Cool Reflections Amidst the Current Market RWA Boom

Source: Seven Bottles of Bots that Don't Get Carried Away

Introduction: The core business logic of RWA is asset tokenization, which means taking a step further on the basis of asset securitization, using the technical form of tokens as a carrier to embody various rights and risks of the underlying assets. Its significance lies in fully leveraging the technical advantages of the underlying blockchain architecture, which has inherent advantages in reducing the participation threshold for investors, improving the turnover efficiency of financial products, and enhancing the level of automated execution in terms of cost and efficiency. However, RWA has a high requirement for the degree of dataization in business scenarios, and the application landing is constrained by the principle of "going on-chain must first go online." What specific factors can accelerate the transition of RWA from being well-received to being widely adopted? What specific paths can guide the effective investment of market resources? In the current market, what factors can RWA rely on to gain its own space for survival? Here, we conduct some rational reflections on the current RWA craze based on a deep recognition of the development trends of RWA, aiming to eliminate falsehoods and distractions so that the industry can focus more efficiently on finding the development path of RWA.

Since the beginning of this year, RWA has continuously become a highly discussed hot topic globally. On one hand, the United States and the European Union have been continuously introducing relevant policies to respond to and regulate the innovative business models emerging in the fields of asset tokenization and stablecoins. For example, on April 3, the U.S. House Financial Services Committee voted to pass the "Stablecoin Transparency and Accountability Framework for a Better Ledger Economy" (referred to as the STABLE Act), which clarifies the reserve and capital requirements and anti-money laundering standards necessary for stablecoin issuance. On the other hand, many financial institutions and industry leading companies have announced the launch of tokenized related products, such as:

• Ondo Finance in the United States tokenizes U.S. Treasury Bills (T-Bills), allowing investors to hold them and receive Treasury yields (approximately 4-5% annually);
• Huaxia Fund ( Hong Kong ) launched the "Huaxia Hong Kong Dollar Digital Currency Fund", becoming the first tokenized fund for retail investors in the Asia-Pacific region;
• Standard Chartered Bank and the Hong Kong Monetary Authority (HKMA) utilize the blockchain platform eTrade Connect to tokenize trade documents such as letters of credit (LC) and bills of lading, enabling SMEs to quickly obtain financing.
• WisdomTree Group has launched a private equity fund token (VPF Token) based on Ethereum, with investment targets including Hong Kong tech startups and Southeast Asian infrastructure projects. Investors can redeem fund shares through the token or transfer them in the over-the-counter (OTC) market;
• BlackRock in the United States has partnered with Securitize to launch a blockchain-based real estate investment fund, allowing investors to hold a stake in commercial real estate (such as office buildings in New York and San Francisco) through tokens (such as SEC-compliant Reg D securities);
• Australia Maple Finance tokenizes loans for small and medium-sized enterprises, allowing investors to earn fixed returns (8-12% annualized) through MPL tokens;
• The Swiss Toucan Protocol tokenizes traditional carbon credits (such as Verra-certified carbon offset projects);
• The UK Shell Oil Company pilots trading of oil futures contracts through blockchain;
• Sotheby's auction house tokenizes high-end artworks through NFT + RWA, allowing investors to purchase fractional ownership.

The above events not only support RWA becoming the industry focus, but also attract many asset parties to turn their attention to RWA in the hope of obtaining financing through this innovative business model, including a large number of small and medium-sized enterprises and individual operators who wish to obtain financing based on physical assets. The main difference between physical assets and financial assets is that holding the asset does not generate a certain cash flow. However, the market response is very realistic; so far, the RWA issuances that have emerged globally are all based on cases related to financial assets (including categories with both financial and commodity attributes like gold and crude oil), and there have been no successful issuances based on physical assets. Even RWA projects based on financial assets are often dominated by leading institutions in traditional finance or industry leaders. "At that time, the swallows of the Wang and Xie residences flew, but when will they fly into the homes of ordinary people?" remains unknown. With the advantages of technology, how can RWA influence financial product innovation? What specific factors can accelerate or hinder the transition from popularity to actual sales? What specific paths can effectively guide market resource investment and achieve a commercial closed loop? This article aims to conduct some calm reflection on the hot topic of RWA in the hope of providing support for large-scale application and implementation of RWA.

1. Can everything be RWA?

RWA is literally translated as Real World Assets, but its core business logic is asset tokenization, which means taking a step further on the basis of asset securitization, using the technical form of tokens as a carrier to bear various rights and risks represented by the underlying assets. The Hong Kong Securities and Futures Commission defines tokenization as the process of recording asset rights recorded in traditional ledgers onto a programmable platform using DLT.

