Deep Dive into the Liquidity Challenges of RWA
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Deep Dive into the Liquidity Challenges of RWA
Everything can be tokenized, but can it really be sold?
Navigating Web3 tides with focused insightsBy: Max.S
On August 27, Binance founder Changpeng Zhao (CZ) attended the "Crypto Finance Forum 2025" at the University of Hong Kong and stated that RWA is not as easy as imagined—especially non-financial RWAs with inherently weak tradability, which may fall into illiquidity.
In the future, rental income from any property worldwide, fractional ownership of a rare artwork, or even partial returns from private credit could be traded as easily as stocks. This is the grand and exciting vision painted by "real-world asset (RWA) tokenization." It aims to inject blockchain technology into traditional finance, breaking physical and geographical constraints. Bulky, non-standardized, and hard-to-circulate assets such as real estate, art, and private equity would be transformed into digital tokens tradable frictionlessly on-chain around the clock, fully unlocking their liquidity potential.
A financial revolution seems poised to disrupt Wall Street—it certainly sounds like it. With rapid technological advancement, by mid-year an estimated $24–25 billion worth of real-world assets (excluding stablecoins) had already been successfully moved onto blockchains across 15 different blockchain ecosystems. Yet beneath the surface of this booming market capitalization lies an awkward truth: everything can be tokenized, but can it actually be sold? A 2025 in-depth research report used solid data and case studies to ruthlessly expose a secret everyone in the RWA space knows: we’ve mastered the magic of digitizing everything, but we haven’t built the markets needed for these digital assets to flow freely. The most alluring part of the RWA story—liquidity—remains its most critical bottleneck.
The Illusion of Prosperity: A Billion-Dollar Market Built on "Piggy Banks"
At first glance, RWA market data might impress with its astonishing growth curve. In just a few years, a nascent market worth hundreds of billions has emerged, seemingly proving the massive success of tokenization. But a closer look at its composition reveals that much of this prosperity is misleading. Currently, private credit and tokenized U.S. Treasuries dominate the RWA market, collectively occupying the vast majority of market share.
The reason these assets dominate is simple: they serve as exclusive "on-chain piggy banks" for institutions and high-net-worth individuals. In DeFi, investors can purchase tokenized money market funds like BUIDL issued by traditional financial giants such as BlackRock, or hold tokenized U.S. Treasuries via platforms like Ondo Finance to earn steady and attractive yields. These products are primarily appealing for their yield generation, not tradability. Investors typically buy and hold until maturity to collect interest, rather than frequently trading them like cryptocurrencies. Despite their large market caps, these markets operate largely under a static "buy-and-hold" model, not the vibrant secondary trading markets many envision.
Ironically, the asset classes that theoretically stand to benefit most from enhanced liquidity—such as real estate, art, and small business loans—make up only a tiny fraction of the RWA market. Take tokenized real estate, for example: its total market cap is around $300 million. Niche categories like art and carbon credits hover around just $100 million. This highlights a core contradiction: tokenization's greatest successes so far involve digitally packaging assets that already have decent liquidity or low volatility, rather than tackling structurally illiquid assets—the truly difficult ones. Grand digital vaults have been built, only to find they mostly contain time deposits, not cash ready for instant trading.
Cold On-Chain Data Reveals: "Deserted" Markets Behind High RWA Valuations
If market composition exposes the macro-level structure of the problem, on-chain micro-data confirms the lack of liquidity in an even starker way. Researchers analyzing data from platforms like RWA.xyz and Etherscan paint a realistic picture of liquidity through dimensions such as token holder distribution, monthly active addresses, and transaction frequency.
Take BUIDL, BlackRock’s flagship token and the brightest star in the RWA space. It consistently ranks first in market cap among RWA assets at $2.42 billion, with over $1.8 billion in monthly transfer volume. At first glance, these numbers look impressive. But consider this: it has only 85 holders, and merely 30 truly active addresses per month. This indicates that the vast majority of its fund flows occur during minting and redemption between project teams and a handful of institutional investors. The kind of open secondary market trading we imagine barely exists.
The phenomenon of "high market cap, low activity" is common across the RWA sector. Many institution-focused tokens have fewer than 10 active addresses per month. For instance, TRSY (tokenized Treasuries) issued by Centrifuge has only six holders. One study bluntly highlights the issue: academic researcher Swinkels conducted an empirical analysis of residential real estate tokens issued on the RealT platform and found that each token changes hands only once per year on average. In contrast, stocks in developed markets typically trade much more frequently. This near-zero turnover rate shatters the myth that "tokenization equals high liquidity." These so-called "liquid assets" behave more like stagnant pools on-chain.
There are exceptions, though. While most of the RWA market remains dormant, tokenized gold products like PAXGold (PAXG) and TetherGold (XAUT) stand out with strong vitality. PAXG has over 69,000 holders and sees more than 52,000 monthly transfers. On-chain records show consistent and stable trading activity over five years—unlike the sporadic, isolated bursts seen in other RWA tokens.
