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Cool Thoughts Under the Current Market RWA Boom
Source: Seven Bottles 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 technological advantages of blockchain's underlying architecture, providing inherent advantages in cost and efficiency in lowering the participation threshold for investors, improving the turnover efficiency of financial products, and enhancing the level of automated execution. However, RWA requires a relatively high degree of digitization in business scenarios, and its application landing is constrained by the principle of "to go on-chain, first go online." What specific factors can accelerate the transition from popularity to practicality for RWA? What specific paths can guide the effective allocation of market resources? In the current market, what factors allow RWA to gain its own space for survival? Here, based on a deep recognition of the development trend of RWA, we conduct some rational reflections on the current RWA craze in the market, aiming to play a role in distinguishing the false from the true and eliminating distractions, so that the industry can concentrate its efforts more efficiently on finding the development path of RWA.
Since the beginning of this year, RWA has continued to become a highly focused hot topic globally. On one hand, the United States and the European Union have continuously issued relevant policies to respond to and regulate the innovative business models emerging in 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 needed for stablecoin issuance. On the other hand, many financial institutions and industry leaders have announced the launch of tokenization-related products, such as:
The above events not only support RWA becoming the focus of the industry but also attract many asset holders to turn their attention to RWA in hopes of obtaining financing through this innovative business model. This includes a large number of small and medium-sized enterprises as well as individual business 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 yield a certain cash flow. However, the market's response is very realistic; so far, all RWA issuances globally have been based on relevant cases of financial assets (which also include categories like gold and crude oil that have both financial and commodity attributes), and there have been no successful issuances based on physical assets. Even RWA projects based on financial assets are often led by top institutions in traditional finance or industry leaders. "When will the swallows fly into the homes of ordinary people?" remains unknown. RWA, benefiting from technology, how will it impact the innovation of financial products? What specific factors can accelerate or hinder the transition from acclaim to actual demand? What specific pathways can guide effective market resource investment and achieve a commercial closed loop? This article aims to provide some calm reflections on the hot topic of RWA, in order to support the large-scale application and implementation of RWA.
1. Can everything be RWA?
RWA is directly translated as Real World Assets, but its core business logic is asset tokenization, which means taking a step forward 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 infrastructure (financial digitization and internetization), it has inherent advantages in terms of cost and efficiency, such as lowering the participation threshold for investors (mainly reflected in global investor participation, self-service account opening, and 7*24 round-the-clock trading convenience), improving turnover efficiency (mainly reflected in the absence of intermediaries and settlement without clearing), and enhancing the level of automated execution (reducing the involvement of third-party institutions to lower operational risks and costs). However, its disadvantages are also quite evident, primarily manifested in the high degree of data requirements for business scenarios in asset tokenization, constrained by the principle of "to go on-chain, first go live." For example, in the financial industry, it is required that all factors that can affect the risk and return of assets must be digitized and that comprehensive 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. In simpler terms, blockchain is just a database with a built-in reconciliation mechanism; it is deaf and blind to the outside world, only able to receive external data inputs and unable to actively obtain data. What should we do if we want to actively obtain data? We must rely on IoT devices as the source of data collection. How can we ensure that the data collected by IoT devices can be 100% authentically placed on-chain? One method is a technical approach; if the entire business process is fully automated and does not require human participation throughout, then the data is indeed credible. Another method is to rely on the supervision of trustworthy third-party institutions as a credit endorsement. The first method clearly depends on the level of intelligence in the business scenario, while currently, the second method—first relying on a "hybrid solution" to achieve data credibility, and then establishing business models such as RWA based on credible data—is indeed an effective "stopgap measure." Therefore, the marginal aspect of RWA business lies in the acquisition of credible data; under the current circumstances, it is obviously not the case that everything can be RWA.
Furthermore, since the essence of RWA is asset tokenization, its core logic is reflected in financial logic. The basic principle emphasized in financial business is the matching of risk and return, which 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 the underlying assets are a comprehensive reflection of various factors in the business scenario and will not change due to whether its carrier is a token. Therefore, the ability to provide sufficient credible data to help eliminate information asymmetry for investors becomes an effective method for selecting 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 in distributed power generation or charging piles, 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, thereby providing them with a clear return and transparent risk investment opportunity. If charging piles were charged by manual methods like traditional parking lots, then the RWA for such assets would be meaningless.