The role and significance of asset tokenization lie in fully leveraging the technological advantages of the underlying blockchain architecture. Compared to existing financial infrastructures (financial digitization and internetization), it has inherent advantages in terms of cost and efficiency in lowering the participation threshold for investors (primarily reflected in global investor participation, self-service account opening, and 7*24 all-day trading convenience), improving turnover efficiency (mainly reflected in the absence of intermediaries and settlement being instantaneous), and enhancing the level of automated execution (reducing operational risks and costs by minimizing third-party involvement). However, its disadvantages are also very evident, primarily reflected in the high degree of data digitization required for business scenarios in asset tokenization, constrained by the principle of "to go on-chain, one must first go online." For instance, in the financial industry, it requires that all factors affecting the risk and return of assets must be digitized, and that full-dimensional and real-time continuous data must be provided to support the risk and return assessment of financial assets to achieve complete asset tokenization.

This requirement is clearly too high, but it is determined by the technical characteristics of blockchain, and it is a reality we must recognize. To express it in simpler language, blockchain is just a database with a built-in reconciliation mechanism, which is deaf and blind to the outside world, only able to receive external data input, but unable to actively obtain data. How can we actively obtain data? That definitely requires IoT devices as the source of data collection. How can we ensure that the data collected by IoT devices can be 100% authentically recorded on-chain? One method is through technical means; if the entire business process is fully automated with no human involvement, then the data is certainly trustworthy. Another method is through the supervision of trusted third-party institutions as a credit endorsement. The first method obviously relies on the level of intelligence in the business scenario, while at the current stage, the second method, which relies on a "hybrid solution" to achieve data credibility and then establishes business models such as RWA based on credible data, is indeed an effective "stopgap measure." Therefore, the marginality of RWA business lies in the acquisition of credible data, and under the current condition, it is evident that not everything can be RWA.

Furthermore, since the essence of RWA is asset tokenization, its core logic reflects financial logic. The fundamental principle of matching risk and return emphasized in financial operations should play a foundational role in the design of RWA products. This principle is also the core standard for selecting priority landing scenarios for RWA in the current market. We know that the main risk-return characteristics of underlying assets are a comprehensive reflection of various factors in the business scenario, and will not change due to whether their carrier is a token or not. Therefore, the ability to provide sufficient credible data to help eliminate information asymmetry for investors becomes an effective method for choosing priority landing scenarios for RWA. In industry practice, Ant Financial announced a priority focus on the RWA issuance in the new energy sector, because the new energy industry chain, whether it is distributed generation or charging piles, and of course including wind power generation and energy storage, generally operates based on intelligent systems, possessing the characteristics of synchronized cash flow and information flow. Issuing RWA based on new energy underlying assets will greatly reduce the information asymmetry faced by investors, thus providing them with investment opportunities that are clear in returns and transparent in risks. If charging piles are also charged manually like traditional parking lots, then the RWA of such assets would have no significance.

This model of risk control through real-time data clearly surpasses the scope covered by traditional financial institutions, which are adept at methods such as asset collateralization. Therefore, from the perspective of manageable risk, Ant Financial is willing to recommend assets in the category of "digital investment banks" to its clients. Otherwise, what reason would Ant Financial have to repackage assets that traditional financial institutions, based on conventional risk control methods, cannot achieve risk control goals for, and recommend them to its clients in a different token format?

For the same reasons, existing technological conditions cannot enable the on-chain of the main data required for the valuation of physical asset values, and cannot provide reliable data support for risk control. Overall, effective paths for physical asset RWA cannot be found.

Of course, filtering according to the standard of "synchronizing data flow and cash flow" is not limited to the new energy industry as the preferred scenario for RWA implementation. For instance, cars equipped with autonomous driving features can serve as ideal underlying assets for RWA, whether in financing leasing or shared mobility. As the digitalization level of various industries increases, issuing RWA based on these industry scenarios will provide greater imaginative space for its market.

2. Are all traditional financial products worth reconstructing with RWA?

The core logic based on RWA mainly reflects the premise of financial logic, especially after the financial industry has gone through digitization and internetization, financial assets naturally exist in the form of data, and the degree of dataization in the financial industry chain has greatly increased. Compared to physical assets, financial assets are easier to achieve the goals of lowering participation thresholds, improving turnover efficiency, and enhancing automation through tokenization. So, should all financial products be restructured using RWA? Clearly not. According to the previous analysis, when it is not possible to significantly enhance the risk control capabilities of financial institutions by providing more credible data, "getting carried away" is neither worthwhile nor meaningful. A more realistic path for tokenizing financial assets is a "mixed solution", which means first completing asset securitization based on the professional capabilities of financial institutions, and then anchoring the securitized assets with specific tokens to gain the advantages of "getting carried away" in the funding end and part of the operational end of financial assets. In the following text, we will use the tokenization of REITs as an example to illustrate the basic characteristics of this model.

