1. The Tokenization Mega-Trend

Over the past few years, tokenization has increasingly gained mindshare in institutional finance, resulting in several of the world’s largest asset managers deploying billions of Dollars’ worth of capital onchain. Some notable examples include:

• BlackRock’s $2.1B BlackRock USD Institutional Digital Liquidity Fund (BUIDL)

• Janus Henderson’s $783M Anemoy AAA CLO Fund (JTRSY)

• Franklin Templeton’s $717M OnChain U.S. Government Money Fund (BENJI)

2. Market Size & Forecasts

Overall, the increased awareness and action around tokenization has been relentless; since September 2022, the total value of tokenized assets has seen a 10x increase, and now sits above $30 billion (excluding stablecoins).

However, we’ve only begun to scratch the surface. Compared to the ~$4 trillion cryptocurrency asset class, the share of tokenized RWAs is only 0.75%. But at its current rate of growth, and considering the transition within institutions from talking about tokenizing to actually doing it, the coming years have significant potential to bring major shifts in how assets are created, managed, and transacted.

One byproduct of the increased mindshare among institutional players is the plethora of market growth forecasts, many of which offer extremely optimistic views of the future role of tokenization in global markets. Some recent examples include:

• The Business Research Company: $5.5 trillion by 2029 (including stablecoins)

• Mordor Intelligence: $13.55 trillion by 2030 (including stablecoins)

• Standard Chartered: $30.1 trillion by 2034 (including stablecoins)

• Deloitte: $4 trillion in tokenized real estate by 2035

A crucial factor to keep in mind while analyzing the potential future of tokenized assets is the reality that it applies to virtually every major asset class in the world. Thus, its impact has the potential to reach far beyond one region, market, or type of asset.

3. Tokenization By Asset Class

Currently, five asset classes leading the tokenization trend are debt, stocks, real estate, commodities, and private equity. Combined, these markets exceed $1.28 quadrillion in value.

Debt

As of Q1 2025, global debt markets had a total valuation of $324 trillion, making them the world’s second largest asset class behind real estate.

Generally, “debt” is somewhat of a catch-all asset class, as it includes a wide selection of markets, such as:

• Sovereign debt, which is issued by governments (e.g. U.S. Treasuries)

• Corporate debt, which is issued by companies on public markets

• Private credit, which is privately issued by companies to non-bank lenders

• Personal debt, which are loans to individuals (e.g. auto and credit card loans, mortgages)

So far, the most-tokenized asset in tokenization’s short history (based on verified public data) has been debt; roughly $26 billion of tokenized private credit, U.S. Treasury debt, non-U.S. Government debt, and corporate bonds are currently circulating onchain.

Some notable examples of tokenized debt (in addition to the aforementioned BUIDL and BENJI funds) include:

• @OndoFinance’s Short-Term US Government Bond Fund (OUSG) and U.S. Dollar Yield (USDY)

• @circle's tokenized U.S. short-term Treasury Bills (USYC)

• @Figure’s $12+ billion worth of cumulative private HELOC loans

Stocks

Considering the relatively high participation rate of retail investors in the $127 trillion global stock market, tokenized stocks have been one of the most anticipated and widely-discussed solutions in the RWA sector.

So far, this anticipation has not translated to actual stock tokenization. However, ongoing developments aim to change that in the near future. Two of the most significant projects actively tokenizing equities are Ondo Finance and @BackedFi. While some “tokenized” assets are essentially synthetic onchain equity price-trackers, Ondo and Backed both facilitate markets backed by actual representations of the underlying shares.

Ondo Finance has tokenized ~$290 million worth of equities to date, including ETFs representing the S&P 500 (SPY, IVV), Nasdaq 100 (QQQ), and Russell 1000 (IWF).

Backed Finance has tokenized ~$76 million worth of “xStocks,” their onchain equity product. While Backed has brought several major ETFs onchain, they’ve also listed digital representations of individual stocks, including Tesla (TSLA), MicroStrategy (MSTR), NVIDIA (NVDA), and Circle (CRCL).

While Ondo has the upper hand in terms of value tokenized, Backed has established early dominance in attracting activity; since the launch of xStocks in June 2025, traders have generated over $4.5 billion in volume.

