Why is RWA the "historic train" of Web3?

Whether it's PAX Gold and Tether Gold, which have reached historical highs in market capitalization, or the stock tokens launched by various platforms, real-world assets (RWA) seem to be moving on-chain at an unprecedented speed.

Especially as TradFi institutions begin to place their bets, from the increasingly robust gold token and US stock token markets to the trillion-dollar predictions from financial giants like BlackRock and Citigroup, and the NASDAQ's involvement, RWA is not only the next important narrative for DeFi but may also become the historic vehicle connecting Crypto to the real world.

Also, because of this, before discussing this opportunity, we should perhaps first return to the starting point and answer a fundamental question:

Why do Web3 and Crypto urgently need RWA?

The Historical Inevitability of DeFi Breaking the Dimensional Wall

Since Compound/Uniswap ignited the DeFi summer in 2020, the entire Crypto world has seen significant development, with the types and volumes of on-chain assets achieving rapid cold start and exponential expansion in the native asset cycle.

According to statistics from DeFiLlama, as of the time of writing, the total value locked (TVL) in DeFi across the network exceeds 160 billion USD, nearing the historical peak level of approximately 178 billion USD in November 2022.

Source: DeFiLlama

In this trillion-dollar empire, lending and staking protocols represented by Aave, MakerDAO, and Lido not only contribute a significant share of funds but have also become the key infrastructure upon which countless DeFi Lego protocols rely for survival. It can be said that the vast majority of today's decentralized trading and derivatives protocols are built on the credit systems of these underlying lending protocols.

In the early stages of DeFi development, the “inner loop” between native assets was undoubtedly a highly ingenious design – it not only addressed the seed funding needs for ecological cold starts but also greatly stimulated various borderless innovations in the Crypto world to enhance capital efficiency. However, the limitations of this “inner loop” model have become increasingly prominent:

• First of all, there is the homogenization of assets, where collateral is highly concentrated in a few mainstream cryptocurrencies, resulting in high systemic risk. Once the price of core assets fluctuates violently, it can easily trigger a chain liquidation.
• Secondly, there are limitations on the growth ceiling. The scale of DeFi is always constrained by the total market capitalization and volatility of the native cryptocurrency market, making it difficult to break through its dimensional wall.

In other words, relying solely on the internal circulation of native assets, DeFi has found it difficult to break through the ceiling; to introduce a more stable value anchor, DeFi must look outward and focus on real-world assets.

It is against this backdrop that the RWA (Real World Assets) narrative has emerged. RWA, which stands for Real World Assets, aims to bring assets from the real world, such as real estate, U.S. Treasury bonds, consumer credit, U.S. stocks, and artworks, onto the blockchain through tokenization, in order to release liquidity and improve trading efficiency.

Objectively speaking, the current DeFi and Web3 markets still have a significant gap compared to traditional financial markets. However, the emergence of RWA (Real World Assets) Tokenization brings new hope for Web3 to enter the next trillion-dollar market.

This is exactly the path that DeFi must take to move from “internal circulation” to “external circulation,” from native self-prosperity to mainstream adoption.

Fiery Cooking Oil: RWA Practices from Gold to US Stocks

Since we have clarified the necessity of RWA, let's take a look at the current market situation - the current RWA market is booming, with the most mature and typical representative being tokenized gold.

According to Token Terminal data, there are currently approximately 2.4 billion USD worth of tokenized gold (including XAUT and PAXG) on Ethereum. So far this year, the supply of tokenized gold has increased by about 100%, which not only reflects the demand for on-chain safe-haven assets but also proves the feasibility of the RWA model.

Source: Token Terminal

What is more noteworthy is that traditional financial authorities have also begun to accelerate their layout of RWA tokenization.

According to the Financial Times, the World Gold Council (WGC) is actively seeking to launch an officially recognized digital form of gold. “We are trying to establish a standardized digital layer for gold so that various financial products used in other markets can also be applied to the gold market in the future.” This move could completely change the physical gold market in London, which is worth $900 billion.

