The decentralized finance (DeFi) sector boomed in 2020, driven by the allure of yields never before imagined. TVL in DeFi protocols exploded from just $1 billion in June 2020. By December 2021, it was up to an astounding $248 billion! Unfortunately, a large share of this growth was built on sand—growing in ways that were unsustainable. It was hugely held up by inflationary tokenomics and speculative hype lacking any real economic activity. Most recently, Ethereum co-founder Vitalik Buterin has sounded the alarm on how DeFi is producing yield. He compared it to an “ouroboros,” a snake that eats its own tail, a self-cannibalizing system. As the novelty wore off, the DeFi market soon saw a significant correction. This transition highlighted the imperative of a more durable base.

Currently, Real World Assets (RWAs) are taking the lead as the hottest solution. They are opening up a pathway to earning sustainable returns in the DeFi space. Unlike the speculative yield models of the past, RWAs create yield from real-world assets and proven economic activity. This kind of approach would lay a real, stable, and realistic foundation for DeFi. It attracts both institutional and retail investors who are looking for long-term value. The RWA market is booming! The value of tokenized treasuries has skyrocketed to $7.3 billion, showing how rapidly interest in this asset class is growing. The five year yield to maturity on RWAs right now is 4.12%. This figure represents a much healthier, more long-term return than the unsustainable APYs that were promising in early DeFi projects. The industry is moving in the direction of more conservative, but sustainable APYs. RWAs are on the frontlines, disrupting undersupplied sectors such as telecoms and clean energy.

Introduction to Tokenization in Finance

Tokenization means creating a digital token that represents the rights to an asset. That piece of art can then be minted into a token that’s tradeable on the blockchain. Combined together, this new innovative approach can help to radically transform the world of finance. Specifically, it will improve liquidity, transparency and broaden access to a wider array of assets. Tokenization is changing the historical ways in which we represent and exchange value. It stretches from traditional financial instruments to real world commodities and even intellectual property.

With DeFi, we are witnessing an incredible adoption of tokenization at a pace never seen before. It provides a trustless and open ecosystem on which developers can build and users can create and engage with tokenized assets. This improves efficiency, lowers costs, and fosters innovation across the financial sector. Before tokenization can truly seize the day, several essential challenges must be tackled, including regulatory clarity, security, and scalability.

1. Grasping the Concept of Tokenization

Tokenization is the process of representing an asset—or a right to an asset—as a digital token on a blockchain. This token can then be traded, transferred and otherwise managed in a verifiable, secure and transparent way. The underlying asset can be any financial instrument, including a stock, bond, interest rate, or currency. It’s easy to think of it merely as a fungible, tangible commodity, such as gold or real estate. By making these assets more accessible and liquid, tokenization essentially unlocks the value of these assets.

Ownership, Value, and Blockchain's Role

The best way to approach tokenization is through the lens of ownership. When an asset is tokenized, the ownership rights are described by the token, rather than conveyed through the asset. This requires the creation of a token that is the proof of ownership of the underlying asset. The underlying value of the token comes from the value of the asset it represents. Blockchain technology is the backbone of tokenization. It has provided a private and transparent distributed ledger that is perfect for managing and tracking token ownership in an efficient manner. The blockchain’s immutability ensures that this ownership record cannot be altered. This important feature provides transparency and security for the token holders. Furthermore, the blockchain platform allows for fractional ownership, meaning that multiple people can own a share of one asset.

Comparing Tokenization of Real-World Assets (RWAs) and Synthetic On-Chain Assets

As you can see, tokenization is equally applicable to RWAs as well as synthetic on-chain assets. RWAs are unique in that they are physical, real-world assets like real estate, commodities, and art. Tokenizing RWAs involves creating a digital representation of these assets on a blockchain. This process quickly streamlines the most efficient locations to trade and manage growth. Synthetic on-chain assets are digital assets which are generated and exist wholly on-chain. These assets are almost exclusively backed one-to-one by other fiat or crypto assets.

What’s the difference between tokenizing RWAs and synthetic on-chain assets The main difference is the underlying asset. RWAs have a materiality that cannot be overlooked and exist within the physical world’s legal and regulatory structures, which complicate their use. Synthetic on-chain assets are completely digital. They are bound by the smart contract rules that govern the blockchain on which they live. Tokenizing RWAs requires a laser-focused eye to the legal and regulatory landscape. Further, it is important that a clear and reliable link exists between the token and the underlying asset. Generating synthetic on-chain assets is simple. These assets come with risks related to the stability and security of the blockchain on which they depend.

