Bridging TradFi and DeFi: The Trillion Dollar Opportunity – Real World Assets and Tokenization

Abstract

Real-world assets (RWAs) are transforming finance by bringing traditional assets—such as real estate, commodities, and bonds— onto blockchain networks through tokenization. This innovation enhances liquidity, transparency, and accessibility, effectively bridging the gap between traditional finance (TradFi) and decentralized finance (DeFi).​

Figure 1: The Main Tokenization Benefits

Institutional adoption is accelerating, with financial giants like BlackRock, JPMorgan, and Goldman Sachs actively exploring tokenized bonds and money market funds. As of January 2025, the real-world asset market has reached a market capitalization of approximately $35 billion. DeFi protocols are also integrating RWAs to enhance on-chain collateral and yield generation. Notably, the share of DeFi’s Total Value Locked (TVL) attributed to RWA protocols has increased from 1.77% in July to 3.69% in October 2024, indicating a growing integration of real-world assets within the DeFi ecosystem. ​Despite its potential, the sector faces challenges, including regulatory hurdles, liquidity constraints, and counterparty risks. While global regulators work toward clearer frameworks, compliance remains a key barrier to mass adoption. Addressing these issues is crucial for unlocking the full potential of RWAs in the evolving financial landscape.

---

Key Takeaways (TL;DR)

• RWAs Are Redefining Finance – Tokenizing real estate, bonds, and commodities to unlock liquidity, transparency, and efficiency.
• Institutional Adoption Surges – Governments worldwide are actively developing compliance structures to support RWA adoption.
• DeFi Integration Accelerates – The share of RWA-based TVL in DeFi grew from 1.77% in July to 3.69% by October 2024, reflecting increasing on-chain adoption.
• Massive Growth Potential – Tokenized assets could hit $30 trillion by 2030, reshaping global capital markets.
• Regulatory Clarity – Compliance frameworks are being formed by many countries.
• The Rise Of RWA-Focused Blockchains – Ondo Chain and MANTRA are leading the race to build scalable, institutional-grade L1s for asset tokenization.

---

1. Introduction

Traditional financial markets have seen decades of optimization, challenges such as slow settlement times, reliance on intermediaries, and restricted access to investment opportunities. Tokenization is changing this by enabling real-world assets to exist on the blockchain, where they can be traded 24/7, collateralized, and accessed with fewer barriers. The possibilities for RWAs are vast, encompassing various asset classes such as real estate, government bonds, securities, and commodities, all of which are now being explored by institutions and DeFi protocols. As financial giants experiment with tokenized assets and blockchain-native firms drive innovation, RWAs are emerging as a potential driver of financial evolution. With projections indicating that the tokenized asset market could expand to between $4 trillion and $30 trillion by 2030, the median prediction of about $10 trillion would represent more than 54 times growth from its current value. RWAs are set to reshape derivative markets, structured finance, and more. This report delves into the transformative potential of RWAs, examining their use cases and the challenges that must be addressed to unlock their full potential.

Figure 2: Untokenized Market Potential

Total Value Locked (TVL) is a crucial metric in decentralized finance (DeFi), representing the total amount of assets deposited or locked in DeFi protocols. As of February 2025, RWA TVL across multiple blockchains stands at approximately $9 billion. This metric reflects the tokenized capital being utilized in various DeFi protocols and on-chain funds, including staking, lending, and liquidity pools, highlighting the growing integration of blockchain technology in traditional financial systems.

Figure 3: RWA TVL

​Figure 4: Top 10 RWA Protocols

The top 10 RWA protocols have a combined TVL of roughly 8 billion. TVL data are as of March 19, 2025. These projects are:

1. Maker (TVL: 1.39B): Integrates real-world assets into its DeFi platform to back its stablecoin, DAI, enhancing stability and diversification.

2. BlackRock BUIDL (TVL: 1.18B): Offers tokenized U.S. Treasury products, providing blockchain-based access to traditional fixed-income assets.

3. ONDO (TVL: 1.00B): Offers tokenized U.S. Treasury products, providing blockchain-based access to traditional fixed-income assets.

4. EthenaUSDtb (TVL: 982M): A stablecoin backed by institutional-grade U.S. Treasury funds (BlackRock’s BUIDL), offering faster, cheaper transactions with real-world stability.

5. Usual (TVL: 829M): DeFi protocol whose USD0 stablecoin is primarily backed by tokenized U.S. Treasury assets, bridging real-world assets with decentralized finance.