This model of risk control through real-time data clearly surpasses the scope covered by traditional financial institutions, which excel in asset collateralization and similar methods. Therefore, from the perspective of manageable risk, Ant Financial is willing to recommend assets classified as "digital investment banks" to its clients. Otherwise, if traditional financial institutions cannot achieve risk control objectives with their conventional risk control methods, what reason would Ant Financial have to offer a new token packaging to recommend these assets to its clients?
For the same reasons, existing technological conditions cannot put the main data required for the valuation of physical assets on-chain, nor can they provide credible data to support risk control. Overall, there is no effective path for the RWA of physical assets.
Of course, filtering according to the standard of "synchronizing data flow and cash flow" is not limited to the new energy industry as a priority scenario for the implementation of RWA. For example, cars with autonomous driving capabilities, whether in financing leasing or shared mobility, can serve as ideal underlying assets for RWA. As the digitalization level of various industries increases, issuing RWA based on these industry scenarios will give their markets greater imaginative space.
2. Are all traditional financial products worth reconstructing with RWA?
The core logic based on RWA primarily reflects the premise of financial logic, especially after the financial industry has undergone digitalization and internetization. Financial assets inherently exist in the form of data, and the degree of dataization in the financial industry chain has greatly improved. Compared to physical assets, financial assets are more easily tokenized to achieve the goals of lowering participation thresholds, increasing turnover efficiency, and enhancing automation levels. So, do all financial products deserve to be reconstructed with RWA? Clearly not. According to the analysis above, 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 beneficial nor meaningful. A more realistic path for the tokenization of financial assets is the "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" at the funding end and part of the operating 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 first RWA project REITs based on a compliant architecture that bridges 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 investments in the corresponding Reits assets, fiat currency, or stablecoins, and can trade them anywhere and at any time globally. Additionally, different yield characteristic investment portfolios can be constructed based on these token assets.
On-chain, the project develops the REITs Protocol, which supports the automatic execution of functions such as distribution, trading, and dividends of REITs Tokens, and provides data services for investors by extracting data from publicly available blockchain information through the On-Chain Data Analysis module. Off-chain, the project chooses licensed institutions to undertake the asset on-chain custody functions and provides real-time fund net value data to reference the secondary market trading of REITs Tokens, while regularly issuing asset custody reports to ensure that on-chain assets and custody assets are equivalent.
Based on the above functions, tokenization grants global liquidity to Reits assets, making value discovery easier, while also providing 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 are particularly able to reflect the characteristics of the product design. First, the asset custody institution plays a fundamental supporting role in the value of the REITs Token. The asset custody institution discloses the net value of the custody assets through regular reports based on its own creditworthiness, ensuring that the value of the REITs Token is equivalently anchored to the custody assets. Second, this project only uses publicly listed Reits on exchanges 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 project's underlying assets also include private placement Reits products, the asset custody institution will be unable to provide reference quotes for the REITs Token, which in turn will hinder the asset transparency of the REITs Token and further affect its liquidity.
3. RWA, a wealth opportunity for public participation?
In the current situation, the "Mainland assets + Hong Kong funds" is an ideal model for carrying out RWA business. However, the Hong Kong Securities and Futures Commission (SFC) maintains a cautious approach to the regulation of asset tokenization, having made clear provisions regarding the identification of qualified investors and fundraising methods to avoid excessive risk for investors.
In 2019, the Hong Kong Securities and Futures Commission (SFC) issued a statement on the issuance of security tokens, imposing restrictions on the distribution and promotion of security tokens to "only professional investors (individual financial assets ≥ 8 million HKD or licensed institutions)." In November 2023, the SFC issued two circulars, "On Intermediaries Engaging in Tokenized Securities-Related Activities" and "On Tokenized SFC-Recognized Investment Products," no longer categorizing tokenized securities as "complex products," nor limiting their sale and marketing to only professional investors; however, the SFC retained one provision from the 2019 statement, which states that intermediaries intending to engage in tokenized securities-related activities should discuss their business plans with the SFC in advance. Tokenized securities cannot be publicly offered directly to all investors.
In December 2023, Harvest Global Investments 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 aimed at "professional investors" (PRINCE Token). This token is the first fund tokenization fundraising product approved by the Hong Kong Securities and Futures Commission, with a fundraising target size of approximately HKD 100 million and a minimum investment standard of HKD 1,000, far lower than the USD 1 million typically 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 cannot accept registrations from mainland users, and institutions in mainland China are explicitly prohibited from providing virtual asset trading services to mainland residents. Even though Hong Kong allows licensed institutions to offer virtual asset trading services to retail investors, mainland users cannot directly participate in it.
