RWA: Seeking Breakthroughs in Tight Spaces

Introduction

The tokenization of real assets ( RWA ) is believed to enhance liquidity, transparency, and accessibility, allowing more people to access high-value assets. However, this explanation is not entirely accurate. This article will explore the current development status of RWA from a personal perspective.

1. Early Attempts of RWA

The combination of blockchain and real-world assets can be traced back to Colored Coins on Bitcoin. This was the first systematic attempt to implement non-monetary functions on the blockchain and marked the beginning of blockchain's move towards intelligence. However, due to technical limitations and centralized trust issues, this attempt ended in failure.

The emergence of Ethereum ushered in the Turing-complete era of blockchain. However, apart from fiat-backed stablecoins, RWA has failed to make substantial breakthroughs over the past decade. This is primarily due to the following reasons:

1. The contradiction between decentralization and regulation: RWA requires a trust foundation from centralized entities, which contradicts the decentralized nature of blockchain.

2. Asset Complexity: Financial assets are relatively easy to tokenize, but the tokenization of non-financial assets faces many challenges.

3. Low competitiveness of returns: Compared to the high returns of the cryptocurrency market, the return rates of traditional assets struggle to attract users.

2. Regulatory Promotion of RWA Development

Recently, places like Hong Kong, Dubai, and Singapore have successively introduced regulatory frameworks related to RWA, laying a foundation for the development of RWA. However, the fragmentation of regulation and traditional finance's vigilance towards risks still casts a shadow over this field.

The regulatory frameworks in various regions mainly involve the following aspects:

• Securities recognition and registration requirements
• KYC/AML measures
• Investor Suitability
• Information Disclosure
• Liquidity Restriction
• Compliance Path

Although the introduction of regulatory frameworks provides development space for RWA, it also brings new challenges. The current RWA protocols lack sufficient accessibility and interoperability, creating an "island" effect.

Some projects are exploring ways to circumvent regulatory restrictions. For example, a certain protocol avoids the risk of being classified as a security through special token design and lock-up periods, while achieving interaction with the DeFi world.

3. The Composition and Advantages of RWA Assets

The total on-chain RWA asset value currently exceeds $20 billion, mainly including private credit, U.S. Treasury bonds, commodities, real estate, and equity securities. The RWA protocol is primarily aimed at traditional financial users, especially small and medium-sized enterprises and institutional-level users.

The advantages of moving these assets onto the chain include:

1. 24/7 Instant Settlement
2. Break through regional restrictions and provide global liquidity.
3. Reduce marginal service costs
4. Provide financing channels for special industries
5. Lower the investment threshold

The success of RWA could bring a trillion-dollar market space to the cryptocurrency industry. For DeFi, RWA can provide a more solid asset base and a wider variety of asset choices.

4. RWA as the Swordbearer

In certain areas, RWA may become the "sword bearer" of the blockchain world, balancing some issues brought by decentralization. Taking NFTs as an example, current NFT holders often lack actual rights to IP. RWA may provide new ideas to solve such problems, allowing investors to gain more substantial rights.

V. The Future of RWA

RWA has the potential to reshape the financial system by bringing real-world opportunities onto the chain and helping to regulate the blockchain ecosystem. However, it is currently limited by regulatory frameworks, and its form still resembles private protocols on public chains. In the future, it needs to break through these constraints to achieve broader interoperability.

The ideal RWA should enable the free flow and investment of assets on a global scale. For example, users can seamlessly switch investment targets across different time zones and countries, participating in global asset allocation. This method of asset management that transcends geography and time is the ultimate vision of RWA.