Real Estate

First, it’s important to note that due to the relative illiquidity and opaque nature of real estate markets, tokenized real estate is not included in any of the aforementioned tokenization metrics.

With that being said, this asset class happens to be the largest in the world, with an estimated value of $654 trillion. Between its illiquidity, lack of transparency, and size, the real estate market arguably has the most to gain from widespread tokenization.

One company at the forefront of real estate tokenization is @RedSwanDigital, which aims to tokenize $100 million worth of commercial real estate on the Stellar blockchain by the end of 2025.

While RedSwan is currently limited to private investment, a DeFi project that’s bringing this innovation to the public is @PropyInc, which allows users to tokenize their properties and list them in fractional shares onchain. So far, Propy has facilitated over $4 billion worth of transaction volume.

Commodities

Like the aforementioned asset classes, major commodities (oil, natural gas, and precious metals) command a massive 15-figure combined market cap exceeding $170 trillion.

Among the major commodities, gold has seen the most demand within web3 by far. Specifically, @Paxos and @Tether_to have tokenized a combined ~$2 billion worth of gold.

Another project that’s innovating in the field of tokenized commodities is @justokenglobal, which currently offers markets for soybeans, soybean oil, cotton, and corn. However, transactions of these tokens are currently limited to private investors on offchain rails.

Private Equity

While private equity markets are far less transparent than most, its global market cap was estimated at roughly $13 trillion in 2024.

Despite its relatively small size, private equity is currently one of the fastest-growing asset classes in the world, with estimated growth of ~54% over the next 5 years. The emergence of private equity as a global asset class makes it an interesting candidate for tokenization, as its increasing prominence has received attention from many investors in various fields of technological innovation.

Two notable institutions currently offering onchain private equity funds are Apollo (via the Apollo Diversified Credit Securitize Fund) and Hamilton Lane (via the Hamilton Lane Secondary VI Securitize Fund). Combined, these two global institutions have tokenized ~$133 million worth of private equity.

While a growing number of institutions are bringing their assets onchain directly, there’s been a recent wave of DeFi-native projects aiming to accelerate this process – particularly in the realm of private equity.

Two projects leading this effort are @JarsyInc and @PreStocksFi. While their platforms are not identical, both offer fractionalized shares of private equity for popular companies that have not yet gone public (e.g. SpaceX, OpenAI, ByteDance, etc.). In the background, both of these projects hold equity in their listed companies that fully backs all outstanding shares.

This is among the most innovative RWA solutions yet; it enables retail and institutions alike to gain exposure to private equity, while also leveraging the efficiency of blockchain rails to ensure fast and cost-effective execution and settlement with 24/7 convenience.

Collectively, these five asset classes contain over $1.28 quadrillion in value, making tokenization one of the most potentially impactful trends in financial history. While the possibilities for adoption are exciting, tokenization on a global scale will only work if there’s infrastructure in place to support it. To date, CLOBs present the most ideal solution.

4. Geographic Adoption Patterns

In recent years, the world has continued to move in lockstep towards adoption and implementation of digital asset technology. So far, the tokenization movement among asset management firms has largely been a U.S. trend, led by aforementioned firms such as BlackRock, Franklin Templeton, Apollo Global Management, and Janus Henderson.

Additionally, the U.S. has undergone a significant shift in openness to advance the exploration of digital assets via web3-friendly regulation (e.g. the GENIUS act), incentives for U.S.-based projects, and potentially a sovereign wealth fund which consists purely of digital assets.

If we zoom out, however, this is just one part of an emerging global trend which has grown significantly more powerful in recent years.

In Europe, notable institutional adoption efforts include:

• Deutsche Bank leading the management of €100 million worth of tokenized corporate bonds on Polygon

• Switzerland’s UBS Group launching a $375 million digital bond on Switzerland-native SIX Digital Exchange (SDX) as well as tokenized gold on ZKSync

• Efforts from nine EU countries to create a MiCA-regulated Euro-backed stablecoin

Several countries in Asia have also joined the global tokenization race – some prominent examples of recent activity include:

• ChinaAMC, an asset management firm with over $400 billion in AUM, launched a $500 million tokenized money market fund on Ethereum