2. Current Landscape of RWAs in DeFi

Real World Assets (RWAs) have taken the DeFi ecosystem by storm. This is because they provide an indispensable on-ramp between the world of traditional finance and that of decentralized finance. This new trend is not only about creating sustainable yields. Second, it wants to unlock value trapped in illiquid assets. A few notable platforms are currently leading the charge in bringing RWAs into DeFi, each with their own distinct approach and focus.

Key Platforms: Centrifuge, Maple/Syrup, Ostium, and Pendle

  • Centrifuge: Centrifuge is a platform that enables businesses to tokenize real-world assets such as invoices, mortgages, and royalties. By tokenizing these assets, businesses can access DeFi liquidity and obtain financing without relying on traditional intermediaries. Centrifuge connects real-world businesses with DeFi investors, creating a win-win situation for both parties.
  • Maple/Syrup: Maple Finance is a decentralized corporate credit marketplace that connects institutional lenders with borrowers seeking financing. Syrup, built on top of Maple, extends these services to smaller and medium-sized enterprises (SMEs). These platforms allow businesses to access DeFi liquidity and obtain financing without relying on traditional intermediaries. Maple/Syrup provides a transparent and efficient way for businesses to access capital, while also offering investors the opportunity to earn yield on their crypto assets.
  • Ostium: Ostium focuses on tokenizing real estate assets, allowing investors to gain exposure to the real estate market through fractional ownership. The platform provides a secure and transparent way to invest in real estate, making it accessible to a wider range of investors. Ostium streamlines the process of buying and selling real estate, reducing transaction costs and increasing liquidity.
  • Pendle: Pendle offers a unique approach to managing yield-bearing tokens. It allows users to split yield-bearing assets into principal and yield tokens, enabling them to trade and speculate on future yield. Pendle provides a flexible and innovative way to manage yield risk, making it a valuable tool for both yield farmers and institutional investors.

Trends and Challenges in RWA Adoption

The adoption of RWAs in DeFi is driven by several key trends:

  • Demand for sustainable yield: As the initial hype surrounding DeFi cools down, investors are increasingly seeking sustainable yield opportunities that are backed by real economic activity. RWAs offer a more stable and predictable source of yield compared to the speculative models of the past.
  • Increased institutional interest: Institutional investors are starting to recognize the potential of RWAs in DeFi, attracted by the opportunity to diversify their portfolios and earn yield on previously illiquid assets.
  • Regulatory clarity: As regulators around the world provide more clarity on the treatment of digital assets, the adoption of RWAs in DeFi is likely to accelerate.

The adoption of RWAs in DeFi faces several challenges:

  • Regulatory uncertainty: The lack of clear regulatory frameworks for digital assets remains a major obstacle to the widespread adoption of RWAs in DeFi.
  • Security risks: The security of tokenized RWAs is a major concern, as any vulnerabilities in the smart contracts or custody solutions could lead to the loss of assets.
  • Scalability issues: The DeFi ecosystem needs to scale to accommodate the growing volume of RWA transactions.

3. Future Prospects for RWAs in DeFi

These have RWAs in DeFi a very bright future. They can change the financial landscape and create new prospects for investors and companies around the world. As the technology matures and regulatory clarity increases, the adoption of RWAs is expected to accelerate, leading to a more sustainable and inclusive financial system. I believe we’re finally seeing the industry adopt more conservative but still sustainable APYs. RWAs are on the leading edge, catalyzing change across the telecommunications and clean energy sectors. As of April 10, 2025, Zeebu has processed over $7 billion in settlements, managing 110k+ invoices for 140 telecom institutions.

Social Benefits of RWA Integration

The integration of RWAs into DeFi can bring significant social benefits:

  • Increased financial inclusion: RWAs can provide access to financial services for underserved populations, allowing them to participate in the global economy.
  • Greater transparency and accountability: The use of blockchain technology ensures that RWA transactions are transparent and auditable, reducing the risk of fraud and corruption.
  • Democratization of finance: RWAs can democratize finance by allowing individuals to invest in assets that were previously only accessible to institutional investors.

Exploring Intellectual Property as a New Asset Class

Perhaps the most exhilarating RWA opportunity in DeFi is the tokenization of intellectual property (IP). IP assets such as patents, trademarks, and copyrights are incredibly valuable. Yet, they’re difficult to cash out or monetize and are typically illiquid. By tokenizing IP assets, creators can unlock their value. It facilitates trading with one another and allows them to be used as collateral or liquidity in DeFi protocols. This expands new funding paths for our country’s creators and innovators. Moreover, it provides investors with an opportunity to invest in a rapidly developing, newly emergent asset class.