Of course, objectively speaking, compared to the gold ETF market of up to 231 billion USD and the total market capitalization of physical gold valued at 27.4 trillion USD, tokenized gold is indeed just getting started, but it is precisely because of this that its future growth potential is immeasurable.

In addition, tokenizing mainstream financial assets such as U.S. Treasury bonds and U.S. stocks is becoming the hottest direction in the RWA track. Leading projects like Ondo Finance have successfully brought the yields of short-term U.S. Treasury bonds on-chain, providing crypto users with a compliant and stable source of income.

The tokenization of US stocks has become a recent hot topic, providing global users with a 7x24 hour unobstructed access to participate in the value growth of top global companies. From Ondo Finance to Robinhood and MyStonks, an increasing number of institutions are bringing popular stocks like Apple and Tesla on-chain, injecting richer asset types into the DeFi ecosystem.

Currently, mainstream Web3 wallets are gradually integrating tokenized RWA assets such as U.S. stocks and gold. Taking imToken as an example, it now supports holding and managing stock tokens provided by Ondo Finance, such as Apple (AAPL) and Tesla (TSLA), where the token value is anchored to its underlying assets and is custodially managed in cooperation with top financial institutions like J.P. Morgan to ensure compliance and security of the assets.

Whether it is the booming gold Token or the poised stock Token, RWA is no longer a fringe experiment, but has emerged as a mainstream narrative stepping out from behind the scenes.

RWA, a historic bus for Crypto

From a data perspective alone, the RWA narrative is undoubtedly the clearest Alpha direction for “blockchain+” in the next 10 years.

The RWA research platform rwa.xyz statistics show that the current total market size of RWA is nearly 30 billion USD, and BlackRock expects that by 2030, the market capitalization of tokenized assets will reach 10 trillion USD.

In other words, the potential growth space for RWA narratives in the next 7 years could be more than 300 times.

These numbers are not unfounded; they are based on a simple fact: the total value of global real-world assets (real estate, stocks, bonds, credit, etc.) is worth hundreds of trillions of dollars. Even if only a tiny portion is tokenized, it will bring an unprecedented flood of value to the blockchain world.

Source: rwa.xyz

In this transformation of capital flow, Ethereum is undoubtedly the central battleground—far ahead of other public chains in terms of technological maturity, asset security, and the completeness of the DeFi protocol ecosystem. It is precisely for this reason that Ethereum co-founder Joseph Lubin has even stated that RWA will be one of the biggest engines driving the growth of the Ethereum ecosystem over the next decade.

It can be said that various RWA projects are flourishing in multiple ways, from the tokenization of U.S. Treasury bonds (such as Ondo Finance) to on-chain financing of private credit (such as Centrifuge).

The true significance of RWA goes far beyond simply putting assets on-chain; it marks an emerging transformation in the financial paradigm that may simultaneously reshape the underlying structures of both DeFi and traditional finance.

• For DeFi: RWA introduces high-quality collateral that is stable, low-correlated, and provides continuous cash flow. This not only fundamentally addresses the systemic risks of DeFi's “internal cycle,” but also brings unprecedented asset diversity and market depth to it;
• For traditional finance: RWA can “activate” illiquid assets such as real estate and private equity by tokenizing them to achieve ownership division and efficient circulation, greatly improving capital efficiency and creating a brand-new market;
• For the entire ecosystem: Ethereum, as the absolute main battlefield of this revolution, is evolving into a “global unified settlement layer”;

Essentially, RWA represents an “incremental capital narrative” that not only provides DeFi with more stable, low-correlation high-quality collateral but also signifies the first genuine handshake between the blockchain world and the real financial system.

In the next ten years, RWA may become a decisive turning point for Crypto to move towards the real economy and achieve mainstream adoption.