• Singapore’s second-largest bank, OCBC, recently began a program aiming to tokenize $1 billion worth of U.S. commercial paper

Additionally, tokenization is finding use cases within Africa, South America, and Australia; here’s a look at some recent progress in these regions:

• In Nigeria, the Lagos state government is planning to implement tokenized real estate as part of a larger initiative to switch to a blockchain-based land registry

• Brazilian asset management firm VERT Capital has tokenized $130 million worth of Agribusiness Receivables Certificates as an initial deployment into their XRP-based private credit platform

• The Australia and New Zealand Banking Group (ANZ) became the first commercial bank to launch a tokenized Australian Dollar, and is currently partnered with ChinaAMC and Fidelity International to improve cross-border finance efficiency via tokenization

As the world comes to realize the benefits that tokenization can have in global capital markets, we’re seeing a notable shift in sentiment from governments, central banks, and private companies. This acts as a tailwind for the industry, fostering a widespread focus on creating clear regulation to further its growth.

5. Current Infrastructure Limitations

Regulation & Compliance

While institutions have repeatedly communicated their positive outlook on tokenization as a technology, one major hurdle preventing them from actually tokenizing traditional assets at scale is a general lack of regulation. This industry has spent centuries creating and modifying strict compliance standards with particular attention to risk-mitigation. So, in order for them to accept a new technology (no matter how promising), there must be a clear regulatory framework to ensure protection for companies, clients, and assets.

Interestingly, this problem seems to be gradually solving itself; the increased attention from institutions on digital assets has resulted in many countries being more inclined to develop sufficient compliance frameworks:

Recently, the GENIUS Act has attracted global attention as the U.S.’s first official digital asset regulatory framework. Expected to go into effect by January 2027, the Act’s main function is to regulate the issuance, reserves, operations, and secondary trading of stablecoins.

One of the most important aspects of the GENIUS Act is its impact on demand for sovereign debt. Stablecoin issuers are required to back each token at a 1:1 rate with highly-liquid, low-risk assets such as cash, insured deposits, U.S. Treasuries, or qualifying repos. Thus far, U.S. Treasuries have been a common collateral choice for major stablecoin issuers; in fact, Tether, the world’s largest stablecoin issuer, is now the 18th largest holder of Treasuries in the world.

This trend is expected to accelerate rapidly over the next several years. In Citi’s “Stablecoin 2030” report, they propose that stablecoin issuers could hold more U.S. Treasuries by 2030 than any single jurisdiction today.

However, this view only focuses on the potential additional demand for U.S. debt. While stablecoins to date have almost exclusively been USD-denominated, it’s reasonable to imagine that the implications of additional debt issuance will incentivize nations around the world to issue stablecoins denominated in their respective currency, and backed by assets including sovereign debt.

In addition to the GENIUS Act, the EU’s Markets in Crypto-Assets Regulation (MiCA) framework, which went into effect in 2023, serves as another major global progression towards tokenization. The goal of MiCA is to bring clarity and safety to the web3 industry by ensuring asset protection for institutional clients, requiring qualifying information for new crypto projects, implementing reserve requirements and limitation limits for stablecoin issuers, and much more. Additionally, other comparable comprehensive frameworks include Dubai’s VARA, Hong Kong’s VASP and VATP regimes, and Switzerland’s digital asset regulation under FINMA.

Major global asset managers, governments, central banks, and more continue to not only discuss, but interact with blockchains and tokenized assets. With the pace of adoption and experimentation only getting faster, the resulting process of creating sufficient compliance standards should continue to increase at an accelerating rate.

Infrastructure

In addition to the lack of compliance standards, DeFi infrastructure has not yet evolved to a point where institutional money managers feel comfortable participating in onchain markets at scale. This is due to current inefficiencies (and perceived inefficiencies) including a lack of custody solutions, liquidity fragmentation, and settlement finality.

Custody Solutions

When it comes to institutional money management, trusted custodians are required to handle vital tasks such as asset protection, transaction handling, and trade settlement.

Since digital assets have historically been used by retail investors, self-custody has been the dominant form of asset protection and management. However, in order to meet the requirements of global institutions, a wave of custody solutions has emerged. Prominent custodians include web3-native companies like Coinbase, Anchorage Digital, and Fireblocks, as well as traditional banks such as Fidelity and BNY Mellon.