Why do gold tokens lead the pack? The answer lies not in gold itself, but in "market access." Most RWA tokens are trapped in permissioned, fragmented trading environments. PAXG and XAUT, however, are listed on major centralized exchanges like Binance and Kraken, as well as decentralized platforms like Uniswap. Their broad, permissionless trading channels drastically lower entry barriers for retail and institutional investors alike, enabling real-time price discovery and deep market liquidity. PAXG’s success acts like a mirror, reflecting the fundamental flaw plaguing other RWA assets: the absence of an open, unified, and accessible trading market.
The Invisible Shackles of Liquidity: Four Structural Barriers
Why does moving assets onto blockchains fail to deliver the expected liquidity? Four structural barriers collectively lock the door to RWA liquidity.
The first barrier: the regulatory "invisible wall." Most RWA tokens are legally classified as "securities" and must comply with strict securities regulations. To remain compliant, issuers impose numerous restrictions—only users who pass Know-Your-Customer (KYC) checks or qualify as "accredited investors" can participate. While whitelisting ensures compliance, it severely limits the pool of potential buyers and sellers, killing market breadth and depth. Investors must complete complex off-chain signing and identity verification before trading, making the process far from the promised "frictionless" experience.
The second barrier: "fragmented islands" in the market. Imagine a world without central exchanges like NYSE or Nasdaq, where stocks can only be traded across hundreds of small, disconnected trading apps. That’s the current state of the RWA market. Assets are scattered across various decentralized exchanges (DEXs), specialized alternative trading systems (ATS), and informal over-the-counter (OTC) networks. Each platform functions as a liquidity island. Without a unified central marketplace to aggregate order flow, price discovery is inefficient and transaction costs are high.
The third barrier: the "black box" of valuation. How do you accurately price a fractional stake in a specific property or a unique private loan on-chain? Unlike fungible crypto assets like Bitcoin, each RWA carries unique risk, legal, and value characteristics. This heterogeneity makes fair valuation extremely difficult. Information asymmetry prevents traders from agreeing on asset values, leading to wide bid-ask spreads. Investors often demand a "liquidity discount" to compensate for uncertainty and potential exit difficulties, further depressing prices and creating a self-reinforcing "illiquidity spiral."
The fourth barrier: the "missing market maker" problem. In mature financial markets, market makers play a crucial role by continuously providing bid and ask quotes to ensure liquidity and narrow spreads. In today’s RWA ecosystem, professional market makers are nearly absent, resulting in a critical gap. While some DeFi protocols attempt to incentivize liquidity provision through mechanisms like liquidity mining, these efforts often fail to attract or sustain stable liquidity pools for low-volume, non-fungible RWA tokens.
High on-chain transaction fees (GasFee) and interoperability challenges between different blockchain networks further exacerbate the liquidity crisis.
Paths to Breakthrough: Building Multidimensional Bridges to Liquidity
Faced with such daunting challenges, is the future of RWA bleak? I don’t think so. The issues are solvable—but only through systematic innovation and development across legal frameworks, market structures, financial instruments, and infrastructure. Here are some potential solutions:
Embrace "hybrid market" architectures. Purely decentralized or centralized models both have flaws; a hybrid approach may offer the best path forward. Specifically, regulated centralized platforms could handle initial issuance, compliance review, and custody to ensure asset authenticity and legal validity. Then, technical bridges could connect compliant tokens to open decentralized protocols for secondary trading and circulation. This approach satisfies regulatory requirements while leveraging DeFi’s composability and automated market makers (AMMs) to generate liquidity.
Explore "collateral-as-liquidity." Not all liquidity needs to come from direct asset sales. "Collateralized lending" offers a more sophisticated alternative. MakerDAO’s initiative is highly instructive. As one of the largest decentralized stablecoin protocols, it has begun accepting tokenized short-term U.S. Treasuries and other RWAs as collateral for its DAI stablecoin. This means RWA holders can borrow DAI without selling their assets, gaining immediate liquidity. This "indirect liquidity" model is an ideal solution for assets suited to long-term holding but occasionally requiring working capital—such as real estate and private equity.
Strengthen foundational infrastructure and ecosystems. Liquid markets need solid foundations. This includes: modernizing regulation—actively promoting regulatory innovation through frameworks like the EU’s DLT Pilot Regime to appropriately lower entry barriers and allow broader participation while protecting investors; establishing more specialized data analytics platforms like RWA.xyz to provide standardized disclosures and third-party valuation reports, reducing information asymmetry;
Developing institutional-grade facilities: designing more attractive incentive schemes—for example, allocating a portion of asset-generated returns (such as bond interest) to liquidity providers to encourage market participation; building secure, reliable institutional custody solutions and compliant tokenized securities exchanges to boost market confidence and reduce trading risks.
Final Thoughts
Returning to the original question: "Can everything that’s tokenized actually be sold smoothly?" The answer is: not yet, but there’s hope. RWA tokenization technology has proven feasible—but this is only the first step in a long journey. Building mature, comprehensive, and coordinated market ecosystems is the real challenge. Liquidity won’t emerge spontaneously; it must be carefully designed and cultivated. "Enhancing liquidity" must shift from a lofty aspiration to the core and primary objective in RWA project design. Only when regulatory barriers are dismantled, market silos are connected, and valuation black boxes are illuminated will the era of truly efficient and inclusive RWA trading finally arrive.
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