to unleash a new wave of value creation and financial use cases. Thus, RWA tokenization now stands at a crossroads in defining its lead role for the financial industry’s next era of growth.
But the enchanting allure of this new frontier also raises the spectre of uncertainty in its sustainable
execution and scale — begging the question: will RWA tokenization become a fleeting fad or can it
instead be a transformative gateway to the future of finance?
Becoming Finance’s Transformative Frontier
The key value proposition of RWAs lies in bridging the gap between TradFi and digital assets, redefining cost-efficiency by eliminating intermediaries and enabling traders to access traditional yield sources.
As the gap between on-chain and off-chain rates widens with rising FED rates, the industry has refocused industry efforts to unlocking “risk-free” real-world yields. RWA tokenization, exemplified in the form of tokenized treasury bills, provides seamless access while minimizing capital costs, improving margins, and enhancing liquidity, previously the exclusive domain of traditional finance.
Additionally, RWAs are expected to unlock the potential of the stablecoin market, which is currently sitting at US$133 billion. Despite being a cornerstone of the crypto ecosystem, the underutilization of these stable assets has been a lingering concern for the industry. This is something that RWA tokenization stands to unlock, altering how value is created, transferred and stored. As a result, barriers to entry for investment are lowered, offering a diversified investment platform for alternative assets like real estate, microloans, and fine art, for investors of any size.
The application pathways for RWA tokens don’t end there. They can also be a compelling option for
asset-backed digital investments given the benefits of the token’s core tenets of security, transparency and stability. There are already live market case studies, like Verified USD (USDV), a stablecoin backed by tokenized short-term U.S. treasury bills. STBT, which is one of the initial reserve assets for USDV is also widely recognised as one of the best practices for trading and liquidity solutions in the tokenization space. To drive the adoption of such innovations, financial institutions can further look into creating a comprehensive suite of use cases across the ecosystem that include CeFi platforms, DeFi protocols and payment options.
If realised in its entirety, it can be said that RWA tokenization offers a new paradigm in financial
innovation, laying the foundation for a more inclusive, equitable and liquid financial market.
Barriers to Overcome for Longevity
While the introduction of a risk-free rate in crypto seeks to inject a growth catalyst into the ecosystem and move beyond the replication of traditional finance, challenges persist, including user experience and regulatory ambiguities, that must be addressed for the sustained momentum of RWA tokenization.
The prevalent perception binary of cryptocurrencies as “high-risk” and Treasuries as “low-risk” impedes
the evolution toward a more nuanced financial system. By tokenizing real-world assets, a previously
unexplored realm of risk profiles becomes accessible, providing fund and asset managers with
opportunities for more sophisticated portfolio construction and comprehensive management strategies.
Simultaneously, the need for instantaneous liquidity is paramount for user experience, and the existing
system’s longer waiting periods for token minting or redemption deter clients, especially those with
smaller amounts. Addressing this, market players must cater to the demand for 24/7 liquidity for RWA
tokens, akin to BTC or ETH trading, through proper identification of suitable liquidity pools to ensure
streamlined execution and settlement.
Just like most digital assets verticals, tokenization currently grapples with regulatory uncertainty, where
legal frameworks struggle to match the rapid advancements in tokenization technology. This issue is
particularly pronounced in the RWA infrastructure integrated with DeFi, requiring regulators to address
blockchain scalability to accommodate TradFi market volumes and define what constitutes security, along with clarifying how on-chain property rights can be treated off-chain.
While tokenization technology has demonstrated potential in diverse use cases, the industry must
overcome bottlenecks in user experience, regulation, and compliance for it to achieve critical mass.
Building, One by One
In spite of existing challenges, there is promise for the future as substantial efforts are underway to
enhance RWA tokenization operations. In the realm of DeFi protocols, there is a focus on progressive
regulatory approaches to align processes with rigorous DeFi compatibility standards, promoting
transparency. Clear regulatory frameworks, such as Singapore’s successful stablecoin regulations, will
foster industry innovation and provide necessary guardrails for the longevity of fintech advancements.
Moreover, initiatives are in place to streamline interactions between traditional and digital finance, with
market players utilizing Curve pools for 24/7 near-instant liquidity. Efforts are also underway to reduce the time for the minting and redeeming process from T+1 to 0.
With the whole ecosystem building on both ends to see RWAs up and running, this will not only safeguard investors but also create a conducive environment for issuers and financial institutions to innovate and tap into new investment avenues. Ultimately, with the right efforts in place, the perceived uphill battle for broader adoption and integration with TradFi might very well be cleared in a matter of years — creating a world where there is no longer segregation between TradFi and DeFi, and we all can just call it “Finance.”
Eva Meng is the Head of RWA at Matrixdock, an RWA tokenization brand owned by Matrixport. Eva is passionate about bridging digital assets and traditional finance and is focused on leading the team to build cutting-edge technology in the tokenization space. Prior to Matrixport, Eva spent over 6 years in the digital asset mining industry.