A recent development which separates collateral management and trading venues is the integration of tokenization platform @OpenEden_X's OpenDollar stablecoin (USDO) with Binance’s Banking Triparty. As web3 continues to realize that institutions require such custodial services, we could see an entire trend develop around “OEC,” or off-exchange collateral, as OpenEden’s CEO explains here.

Liquidity Fragmentation

Another shortcoming that has historically limited institutional DeFi adoption is its fragmentation of liquidity. Currently, there are hundreds of blockchains that support DeFi activity. Combined, they hold over $200 billion worth of assets, and 54 of them currently hold at least $100 million. While it’s encouraging to see such a wide selection of blockchains contributing to the evolution of DeFi, the problem is that liquidity on each blockchain usually stays there.

Keep in mind that the capital markets covered earlier contain over $1.2 quadrillion in assets. In order to facilitate the entrance of even a tiny portion of that, the liquidity within DeFi needs to be as efficient as possible, which means that liquidity on any given blockchain should be able to seamlessly access applications on other blockchains. For example, just as US-based equity accounts can trade equity products on any exchange – NYSE, NASDAQ, CBOE/BATS, OTC, etc. – the DeFi experience must enable users to use any application from a single source.

As the digital asset industry has evolved, there have been an increasing number of solutions to amend the problem of fragmented liquidity. Prominent examples include:

• Interoperability protocols such as Inter-Blockchain Communication (IBC), which enables communication between blockchains built using the @cosmos SDK (and has recently expanded to other ecosystems such as Ethereum), as well as @LayerZero_Core, which is currently used by Tether, @ethena_labs, PayPal, Ondo, and @usualmoney. A major selling point for LayerZero, which powers ~70% of the total stablecoin market, is the ability for users to customize their own DVN (Decentralized Verifier Network), unlocking flexibility for institutional compliance. Additionally, LayerZero enables fungible tokens to exist across multiple chains, avoiding the wrapping process, via their Omnichain Fungible Token (OFT) standard.

• DEX aggregators such as @JupiterExchange and @1inch, which route trades through many decentralized exchanges, typically within a given ecosystem

• Chain abstraction solutions like @ParticleNtwrk or @ArcanaNetwork, which focus on providing one account for DeFi participants to use across multiple networks in a frictionless manner that transfers no complexities of performing cross-chain actions to the user

Settlement Finality

Understandably, the traditional financial industry places a major emphasis on requiring that the settlement (or final record of the transfer of ownership) of all trades adheres to specific compliance frameworks which mitigate all possible risks. Settlement is typically performed by a clearinghouse; for example, many U.S. transactions are settled by DTCC, which processed $3.8 quadrillion in global securities transactions during 2024.

Current processes in major economies require that settlement be finalized at least one day after the actual transaction takes place. For example, “T+1” settlement in the U.S. and “T+2” settlement in Europe require that transfers of assets/cash be officially finalized one or two days after the transaction takes place, respectively. This is a key area that blockchains can improve upon, as some high-performance chains currently feature settlement in less than one second.

While blockchains automatically settle transactions based on any given network’s consensus mechanism, institutional adoption is currently limited by the lack of compliance standards. While this issue can be at least partially solved via education (e.g. understanding when/how an onchain transaction is finalized), institutions will likely require thorough compliance measures to ensure that onchain settlement indeed represents absolute finality, as well as address and mitigate all potential risks (e.g. reversible transactions).

6. Why DeFi Is Finally Becoming “Good Enough”

While these are all valid barriers to institutional participation on a mass scale, the recent advancements in blockchain performance as well as innovation behind onchain CLOB infrastructure provide a promising solution.

Until recently, ideas such as blockchains achieving thousands of transactions per second, or even sub-second latency, were seen as conjecture. However, they’re now seen as the minimum baseline standard for high-performance blockchains.

Of course, in order for blockchains to efficiently support global market activity, they need world-class trading infrastructure. This is where CLOBs come in.

With high-speed matching engines, either directly embedded in the execution logic of appchains or handled offchain with onchain settlement, that are optimized for liquidity efficiency, transaction throughput, complex order types, and more, CLOBs are approaching the institutional performance threshold for the first time.

