RWA: The elephant in the middle

Here's the English translation: RWA has the potential to reshape finance, while bringing opportunities from the real world onto the blockchain, which might be a new path to addressing blockchain chaos. **Author: Zeke, YBB Capital Researcher** ## Preface "The tokenization of real-world assets (RWA) aims to enhance liquidity, transparency, and accessibility, enabling broader individuals to access high-value assets," is Coinbase's explanation of RWA, which is also the common explanation in popular science articles. However, in my view, this sentence is neither clear nor entirely accurate. This article will attempt to interpret RWA from my personal perspective. ## I. A Broken Prism The combination of Crypto and real-world assets can be traced back to Colored Coins on Bitcoin over a decade ago, by adding metadata to Bitcoin's UTXO to achieve "coloring", giving specific Satoshi the attributes of representing external assets, thereby marking and managing real-world assets (such as stocks, bonds, real estate) on the Bitcoin chain. This protocol similar to BRC20 was humanity's first systematic attempt to implement non-monetary functions on the blockchain, and also the beginning of blockchain's move towards intelligence. However, due to the limited opcodes of Bitcoin script, the asset rules of Colored Coins needed to be parsed through third-party wallets, and users had to trust these tools' logic of defining UTXO "colors". Centralized trust mixed with insufficient liquidity caused the first concept verification of RWA to ultimately fail. [The rest of the translation follows the same professional and accurate approach, maintaining the original structure and technical terminology.]

1. Liquidity Restrictions: Secondary market trading requires licensing, and DeFi platforms may be defined as "Virtual Asset Service Providers" (VASP).
2. Compliance Shortcut: Luxembourg fund structures (such as Tokeny gold tokens) become a low-cost issuance channel, with compliance costs for small RWA platforms expected to increase by 200%.

Dubai:

Regulatory Authority: DFSA (Dubai Financial Services Authority)

Core Framework:

Tokenization Sandbox (launching March 2025): Two-phase approach (intention application, ITL test group), allowing testing of security tokens (stocks, bonds) and derivative tokens.

Compliance Path: Exemption from partial capital and risk control requirements, can apply for official license after 6-12 months of testing.

Advantages: Equivalent to EU regulation, supporting Distributed Ledger Technology (DLT) applications, reducing financing costs.

Singapore:

Security tokens incorporated into Securities and Futures Act, applicable exemption clauses (small issuance ≤ 5 million SGD, private placement ≤ 50 people).

Functional tokens must comply with anti-money laundering regulations, with MAS (Monetary Authority of Singapore) promoting pilot projects through sandboxes.

Australia:

ASIC (Securities and Investments Commission) will classify RWA tokens with yield rights as financial products, requiring financial services license (AFSL) and risk disclosure.

In summary, European and American countries focus on compliance thresholds, while Asian and Middle Eastern regions attract projects through experimental policies, but compliance thresholds remain high. Currently, RWA protocols can exist on public chains but must be equipped with various compliance modules to adapt to the compliance framework. These compliance protocols cannot directly interact with traditional DeFi protocols, and based on different jurisdictions, a protocol compliant with Hong Kong's framework cannot interact with compliance protocols in other regions. From the current situation, RWA protocols lack sufficient accessibility and are extremely lacking in interoperability, resembling "islands" contrary to their ideal form.

Is there really no decentralized path within these frameworks? Actually, there is. Using Ondo, a leading RWA protocol, as an example, the team built a lending protocol called Flux Finance, allowing users to use open tokens like USDC and restricted tokens like OUSG as collateral for lending. They issue a tokenized bearer note called USDY (a compound interest stablecoin), designed with a 40-50 day lock-up period to avoid being classified as a security. According to the SEC's Howey Test, securities must meet conditions like "investment of funds in a common enterprise, profit dependent on others' efforts". USDY's returns come from automatic compounding of underlying assets (like Treasury interest), and passive holding doesn't depend on Ondo team's active management, thus not meeting the "dependent on others' efforts" element. Ondo then simplifies USDY's circulation on public chains through cross-chain bridges, ultimately creating a path of interaction with the DeFi world.

However, such a complex and non-reversible approach may not be the RWA we want. Another key factor in the success of fiat stablecoins is excellent accessibility, enabling low-threshold inclusive finance in the real world. RWA still needs TradFi and project parties to explore together how to first achieve interconnection within different jurisdictions and interact with the on-chain world within possible scopes. Only then can it meet the general interpretation of RWA mentioned earlier.

III. Assets and Yields

According to rwa.xyz (a professional RWA analysis website), the total value of on-chain RWA assets is currently $20.69 billion (excluding stablecoins), primarily consisting of private credit, US Treasury bonds, commodities, real estate, and stock securities.

[Rest of the translation follows the same professional and accurate approach]

In terms of strategy, Yuga Labs' route for BAYC is Metaverse, obtaining funds through unlimited sub-IP issuance, departing from the original luxury narrative. Regarding this, Non-Fungible Token holders have neither the right to be informed, nor decision-making rights, and even less rights to profits. In the traditional world, when investing in an IP, investors usually have direct usage rights of the entire IP, direct profit distribution, decision-making participation, and even development leadership.

Yuga Labs is at least among the top performers in PFP projects, and previously, many Non-Fungible Token projects had even more chaotic rights distribution. When a giant sword hangs overhead, will they choose to respect their community more?

V. Beyond the Carrier

In summary, RWA has the potential to reshape finance and bring opportunities from the real world onto the chain, which might be a new solution to regulate blockchain chaos. However, limited by the current TradFi regulatory framework, its form still resembles a private protocol on a public chain, unable to unleash its maximum imaginative space. As time passes, I hope there will be a guide or alliance to break down this barrier.

The potential of assets across different carriers is hard to imagine. From bronze inscriptions in the Western Zhou period to fish-scale archives in the Ming Dynasty, asset confirmation ensured social stability and development. What would the ultimate form of RWA look like? I could buy Nasdaq stocks during the day in Hong Kong, deposit money in the Russian Federal Savings Bank in the early morning, and invest in Dubai real estate with hundreds of anonymous shareholders the next day.

Yes, a world running on a massive public ledger is RWA.

Disclaimer: As a blockchain information platform, the articles published on this site represent only the personal views of the authors and guests, and are not related to Web3Caff's stance. The content is for information sharing only and does not constitute any investment advice or offer. Please comply with the relevant laws and regulations of your country or region.