4. The Potential Chaos of Universal Tokenization

Tokenizing assets brings amazing possibilities. As tempting as it is to universally tokenize everything, doing so would create a number of unintended consequences and madness. Think through the consequences of applying tokenization to basic needs and services. Second, start with the technical challenge of creating a decentralized, secure, efficient, and convenient tokenization ecosystem.

Essential Requirements for Effective Tokenization in DeFi

For tokenization in DeFi to be effective and sustainable, several key requirements must be met:

  • Regulatory clarity: Clear and consistent regulatory frameworks are needed to provide legal certainty and protect investors.
  • Security: Robust security measures are essential to protect tokenized assets from theft and fraud.
  • Scalability: The DeFi ecosystem needs to scale to accommodate the growing volume of tokenized asset transactions.
  • Interoperability: Different DeFi protocols need to be interoperable to allow for seamless trading and management of tokenized assets.

Addressing Technical Challenges in RWA Tokenization

Tokenizing key goods—food, water, energy, etc.—could easily backfire and raise equity concerns. If access to these increasingly scarce and in-demand essentials are gated by a small number of token holders, this can only create inequality and social friction. Take time to think through the ethics of tokenizing basic commodities. Clarify that access to these goods stays available and is not limited by token ownership.

  • Oracle problem: Accurately and reliably linking tokenized assets to their real-world counterparts requires the use of oracles, which are data feeds that provide information from the outside world to the blockchain. Ensuring the accuracy and reliability of these oracles is crucial.
  • Custody solutions: Secure and reliable custody solutions are needed to protect the underlying assets that are represented by the tokens.
  • Smart contract security: Smart contracts that manage tokenized assets must be carefully audited and tested to prevent vulnerabilities and exploits.

The Complexities of Tokenizing Essential Goods

From self-driving cars to RWA pegged currency, the implications of merging RWAs and DeFi are far-reaching for finance’s decentralized future. It can help foster a more equitable, transparent, and inclusive financial system. Simultaneously, it will create new opportunities for investors and businesses to thrive. The industry is moving towards more conservative but sustainable APYs. RWAs are at the forefront of revolutionizing industries including telecoms and clean energy.

5. Implications for the Future of Finance

Here are some examples of RWAs leading the charge in transforming industries:

RWAs are in their infancy of blending with DeFi, but the possibilities are vast. Together, this integration can transform the country’s financial industry and inspire a more inclusive and environmentally friendly financial ecosystem. As technology continues to mature and regulators become clearer on their stance, we’ll witness a rapid acceleration in adoption of RWAs. With them, we can unlock a more decentralized, globally-connected financial future. Aave’s TVL at $5 billion in 2023 due to actual revenue. RWAs would allow investors to engage in more complex investments directly, without the need for middlemen.

  • Increased liquidity: Tokenization can unlock the value of illiquid assets by making them easier to trade and transfer.
  • Greater accessibility: RWAs can provide access to financial services for underserved populations, allowing them to participate in the global economy.
  • Reduced costs: DeFi protocols can reduce transaction costs by eliminating intermediaries and streamlining processes.
  • Increased transparency: Blockchain technology ensures that RWA transactions are transparent and auditable, reducing the risk of fraud and corruption.
  • New investment opportunities: RWAs can create new investment opportunities for both institutional and retail investors.

Here are some examples of RWAs leading the charge in transforming industries:

  • Zeebu: Zeebu's yield is backed by verified telecom settlement flows, providing a sustainable return. As of April 10, 2025, Zeebu has processed over $7 billion in settlements, managing 110k+ invoices for 140 telecom institutions.
  • BENJI: Templeton's BENJI provides investors with exposure to U.S. treasuries, offering a sustainable yield. U.S. treasuries tokenized RWAs have emerged as a favorite amongst investors, despite their low returns.
  • Ecoyield: Ecoyield connects investors directly with vetted renewable energy projects, enabling them to deploy funds in verified solar and BESS projects.

The integration of RWAs into DeFi is still in its early stages, but it has the potential to revolutionize the financial industry and create a more sustainable and inclusive financial system. As the technology matures and regulatory clarity increases, the adoption of RWAs is expected to accelerate, leading to a more decentralized and efficient financial future. Aave's TVL held at $5 billion in 2023, thanks to real revenue. RWAs could enable investors to take up positions in sophisticated investments directly, without intermediaries.