6. Hashnote USYC (TVL: 811M): Provides tokenized U.S. Treasury products, offering investors blockchain-based exposure to government securities.

7. Tether Gold (TVL: 750M): Issues XAUt tokens, each representing ownership of one troy ounce of physical gold, combining the stability of gold with blockchain technology. ​

8. Franklin Templeton (TVL: 668M): Manages the Franklin OnChain U.S. Government Money Fund, a tokenized mutual fund investing in U.S. government securities

9. Paxos Gold (TVL: 652M): Offers PAXG tokens, each backed by one fine troy ounce of London Good Delivery gold, allowing digital ownership of physical gold.​

10. Spiko (TVL: 199M): Largest RWA protocol on Polygon, utilizing smart contracts to tokenize and manage money market funds on-chain, ensuring transparency and secure liquidity.

2. Types Of RWAs & Use Cases

2.1 Tokenized Bonds & Equities

Tokenized bonds and equities convert traditional financial instruments into digital tokens on a blockchain, opening up new possibilities for market accessibility. This innovation enhances liquidity by enabling fractional ownership, round-the-clock trading, and faster settlements, reducing reliance on traditional intermediaries. For example:

BlackRock’s BUIDL
Launched in March 2024, this USD Institutional Digital Liquidity Fund is backed by U.S. Treasury bills, repurchase agreements, and cash. It reached a $375M market cap within six weeks, illustrating how tokenization can rapidly mobilize investor capital. As of March 2025, BUIDL has a TVL of $1.18B.

Ondo Finance’s OUSG 
OUSG was introduced in January 2023 for on-chain exposure to U.S. Treasuries. Later, it merged its underlying assets with BUIDL. This integration facilitates continuous, 24/7 subscriptions and redemptions, further boosting liquidity and reducing market entry barriers. 

Franklin Templeton’s OnChain U.S. Government Money Fund
Franklin Templeton’s OnChain U.S. Government Money Fund (FOBXX) operates on the Stellar and Polygon blockchains, offering real-time transparency and automated settlement for investors. The fund surpassed $668M in assets under management (AUM) as of early 2025, solidifying its position as one of the largest tokenized U.S. government funds.

Together, these projects illustrate how tokenization bridges TradFi and DeFi by unlocking additional liquidity and market efficiency. The tokenized government securities market has reached $2.96 billion in assets under management (AUM), demonstrating the growing institutional adoption of on-chain fixed-income products. The 24/7 nature of blockchain markets means transactions can occur at any time, reducing waiting periods and aligning asset liquidity with market demand. This approach not only improves market efficiency but also democratizes access to institutional-grade investments, ultimately creating deeper and more dynamic financial markets.

2.2 RWA-Backed Stablecoins

Before we explore another important use case of RWAs, it’s important to distinguish between RWA-backed and traditional stablecoins.
Traditional stablecoins, such as Tether (USDT) and USD Coin (USDC), are typically backed by fiat currencies held in reserve, like the U.S. dollar. These reserves may include cash or cash-equivalent assets. In contrast, RWA-backed stablecoins are collateralized by tangible assets, such as government bonds or other financial instruments, which are tokenized and held on-chain.

Key distinctions include:

• Collateral Composition: Traditional stablecoins are backed by fiat reserves, whereas RWA stablecoins are backed by tokenized real-world assets.
• Transparency and Decentralization: RWAs aim to enhance transparency and decentralization by managing collateral on-chain and involving the community in governance. Traditional stablecoins may rely on centralized entities for reserve management.

Examples of different types of RWA-backed stablecoins

USDY, USD0, and USDz are stablecoins pegged to the U.S. dollar, each backed by different types of RWAs, and can create opportunities for yield generation on-chain.

Figure 5: Examples of Different Types of RWA-Backed Stablecoins

These stablecoins backed by real-world assets earn yield by channeling the interest generated from their underlying assets directly to token holders. For example, Ondo Finance’s USDY earns a fixed APY of 4.35% from its tokenized note secured by short-term U.S. Treasuries and bank demand deposits. By leveraging high-quality, low-risk assets, these stablecoins not only provide consistent yield but also move the web3 ecosystem closer to achieving a risk-free asset—one that mirrors the safety and reliability of traditional, government-backed securities.