In addition, the RWA products that have been successfully issued at this stage often have the characteristics of fixed income or profit-sharing rights. The relatively fixed expected return rate is more suitable for large-scale institutions to allocate assets. Therefore, at this stage, there is still a significant gap between RWA and the wealth opportunities envisioned by retail 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 offer an ideal channel for financing to 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 a company's choice of financing channels. According to market news, the issuance cost of RWA in Hong Kong generally includes two parts: issuance fees and funding costs. Among them, the funding cost is mainly determined by the risk-return characteristics of the assets and the capital market environment at the time of issuance (current market predictions are generally annualized at 6-10%); while the issuance fees include due diligence costs, product design and development costs, cross-border funding channels, and subsequent management costs, with the total issuance fees amounting to several million. Based on the issuance costs, the lower limit of the underlying assets for RWA can be backtracked. 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 to outline the asset selection criteria, main issuance process, and time cycle as shown in Table 1:
In summary, under the current market environment, the issuance of RWA has relatively high thresholds in terms of financing costs and financing time, making it not an ideal channel for most small and medium-sized enterprises to obtain financing. For large enterprises whose financial indicators meet or are close to the listing standards of the Hong Kong Stock Exchange, the three digital asset exchanges that are currently 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 have been launched and can provide trading services externally) have certain advantages in issuance costs, but clearly face significant disadvantages in terms of capital costs and fundraising efficiency. Enterprises with relatively stable asset returns and large capital demand would prefer to choose to issue on the Hong Kong Stock Exchange, while only those enterprises whose financial indicators cannot meet the listing standards of the Hong Kong Stock Exchange are more willing to spend higher costs to choose digital asset trading platforms for RWA issuance. This is also a major reason why the implementation of RWA in the current Hong Kong market is relatively difficult.
5. Finance or Internet? The Survival Path of RWA in the Current Market!
Whether from the Hong Kong Securities and Futures Commission's definition of tokenized securities, or from the general consensus in the market, RWA based on financial assets has not changed its financial attributes but has merely materialized the original risk and return characteristics of the underlying assets using tokens as a new technological carrier. Using tokens as a new carrier, financial products exhibit 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 of Florence was the first in Europe to use bills of exchange to pioneer cross-border remittance business; 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 a global central bank; if they were given the chance to make a choice again, they would likely choose distributed ledgers as the underlying architecture for these pioneering financial instruments, as the advantages of cost and efficiency are evident.
But this is just a romantic hypothesis; time cannot flow backward. After hundreds of years of accumulation, the financial industry has completed a profound binding with the global economic system in terms of product form, service breadth, and depth. It is unlikely that RWA, which starts with the tokenization of securities, will completely reconstruct all traditional financial products; just as the internet permeated traditional society, RWA is more likely to find its own opportunities by starting in areas with the best cost-effectiveness and the most technological advantages.
Although artificial intelligence has 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 advantage of the internet is primarily reflected in serving a large number of long-tail users. Therefore, while traditional financial institutions have already occupied a major market share based on their service experience with head customers, RWA, which is fundamentally based on financial attributes, has to leverage the properties of the internet to find its own space for survival.
In the short term, RWA needs to meet the minimum requirements of market initiation for traffic accumulation. It is beneficial to validate specific product forms in various scenarios, especially by choosing tracks such as gaming and entertainment, where C-end user participation is relatively good and aligns with current industry development trends, as these opportunities may be greater. In the medium to long term, when renewable energy sources like solar and wind power can seamlessly connect with traditional power grids through intelligent systems and automatically provide charging services; when taxis equipped with autonomous driving capabilities have significantly lower comprehensive usage costs compared to households purchasing cars; 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 to become a mainstream form of financial service, accompanying the development of the smart economy that shares the same genes and is closely integrated with it. A good example of this is how the U.S. dollar replaced the British pound as the "global hard currency" after World War II, thanks to the rise of U.S. comprehensive national strength.
Written at the end
The current RWA is still in the proof of concept stage, but we all recognize that the trend represents the future. Here, we take a moment to reflect coolly on the RWA frenzy, not to deny RWA and its innovative exploration, but rather, precisely because of our deep recognition of its development trend, we are willing to sift through the noise, eliminate distractions, and focus on finding a more efficient development path for it. As the old saying reflected in Gatner's new technology application curve goes, people often overestimate the short-term effects of a new technology while underestimating its long-term effects. Following the idea of validating product prototypes, perhaps we can find a more suitable living space for RWA in the present!