FTJLabs has globally proposed the RWA project REITs based on a compliant structure, bridging traditional financial assets and on-chain liquidity. This project focuses on globally listed Reits assets, constructing Reits investment portfolios through fund issuance, and issuing REITs Tokens based on fund shares as the underlying asset; each REITs Token corresponds to a share of a specific fund product. Investors can obtain REITs Tokens through the Reits assets corresponding to the investment portfolio, fiat currency, or stablecoins, and can trade them anywhere and anytime globally, as well as build investment portfolios with different yield characteristics based on these token assets.

On-chain, the project develops the REITs Protocol, which supports the automated execution of functions such as the distribution, trading, and dividend payments of REITs Tokens. It also provides data extraction services for investors through the On-Chain Data Analysis module, targeting publicly available blockchain information. Off-chain, the project selects licensed institutions to undertake the on-chain custody functions of assets, providing real-time fund net value data to reference for the secondary market trading of REITs Tokens, while also regularly issuing asset custody reports to ensure equivalence between on-chain assets and custodial assets.

Based on the above features, tokenization provides global liquidity for Reits assets, making it easier for value discovery, while also offering a unique investment target with distinct risk-return characteristics for a broader range of investors. Investment portfolios that previously required cross-exchange operations can now be achieved with just one token.

In this product, two designs can better reflect the characteristics of the product design. First, the asset custody institution plays a fundamental supporting role in the value of REITs Token. The asset custody institution discloses the net value of the custody assets through periodic reports based on its own entity credit, ensuring that the value of the REITs Token is equivalently pegged to the custody assets. Second, this project only uses exchange-listed Reits as the underlying assets. The asset custody institution can provide reference prices for the REITs Token based on the price information provided by the exchange. If the underlying assets of the project also include private placement Reits products, the asset custody institution will not be able to provide reference quotes for the REITs Token, which will further affect the asset transparency of the REITs Token and subsequently impact its liquidity.

3. RWA, a wealth opportunity for the masses?

Currently, under the circumstances, the "Mainland assets + Hong Kong funds" model is more ideal for carrying out RWA business. However, the Hong Kong Securities and Futures Commission (SFC) maintains a cautious attitude towards the regulation of asset tokenization, having made clear provisions regarding the identification of qualified investors and fundraising methods to prevent investors from taking on excessive risks.

In 2019, the Hong Kong Securities and Futures Commission (SFC) issued a statement on the distribution and promotion of security tokens, imposing restrictions that allowed for offerings only to "professional investors (individual financial assets ≥ HKD 8 million or licensed institutions)." In November 2023, the SFC released two circulars: "Circular on Intermediaries Engaging in Activities Related to Tokenized Securities" and "Circular on Tokenized Investment Products Recognized by the SFC," no longer classifying tokenized securities as "complex products" and removing the limitation of offering and marketing solely to professional investors; however, the SFC retained a provision from the 2019 statement, stating that intermediaries intending to engage in activities related to tokenized securities should discuss their business plans with the SFC in advance. Tokenized securities cannot be publicly offered to all investors directly.

In December 2023, Harvest International collaborated with Meta Lab HK to tokenize its fixed income fund products, primarily targeting professional investors. On September 10, 2023, Taiji Capital launched Hong Kong's first real estate fund security token (PRINCE Token) aimed at "professional investors". This token is the first fund tokenization fundraising product approved by the Hong Kong Securities and Futures Commission, with a fundraising target of approximately HKD 100 million, and a minimum investment standard of HKD 1,000, which is far below the usual USD 1 million required to invest in private real estate funds. However, according to relevant regulations from the Hong Kong Securities and Futures Commission, licensed digital asset exchanges in Hong Kong are not allowed to accept registration from mainland users. Moreover, there is a clear prohibition in mainland China against relevant institutions (for mainland residents) providing virtual asset trading services. Even though Hong Kong allows licensed institutions to offer virtual asset trading services to retail investors, mainland users are still unable to participate directly.

In addition, the RWA products that have been successfully issued at this stage often have characteristics of fixed income or revenue-sharing, and the relatively fixed expected yield is more suitable for large-scale institutions for asset allocation. Therefore, at this stage, there is still a significant gap between RWA and the wealth opportunities envisioned by the general public investors.

4. RWA, the ideal channel for SMEs to obtain financing?

If RWA cannot provide the imagined returns for retail investors on the funding side, can it provide an ideal channel for financing for a large number of small and medium-sized enterprises on the asset side?