Figure 6: Cumulative USDY Mints ONDO Finance

2.3 Real Estate Tokenization

Notable real estate RWA projects have emerged globally, leveraging blockchain to tokenize physical properties and unlock liquidity in traditionally illiquid markets. Here are a few examples:

Chintai & RealNOI ($570M Real Estate Cash-Flow)
RealNOI, a company focused on transforming real estate income into a tradable asset, has deployed its blockchain-powered rental income platform built on top of the RWA tokenization service Chintai.

• Asset Portfolio: The platform provides investors access to cash flows from approximately 1,900 apartments, offering projected annual returns exceeding 5%. ​
• Tokenization Focus: Unlike traditional real estate tokenization, which involves fractional property ownership, RealNOI focuses solely on rental income. This approach eliminates the need for title transfers, notaries, or direct property management, streamlining the investment process. ​
• Market Demand: Initially, RealNOI aimed to tokenize $124 million in assets. However, surging demand has raised its target to $570 million in tokenized listings by 2025.  

DAMAC Group & MANTRA
In the Middle East, DAMAC Group partnered with MANTRA to tokenize real estate assets worth $1 billion by early 2025. This initiative highlights how traditional major developers are turning to blockchain to enhance transparency and liquidity in property investments.

Elevated Returns Aspen St. Regis Resort:
Through tokenization, Elevated Returns enabled accredited investors to acquire minority stakes in the luxury Aspen St. Regis Resort. This landmark project used Ethereum-based tokens to represent ownership, providing both a new source of capital and a blueprint for future tokenized real estate deals:

• Total Tokenized Amount: $18 million, representing 18.9% of the property’s equity. 
• Token Pricing: Each digital token, termed “Aspen Coin,” was priced at $1, with a minimum purchase requirement of 10,000 tokens per accredited investor
• Property Valuation: The resort’s valuation at the time of tokenization was approximately $224 million.

Converting physical real estate into digital tokens revolutionizes the industry by enabling fractional ownership, where multiple investors can own a share of a property. This broadens access to real estate investment, previously limited to high-net-worth individuals. Furthermore, tokenization allows for a boost in liquidity in the real estate market, which is traditionally known for its illiquidity. By converting property ownership into digital tokens, investors can buy and sell their shares on digital platforms, facilitating faster and more efficient transactions. This increased liquidity unlocks the value of real estate assets, making them more accessible, tradable, and transparent.

Figure 7: Tokenization of Real Estate, A Simplified Summary

2.4 Tokenized Commodities

Tokenized commodities represent a key category of RWAs, where physical assets ranging from gold and oil to art are converted into digital tokens on a blockchain. This transformation allows for fractional ownership, enhanced liquidity, and new markets for trading traditionally illiquid assets. Some notable projects include:

Paxos Gold:
Paxos Gold (PAXG) tokenizes physical gold by linking each digital token to an allocated portion of gold stored in secure vaults. Investors then use PAXG as a hedge against inflation and currency fluctuations, diversifying their portfolios with a traditionally stable asset. The tokenization of gold also allows for easy and fast trading on crypto exchanges, providing liquidity that is not typically available with physical gold. As of March 2025, there are 209k PAXG tokens in circulation, each backed by one fine troy ounce of gold stored in LBMA-approved vaults.

Figure 8: PAXG TVL

Synthetix (Synthetic Commodities):
Synthetix enables the creation of synthetic assets, known as “Synths,” that replicate the value of various real-world assets, including fiat currencies, commodities, and indices. This allows users to gain exposure to these assets without holding them physically. Users can trade and gain price exposure to the underlying assets without actual ownership, promoting diversification and enhancing capital mobility within the crypto space. As of March 2025, the protocol has $183M in TVL.

Key Components of Synthetix’s Tokenization Process:

1. Collateralization with SNX: Users stake Synthetix Network Tokens (SNX) as collateral to mint Synths. This staking process locks up SNX tokens in a smart contract, allowing the issuance of synthetic assets that track the value of various real-world assets, such as fiat currencies, commodities, and indices. ​
2. Price Tracking via Oracles: Oracles are systems that provide blockchains with external, real-world data, ensuring accuracy of information like price, by sourcing information from multiple entities. Synthetix utilizes these oracles to ensure the value of synthetic assets reflects the underlying assets.
3. Trading Synths: Once minted, Synths can be traded on decentralized platforms like Kwenta, allowing users to gain exposure to a wide range of assets without holding the actual underlying assets.

