Can RWA Become the Next Watershed in the Market

The launch of the Bitcoin spot ETF marks a new stage of development in the cryptocurrency field. Previous policies have laid the foundation for this sector, and now traditional financial giants are entering the arena, further promoting the development of RWA( real-world assets) track. An increasing number of financial institutions are beginning to explore how to achieve on-chain trading and management of traditional assets through blockchain technology, and this trend is reshaping the landscape of financial markets.

Recently, a series of initiatives launched by a financial technology company, including a global market platform and a public chain, signify that the RWA sector is gradually moving towards the mainstream. This transformation has also triggered a new round of competition on Wall Street, quietly changing the rules of the game between the cryptocurrency market and traditional finance.

Differentiation and Commonality of RWA Track Projects

Representative Projects of Large Asset Management Companies

Recently, a certain fintech company has been making frequent moves, launching a global market platform to provide blockchain integration services for stocks, bonds, and ETFs. Shortly after, it announced the launch of a new Layer 1 public chain, aimed at building a more robust financial infrastructure and promoting the tokenization of RWA.

The public chain is the infrastructure of the global market platform, focusing on the integration of RWA tokenization with blockchain. It supports global investors in accessing on-chain access to US-listed securities through a blockchain platform, breaking geographical restrictions and providing 24/7 uninterrupted trading services.

The new public chain has launched a solution that embeds institutional-level compliance into the public chain architecture. Through innovative means such as a permissioned verification node mechanism and a native cross-chain protocol, it aims to overcome the pain points of existing RWA on-chain from both a technical and institutional perspective. By using traditional financial assets as collateral, it ensures network security and achieves interoperability with traditional clearing systems, further bridging on-chain and off-chain liquidity.

Competitiveness and Limitations in the Same Track Projects

This is related to its unique architectural design and strong institutional resources, and also reflects the power and interest game between blockchain and traditional finance.

Competitiveness:

1. Tokenization and Free Transfer of RWA: By pairing traditional assets with tokens on a 1:1 basis, investors can freely transfer these tokenized assets outside the United States and integrate with DeFi to participate in financial activities such as lending and yield generation.

2. Combination of Openness and Compliance: It combines the openness of public blockchains with the compliance of permissioned chains. Validators undergo permissioned audits to ensure compliance, while any developer and user can issue tokens and develop applications on this chain, ensuring innovative vitality.

3. Institutional Participation and Ecological Construction: The design consulting team includes several well-known financial institutions, promoting their institutional-level applications in both traditional finance and the DeFi sector.

4. Oracle Mechanism and Data Security: The built-in oracle system ensures the accuracy and real-time nature of on-chain data, reducing the risk of data manipulation. This design enhances the credibility of key data such as asset prices, interest rates, and market indices.

5. Cross-chain functionality and security assurance: Achieve cross-chain asset transfer through bridging, provide security assurance for decentralized verification networks, and support institutional asset and liquidity management, adapting to large-scale transactions.

Limitations:

1. Highly dependent on institutions, lacking community drive.

The architecture heavily relies on the participation of traditional financial institutions, and the credibility and liquidity of tokenized assets mainly come from the endorsement of these institutions. While it ensures the quality and compliance of tokenized assets, it also brings a problem: the ecosystem is primarily designed for institutions, resulting in lower participation from ordinary users. Compared to fully decentralized RWA projects, it resembles an extension of the traditional financial world, where the circulation and trading of tokenized assets occur more among institutions, thus weakening the influence of ordinary investors and decentralized communities.

2. The issue of power distribution under centralized control

While retaining some openness, the validators are permissioned, meaning that core power is concentrated in the hands of a few institutions. This contrasts sharply with fully decentralized RWA projects and reflects the power structure of traditional finance, where most control remains in the hands of a few large financial institutions. This concentration of power may lead to conflicts in future governance and resource allocation, especially when conflicts arise between token holders and institutional interests.

3. The speed of innovation may be limited by compliance and traditional institutions.

   As the core pillars are compliance and institutional participation, this may also limit its pace of innovation. Compared to fully decentralized projects, introducing new financial products or technologies may require complex compliance processes and institutional approvals. This puts it at risk of being slow to react in the rapidly changing crypto space, especially when competing with more flexible DeFi projects, where its compliance- and institution-oriented framework may become a burden.

Real Obstacles Faced by RWA Projects

Despite the fact that blockchain technology provides a technical foundation for the on-chain of RWA, current public chains still struggle to meet the demands of traditional finance in areas such as high-frequency trading and real-time settlement. At the same time, the fragmentation of the cross-chain ecosystem and security issues further exacerbate the difficulty for institutions to deploy RWA. The application of RWA in decentralized finance ( DeFi ) faces multiple real-world obstacles:

First, the trust and consistency issues of assets and on-chain data have become the core challenges of RWA (Real World Assets) on-chain. The key to RWA on-chain lies in ensuring the consistency between assets in the real world and on-chain data. For example, after the tokenization of real estate, the ownership, value, and other information recorded on-chain must completely match the legal documents and asset conditions in reality. However, this involves two key issues: first, the authenticity of on-chain data, which means ensuring that the source of on-chain data is credible and tamper-proof; second, data synchronization and updating, which means ensuring that on-chain information can reflect the changes in the status of real assets in real time. Solving these problems often requires the introduction of trusted third parties or authoritative institutions, but this conflicts with the decentralized nature of blockchain, making the trust issue an unavoidable core challenge for RWA on-chain.