As everyone knows, the cost of financing is a core factor affecting the choice of financing channels for enterprises. According to market news, the issuance cost of RWA in Hong Kong generally includes two parts: issuance fees and funding costs. Among them, funding costs are mainly determined by the risk-return characteristics of assets and the capital market environment at the time of issuance (currently, market predictions are generally an annualized 6-10%); while issuance fees include due diligence costs, product design and development costs, cross-border funding channels, and post-management costs, with the total issuance fees amounting to several million. Based on the issuance costs, one can infer the lower limit of the underlying assets of RWA. Clearly, issuing RWA with an asset scale of less than 100 million is not economical. In addition to funding costs, there are also time costs. This article takes the issuance of tokenized REITs as an example, outlining the asset selection criteria, main issuance process, and time cycle as shown in Table 1:

In summary, under the current market environment, RWA issuance has a high threshold in terms of financing costs and time, making it not an ideal channel for most small and medium-sized enterprises to obtain financing. However, for large enterprises whose financial indicators have reached or are close to those required for listing on the Hong Kong Stock Exchange, the three digital asset exchanges that currently serve as the main channels for RWA issuance in the Hong Kong market (as of May 2025, a total of 10 institutions have been authorized by the Hong Kong Securities and Futures Commission to engage in digital asset trading-related businesses, but only 3 platforms are currently online and available for external trading), even though they have certain advantages in issuance costs, they clearly have significant disadvantages in terms of capital costs and fundraising efficiency. For assets with relatively stable returns and larger funding needs, they would prefer to choose to issue on the Hong Kong Stock Exchange, whereas only enterprises whose financial indicators do not meet the standards for issuance on the Hong Kong Stock Exchange are more willing to incur higher costs to choose digital asset trading platforms for RWA issuance. This is also one of the main reasons why RWA implementation is relatively difficult in the current Hong Kong market.

5. Finance or Internet? The Survival Path of RWA in the Current Market!

From the perspective of the Hong Kong Securities and Futures Commission's definition of tokenized securities and the general consensus in the market, RWA (Real World Assets) based on financial assets has not changed its financial attributes, but merely materializes the original risk and return characteristics of the underlying assets using tokens as a new technological carrier. By using tokens as a new carrier, financial products demonstrate unprecedented advantages in trading convenience, trading efficiency, and process transparency. If we could turn back time hundreds of years, to 1397, when the Medici family in Florence pioneered cross-border remittance using bills of exchange in Europe; to 1602, when the Amsterdam Stock Exchange launched the world's first stock, the Dutch East India Company stock; or to 1844, when the Bank of England monopolized the issuance of banknotes in the UK, taking the first step towards becoming a global central bank. If they were given another choice, they would likely choose distributed ledger technology as the underlying architecture for these pioneering financial instruments, as the advantages in cost and efficiency are evident.

But this is just a romantic assumption; time cannot flow backward. After hundreds of years of accumulation, the financial industry has profoundly bonded with the global economic system in terms of product forms and the breadth and depth of services. It is unlikely that RWA, starting with security tokenization, will completely reconstruct all traditional financial products. Just as the internet infiltrated traditional society, starting from the areas with the best cost-effectiveness and the most technological advantages, RWA is more likely to find its own opportunities.

Although artificial intelligence has already defeated humans in specialized fields such as chess and Go, it is unlikely to replace humans in providing personalized financial services to all investors. The advantages of the internet are primarily reflected in serving a large number of long-tail users. Therefore, while traditional financial institutions have occupied a major market share based on their service experience with head clients, RWA, which relies on financial attributes as its basic business logic, has to leverage the characteristics of the internet to find its own survival space.

In the short term, RWA needs to meet the minimum requirements for traffic accumulation from market initiation, and validating specific product forms in various scenarios is a beneficial attempt. Especially, selecting tracks like games and entertainment, where C-end user participation is relatively high and aligns with current industrial development trends, may present larger opportunities. In the medium to long term, when new energy sources such as solar and wind power can be seamlessly integrated with intelligent systems and traditional power grids to automatically provide charging services; when taxis with autonomous driving functions significantly reduce comprehensive usage costs compared to household car purchases; and when AI-supported Agents can replace humans in executing more tasks, with computing power, models, and data becoming the main production factors, and humans no longer needing to participate directly in production, the role of RWA will become irreplaceable. As an innovative financial service model, RWA will inevitably grow into a mainstream form of financial service alongside the development of the intelligent economy, which has the same genes and is closely integrated. A good example of this is how the dollar replaced the pound as the "global hard currency" following World War II, thanks to the rise of America's comprehensive national power.

Final Thoughts

The current RWA is still in the proof of concept stage, but we all recognize that trends represent the future. Here, we engage in some cool thinking regarding the hype around RWA, not to deny RWA and its innovative exploration, but rather because we are deeply acknowledging its development trends that we are willing to discern the true from the false, eliminate distractions, and focus on finding more efficient development paths for it. It’s still the old saying reflected in Gatner's new technology adoption curve: for a new technology, people often overestimate its short-term effects while underestimating its long-term effects. Following the idea of validating product prototypes, perhaps we can find a more suitable living space for RWA right now!