Masterworks (Tokenized Art):
In recent years, art has also emerged as a tokenized commodity. Although art is unique and its valuation is often subjective, tokenization enables investors to purchase fractional shares of high-value artworks. One of these projects is Masterworks, which tokenizes high-value artworks, allowing investors to purchase fractional shares of blue-chip art. Each token represents a portion of ownership in a single artwork. Through fractional ownership it lowers the barrier to entry and benefits portfolio diversification. As of March 2025:

• Art Portfolio: Masterworks has expanded its collection to over 450 artworks, featuring pieces from renowned artists such as Banksy and Jean-Michel Basquiat. ​
• Exits and Returns: The platform has successfully sold 23 paintings, returning over $60 million to investors, including the principal. ​
• Assets Under Management (AUM): As of the end of 2024, Masterworks reported $1.1 billion in assets under management.
• Member Base: The platform has attracted over 1,000,000 members, indicating significant growth and interest in art investment.

2.5 Tokenized Yield Streams

Yield stream tokenization is an innovative concept in DeFi that involves converting future returns from yield-bearing assets into distinct, tradable tokens. This process enables users to manage and trade the principal and yield components of their investments separately, offering enhanced flexibility and new financial strategies. Pendle Finance is leading this frontier. In TradFi, a similar concept exists in the form of bond stripping, where the principal and interest payments of a bond are separated. In this analogy, Pendle’s Principal Tokens (PTs) function like zero-coupon bonds, as they represent the claim to the principal upon maturity. Meanwhile, Yield Tokens (YTs) resemble detached bond coupons, allowing users to trade or speculate on the yield component independently.

Pendle Finance:
Pendle Finance is a DeFi protocol that specializes in the tokenization and trading of future yield streams from various crypto assets. As of March 2025, Pendle has a market capitalization of $411M and a TVL of 6 Billion (Consisting of RWAs and a variety of other assets) and is deployed on six different chains: Ethereum, Arbitrum, Avalanche, Mantle, BSC, Optimism.

Figure 9: Pendle’s Combined TVL

2.5.1 How Pendle Tokenizes Yield Streams:

Pendle’s core mechanism involves splitting yield-bearing assets into two distinct, tradable tokens:

Principal Token (PT):

• Represents Ownership: The PT signifies ownership of the principal amount of the underlying asset.
• Non-Yield Bearing: It does not accrue any future yield.
• Maturity Date: Holders can redeem the PT for the underlying asset upon reaching a specified maturity date.

Standardized Yield Token (SY):

• Wrapped Yield-Bearing Asset: SY tokens represent yield-generating assets (e.g., stETH, aUSDC) in a standardized format.
• Standardized Interface: Provides a unified way to interact with different yield-bearing tokens in DeFi.
• Enables Yield Splitting: SY tokens can be converted into Principal Tokens (PT) and Yield Tokens (YT), allowing separate trading of principal and yield.
• Interoperable: Works seamlessly across various DeFi protocols without needing custom integrations.

Yield Token (YT):

• Represents Future Yield: The YT entitles the holder to the future yield generated by the underlying asset until maturity.
• Time-Decaying Asset: Its value diminishes as it approaches maturity since less future yield remains.
• Tradable: Users can buy or sell YTs independently of the principal, allowing for speculation on future yield rates.

Figure 10: Pendle Finance Yield Tokenization Process

3. Market Trends & Adoption

3.1 Rapid Growth of the Tokenized RWA Market

The tokenized RWA market has experienced explosive growth, reflecting increased institutional adoption and investor confidence in blockchain-based financial instruments.

• Market Expansion: The tokenized RWA market (excluding stablecoins) ~grew at a ~205.5% year-over-year (YoY) growth rate from January 2020 ($59M) to January 2025 ($15.7B).
• Leading Asset Classes: Private credit led the sector’s growth, accounting for ~65% of the tokenized RWA market, followed by treasuries, corporate bonds, and real estate.
• Lending Growth: The cumulative value of tokenized loans surpassed $1 billion, with average yields of 9.57%, attracting both institutional and retail investors seeking stable returns.

Figure 11: Total RWA Value

3.2 Expanding Issuer and Investor Base

The adoption of RWA tokenization has seen increased participation from both asset issuers and investors.