Insufficient cybersecurity is also an important issue. The security of blockchain networks usually relies on the economic incentive mechanisms of local tokens, but the volatility of RWA is typically lower than that of cryptocurrencies, especially during market downturns, which may lead to a decrease in network security. Moreover, the complexity of RWA requires higher security standards, and existing blockchain systems may not be able to fully meet these demands.

The compatibility issues between RWA and the DeFi architecture have not yet been resolved. The original intention of DeFi design is to serve crypto-native assets, not traditional securities. Bringing RWA on-chain involves complex financial behaviors, which are difficult to manage effectively through existing DeFi systems. Importantly, there are also significant shortcomings in the real-time processing and security of large-scale traditional financial data within oracle systems.

The challenges of decentralized liquidity and security in cross-chain transactions have further increased the difficulty of bringing RWA on-chain. The cross-chain issuance of RWA leads to fragmented liquidity, increasing the complexity of asset management. Although cross-chain bridging mechanisms provide solutions, they also introduce new security risks such as double-spending attacks and protocol vulnerabilities.

Institutional regulation and compliance issues are the biggest non-technical barriers to RWA on-chain. Many regulated financial institutions are unable to transact on public blockchains, primarily due to anonymity, lack of compliance frameworks, and differences in global regulatory standards. Compliance requirements such as KYC and anti-money laundering further increase the complexity of RWA on-chain, which in some ways restricts capital inflow.

The liquidity on the market side and restrictions on institutional participation have also constrained the development of RWA. Currently, the overall market value of RWA is mainly concentrated in low-risk assets, while the on-chain progress of large asset classes such as stocks and real estate is slow. The liquidity of RWA still relies on crypto-native protocols, and the overall market is still in the early stages of development.

The conflict between DeFi and the trust mechanisms of traditional finance is also an issue that must be addressed when RWA is on-chain. DeFi relies on code and cryptography to build trust, while traditional finance relies on legal contracts and centralized institutions. This difference in trust mechanisms leads traditional financial institutions to adopt a cautious attitude towards blockchain technology, especially in key areas such as custody and risk control.

Although blockchain technology provides the possibility for the on-chain of RWA, there are still many challenges in practical applications. Issues such as data consistency, network security, compatibility, liquidity, compliance, the matching of technology and economic models, and conflicts in trust mechanisms all need to be gradually resolved in order to promote the widespread application of RWA in DeFi.

If RWA is successful, the new public chain may become a redistribution of power between the old and new financial systems in the "Wall Street Game".

The most fundamental challenge of RWA on a non-technical level lies in how to achieve compliance, which relies on the recognition of a powerful centralized authority organization behind compliance.

The world's largest asset management company, after advancing the Bitcoin ETF, participated in the investment construction of RWA. This is essentially a bid to reallocate power between the traditional financial system and the emerging decentralized technology reliant on blockchain. This struggle is not just a competition of technological transformation or financial innovation, but a contest for the power to set global financial rules, control capital, and determine future wealth distribution mechanisms.

Despite the hope for decentralization brought by blockchain technology, in the face of the reality of capital and power being highly concentrated, Wall Street is attempting to bring this technological revolution under its control, continuing its dominant position in the global financial system through new forms of market manipulation and asset securitization.

The Rebalancing of Power in the Global Financial System

Wall Street has always dominated the global financial system, controlling key nodes of capital flow, asset management, and financial services. Traditional financial institutions have achieved control over global capital by monopolizing financial infrastructure. However, the rise of blockchain technology has broken this situation:

Decentralized Finance ( DeFi ) weakens the traditional financial infrastructure that Wall Street has long controlled by eliminating intermediaries. DeFi allows for key functions such as capital flow and asset management to operate on decentralized platforms, enabling users to manage assets, lend, and trade directly on the blockchain without intermediaries like banks or investment banks. However, this represents a significant threat to Wall Street, as this shift in power means that Wall Street could lose its dominance over the global financial system.

Asset Tokenization: Who Can Control the New Financial Infrastructure

The RWA tokenization promoted by new public chains and other platforms aims to enhance the liquidity of assets, but it hides a power struggle for control over new financial infrastructure. Blockchain networks are candidate platforms for the next generation of global financial infrastructure; whoever can dominate this infrastructure will be able to take a leading position in linking real-world assets with blockchain in the future.

The interests of Wall Street are reflected in the intention to control these decentralized networks. They may not directly deny blockchain, but rather control these emerging blockchain platforms through investments, mergers, or collaborations, leading to a re-emergence of capital centralization. Although blockchain is designed to be decentralized, a significant amount of capital and liquidity can still easily be concentrated in the hands of a few large financial institutions or hedge funds. Ultimately, this results in key resources on the blockchain platform returning to a few players, making the decentralized asset market completely reliant on the driving force of centralized massive powers.

Regulatory Arbitrage and Extrajudicial Power

According to a media report on February 6, a recent electronic trading survey of institutional traders by a large bank shows that 29% of institutional traders are about to or are currently engaged in cryptocurrency trading this year, an increase of 7 percentage points from last year.

Arbitrage has always been a trading strategy that Wall Street elites are adept at exploiting. In the face of the uncertain regulatory environment of blockchain's decentralized characteristics, future Wall Street institutions may take advantage of regulatory differences between countries and regions by establishing operational entities in jurisdictions with looser regulations to circumvent stricter oversight. For example:

In new public chain projects, the tokenization of certain RWAs may bypass traditional securities regulations or financial market regulations. Manipulating asset flows and capital structures in different regulatory environments further strengthens control over emerging markets. It is not ruled out that the operation of this "gray area" is one of the means by which Wall Street seeks higher returns through blockchain.

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