• Issuer Participation: As of early 2025, over 119 issuers have tokenized a diverse range of assets, including private credit, commodities, real estate funds, corporate bonds, and institutional alternative funds.
• Investor Growth: The investor base has expanded significantly, with 89,108 tokenized asset holders, while stablecoin adoption surpassed 140 million accounts globally.
• Yield Demand: Institutional investors are increasingly turning to on-chain private credit and RWA-backed stablecoins, with demand being driven by high on-chain yields and transparent, programmable financial instruments.

Figure 12: Barriers to Investing In Private Credit and Tokenization Solutions

Figure 13: Comparison Between Private Credit And Tokenized Private Credit

3.3 Institutional Adoption and Expansion

The entry of major financial institutions has accelerated the adoption of RWA tokenization, marking a shift from experimental pilots to full-scale integration into capital markets.

JPMorgan: 

• Launched its Tokenized Collateral Network (TCN), enabling instant settlement of tokenized assets. 
• Partnered with BlackRock and Barclays to facilitate collateral transfers using blockchain.

Goldman Sachs:

• Developing tokenized money market funds and working on tokenized European debt issuance.
• Partnered with Hong Kong’s central bank to explore digital asset tokenization.

BlackRock:

• Its tokenized US Treasury fund surpassed $500 million in AUM within months of launch.
• Actively investing in blockchain infrastructure to facilitate RWA growth.

Citigroup:

• Citigroup introduced its “Citi Token Services” to facilitate blockchain-based trade finance and payments.

HSBC: 

• HSBC is tokenizing gold reserves and structured financial products to enhance liquidity and transparency.

These institutions are leveraging tokenization to increase market efficiency, reduce transaction costs, and enhance liquidity in traditionally illiquid asset classes. Their growing involvement signals broader capital market integration of RWAs.

3.4 Drivers of Growth

Several key factors are fueling the expansion of RWA tokenization:

• Regulatory Clarity: Governments and financial regulators, particularly in the U.S. and Europe, are establishing clearer frameworks for digital assets and stablecoins.
• On-Chain Yield Opportunities: The average 9.42% yield on tokenized RWAs has made them an attractive alternative for fixed-income investors.
• Capital Market Efficiency: Tokenization reduces settlement times, improves transparency, and increases accessibility to previously restricted financial instruments.

Looking ahead, the tokenized RWA market is projected to surpass $50 billion in 2025 and potentially reach $30 trillion by 2030 as more traditional assets migrate on-chain. Financial institutions, DeFi protocols, and regulatory advancements will play a pivotal role in shaping this transformation.

3.5 The Growing Trend of RWA-Focused Layer 1 Blockchains

The growth of Real-World Assets (RWAs) is gaining significant momentum, with specialized Layer 1 (L1) blockchains emerging to facilitate this integration. Platforms like Ondo Finance and MANTRA are at the forefront of developing infrastructures tailored for seamless and compliant RWA tokenization.​

Ondo Finance: Pioneering Institutional-Grade RWA Integration:
In early 2025, Ondo Finance announced the launch of Ondo Chain, a Layer 1 proof-of-stake blockchain specifically designed to accelerate the creation of institutional-grade financial markets on-chain. By combining the openness of public blockchains with the compliance and security features of permissioned chains, Ondo Chain provides the infrastructure to enable tokenized real-world assets to be used at scale.

MANTRA: A Security-Focused RWA Layer 1 Blockchain:
MANTRA is a Layer 1 blockchain designed for the tokenization of RWAs, ensuring regulatory compliance at the protocol level. Built using the Cosmos SDK, MANTRA supports the seamless fractionalization and tokenization of assets like real estate, art, and commodities. Its technology stack includes a native decentralized exchange (DEX) and other applications, positioning it as a comprehensive solution for RWA integration.

The development of RWA-focused Layer 1 blockchains like Ondo Chain and MANTRA signifies a pivotal shift in the blockchain industry towards accommodating real-world assets. By providing dedicated infrastructures for RWA tokenization, these platforms enhance the accessibility, efficiency, and security of integrating traditional financial assets into the blockchain ecosystem. This trend is expected to drive increased institutional adoption, as financial entities seek compliant and robust platforms that are specifically made to tokenize assets such as real estate, bonds, and commodities. The emergence of these specialized Layer 1 chains underscores the growing importance of RWAs in the evolution of blockchain technology and DeFi, paving the way for a more interconnected and efficient financial system.

4. Regulatory Outlook

The table provides an overview of the regulatory landscape for tokenization across various jurisdictions. It evaluates government sponsorship, legal frameworks, regulatory environment, and market infrastructure in each region.

Figure 14: Regulatory Landscape for Tokenization Across Different Jurisdictions

As tokenization continues to transform global finance, some jurisdictions are emerging as leaders by establishing progressive regulations, launching innovative projects, and providing institutional support. These regions are setting a standard for effective and secure implementation of tokenization in financial markets.

Figure 15: Global Regulatory Landscape

United States

Although federal oversight of digital assets in the U.S. remains inconsistent, some states have taken the lead in shaping more supportive regulatory frameworks. Notably, Wyoming and New York have introduced policies aimed at fostering innovation in the crypto space. Wyoming, in particular, has passed laws that classify digital assets as property and created a legal foundation for special-purpose depository institutions (SPDIs) designed specifically to cater to the needs of the digital asset sector.

The Trump family’s involvement in the cryptocurrency sector further underscores this growing RWA trend. In February 2025, Donald Trump Jr. appeared as a surprise guest speaker at the Ondo Summit in New York, emphasizing the potential of cryptocurrencies to shape the future of America’s economy. Additionally, the family’s venture, World Liberty Financial (WLF), has established a strategic token reserve, investing approximately $470,000 to acquire ONDO tokens, aligning with Ondo Finance’s initiatives in real-world asset (RWA) tokenization. ​

These developments signal growing regulatory clarity and rising institutional participation in the RWA space, reinforcing the ongoing integration of digital assets into traditional finance.

Singapore

The Monetary Authority of Singapore (MAS) has positioned itself at the forefront of financial innovation through initiatives like Project Guardian, which aims to enhance market liquidity and efficiency via asset tokenization. Launched in 2022, this project has grown to include over 40 financial institutions across seven jurisdictions, conducting more than 15 industry trials in six currencies. These efforts underscore Singapore’s commitment to fostering a supportive regulatory environment that collaborates closely with companies on licensing and compliance.

Reflecting the country’s progressive stance, Tin Pei Ling, an elected member of parliament, is also a Co-President for MetaComp – a digital payment token service provider based in Singapore, focusing on bridging TradFi with digital assets. Ms Tin’s role aligns with Singapore’s broader efforts to integrate digital assets into its financial ecosystem.

Hong Kong

Hong Kong is emerging as a key hub for RWA tokenization, backed by progressive regulations and institutional adoption. The Securities and Futures Commission (SFC) introduced the VASP licensing regime in 2023, providing regulatory clarity, while The Hong Kong Monetary Authority (HKMA) has signaled a strong commitment to developing a regulatory framework that supports the seamless integration of tokenized assets into the traditional financial system. Major initiatives include Hong Kong’s Tokenized Green Bond Issuance (2023): In February 2023, Hong Kong’s government successfully issued its first tokenized green bond, amounting to 800 million Hong Kong dollars (approximately US$101 million).

Switzerland

Switzerland, with its well-established legal framework for digital assets, remains a major hub for tokenization. The enactment of the Digital Asset and Blockchain Law in 2021 has enabled the secure and compliant tokenization of various asset classes, attracting international players to the Swiss market. The strong support from FINMA (Swiss Financial Market Supervisory Authority) further strengthens Switzerland’s pioneering role in blockchain technology and fosters a conducive legal environment. As a result, the tokenization of real estate assets, a major economic sector in Switzerland, is poised to unlock significant market potential in the coming years.

United Arab Emirates (UAE)

Dubai’s Virtual Asset Regulatory Authority (VARA) is setting standards for digital asset tokenization, which has helped position the UAE as a frontrunner in blockchain innovation in the region. The government has taken a proactive approach by partnering with financial institutions, which has resulted in the rapid adoption of tokenization. On the 9th of Jan 2025, Mantra signed a $1 billion deal to tokenize properties belonging to the Damac Group, one of the largest conglomerates in the UAE. The deal ensures that Damac’s tokenized assets will be available exclusively on the Mantra chain throughout 2025.

Europe

The Markets in Crypto-Assets (MiCA) Regulation is a comprehensive framework established by the European Union to regulate crypto-assets and related services, aiming to ensure consumer protection, market integrity, and financial stability across EU member states.

MiCA’s Classification of Crypto-Assets:

• Asset-Referenced Tokens (ARTs): Tokens that maintain a stable value by referencing multiple assets, including commodities. 
• Electronic Money Tokens (EMTs): Tokens that aim to maintain a stable value by referencing a single fiat currency.
• Other Crypto-Assets: Encompasses utility tokens and other digital assets that do not fall under ARTs or EMTs.​

Figure 16: RWA Forms by MiCA Classification

MiCA’s Impact on Tokenization and Real-World Assets (RWAs):

Tokens representing RWAs, such as real estate or commodities, may be classified under ARTs if they reference multiple assets or as an EMT, depending on their structure.​ When classified as ARTs, issuers must adhere to stringent requirements, such as obtaining authorization from relevant authorities, publishing detailed white papers, maintaining adequate reserves to back the tokens, and implementing robust governance and risk management frameworks. These measures aim to enhance investor protection and market integrity within the EU’s crypto-asset ecosystem. ​

5. Main Challenges of RWA Adoption

Despite the promise of increased liquidity, accessibility, and innovation, the widespread adoption of Real-World Assets (RWAs) in tokenized finance faces several significant obstacles. Regulatory uncertainty, technological risks, and market hesitations continue to pose barriers that must be addressed for RWAs to reach their full potential. This chapter explores these challenges, detailing the legal complexities, technical hurdles, and infrastructure gaps that currently limit mainstream adoption.

5.1 Regulatory and Legal Hurdles

Navigating Securities Laws:
As mentioned in the previous section, determining whether a tokenized asset qualifies as a security is complex and varies by jurisdiction. Misclassification can lead to legal repercussions, making it essential to understand and comply with regional securities regulations. 

Enforcing Digital Ownership:
Ensuring that digital tokens represent legally enforceable ownership rights is challenging. Without clear legal frameworks linking tokens to physical assets, token holders may face difficulties asserting their ownership in legal settings. 

5.2 Technological and Security Concerns

Smart Contract Vulnerabilities:
Smart contracts automate transactions in tokenization but are susceptible to bugs and exploits. Security lapses can lead to asset loss or unauthorized transfers, undermining trust in the system.

Data Integration Challenges:
Synchronizing off-chain asset data with on-chain tokens requires reliable and decentralized oracle solutions. Inaccurate or tampered data feeds can result in discrepancies between the token’s value and the underlying asset, potentially causing unintended liquidations of collateral. 

5.3 Market Acceptance and Infrastructure

Interoperability Issues:
The lack of standardized protocols across different blockchain platforms hampers seamless cross-chain token transfers and broader adoption. Achieving interoperability is crucial for a cohesive tokenized asset ecosystem.

Institutional Trust and Adoption:
Traditional financial institutions may be hesitant to adopt tokenization due to concerns over regulatory compliance, security, and disruption to existing systems. Building trust through transparent operations and regulatory adherence is vital for wider acceptance.

Addressing these challenges requires collaborative efforts among technologists, legal experts, regulators, and financial institutions to establish a secure, compliant, and efficient framework for RWA tokenization.

6. Future Outlook

RWAs are poised to revolutionize the financial landscape by enhancing liquidity, accessibility, and efficiency across various asset classes, with projections indicating that the tokenized asset market could potentially make up 10% of global GDP by 2030.

Figure 17: 2030 Predictions of the RWA Market

Traditional financial institutions are increasingly embracing tokenization. For instance, Janus Henderson, managing $360 billion in assets, has entered the realm of securities tokenization, following in the footsteps of BlackRock and Franklin Templeton. A survey from Nickel Digital Asset Management revealed that 75% of wealth managers and institutional investors anticipate increased adoption of tokenization for investment funds over the next five years. While BNY Mellon’s research indicates that 97% of institutional investors believe tokenization will revolutionize asset management.

​The integration of RWAs onto DeFi platforms is expected to unlock new efficiencies and expand access to markets that were once limited to institutional players. This convergence not only broadens market participation but also brings a broader set of collateral instruments into DeFi, which strengthens liquidity dynamics and improves systemic resilience. As DeFi protocols continue to innovate and integrate RWAs, they are poised to offer more inclusive, transparent, and efficient financial services, bridging the gap between TradFi and DeFi.

7. Conclusion

Tokenizing real-world assets marks a major evolution in the way assets are held, exchanged, and utilised within financial systems. This innovation creates new avenues for both investors and asset holders. The increasing participation of traditional financial institutions highlights the growing recognition and acceptance of tokenization as a viable and transformative financial technology.
As regulatory frameworks evolve and technological infrastructures mature, tokenization can potentially become a cornerstone of the modern financial system, fostering greater inclusivity and efficiency in global markets.​