7. CLOB Infrastructure as the Missing Piece

Why Orderbooks Matter For Institutions

When it comes to highly-liquid, high-activity markets, CLOB infrastructure is by far the most preferred by exchanges around the world, including the NYSE, NASDAQ, Tokyo Stock Exchange (TSE), Shanghai Stock Exchange (SSE), and many more.

One reason that CLOBs are the dominant form of infrastructure for liquid global markets is the transparency and efficiency of their internal matching engines. Matching engines’ transparency gives insight into orderbook activity in real-time, enabling efficient price discovery while keeping individual actors anonymous. Additionally, matching engines are specifically optimized to find the most efficient way to fill a constant inflow of buy and sell orders, making them an ideal mechanism to facilitate high-frequency trading.

Required Features

Over the past few decades, financial markets have undergone a series of major transformations, enabling a wide selection of features to maximize efficiency. Notable examples include sub-millisecond execution, deep liquidity pools, complex order types, portfolio margining, and regulatory reporting.

Sub-Millisecond Execution

As noted earlier, the emphasis on speed in global markets is massive, especially due to high frequency trading. The current capability of optimized CLOB matching engines can be as fast as 10-100 microseconds, or 0.01-0.1 milliseconds.

Deep Liquidity Pools

According to the CBOE’s daily reports, it’s common for US equities to exceed $1 trillion in trading volume – most of which occurs within a 6.5-hour period. CLOB matching engines make it possible to process this massive amount of liquidity by efficiently consolidating orders from many participants, essentially aggregating liquidity across fragmented networks, and filling orders in real-time.

Complex Order Types

Another result of the evolution of global markets is CLOBs’ ability to process a wide variety of order types. Since an orderbook contains highly-detailed data, they can naturally facilitate flexible conditional orders to suit the needs of any institutional money manager.

Portfolio Margining

By reading and broadcasting real-time information about market depth and liquidity, CLOBs serve as an efficient source of data to manage risk. Since they contain the exact price of all buy and sell orders at any given instance, firms such as clearing houses or models used by institutions such as Value at Risk (VaR) can continuously monitor overall risk and effectively calculate how much margin should be allowed.

Regulatory Reporting

By maintaining a continuous orderbook, CLOBs provide transparency into price data, allowing regulators to monitor liquidity and market behavior. Additionally, their ability to record data in a standardized manner is useful for analysis and cross-referencing between various assets and markets.

Advantages of Onchain Finance

For all the reasons explained above, CLOBs can effectively serve as the “missing link” between DeFi and traditional finance by bringing familiarity and sufficiently performant infrastructure to institutions. However, there are built-in mechanisms within DeFi which allow its applications to significantly improve on traditional market capabilities.

Enabling 24/7 Markets

First, it’s important to note that CLOBs have always been capable of 24/7 operation. This is simply due to the fact that they run on algorithms rather than rely on regular human interaction.

With that being said, the “pre-24/7 market era” ended with the advent of public blockchains. While some traditional markets have historically enabled 24-hour trading, there has never been a global market with 24/7 activity (FX exchanges come the closest, but are still generally “24/5” markets). The Nasdaq exchange is a first mover in this field; earlier this year, their President announced a plan to enable 24/5 equity trading in the second half of 2026. Their CEO recently followed this up with another announcement that the Nasdaq will also support tokenized equities.

Essentially, public blockchains combine the algorithmic nature of CLOBs with the benefit of decentralization; their operation is not bound to any specific geographical requirements. This increased freedom can finally enable CLOBs to live up to their potential: efficient 24/7 operation on a global scale, aggregating and processing liquidity from any source, anywhere, at any time.

Programmability And Composability

As we briefly highlighted in the article’s introduction, onchain finance unlocks two major features for smart contract-based assets: programmability and composability.

Essentially, asset programmability enables developers to customize any given asset’s features, transforming how they act as well as how they’re used. A major trend within web3 that exemplifies programmability is the creation of synthetic assets. In fact, many CLOBs currently use this feature to support a majority of altcoin markets. This works by having traders deposit highly liquid tokens (e.g. USDC) into a central “vault,” or protocol-owned account, and using that vault to fund liquidity across all markets. So, assuming that the vault contains USDC, a selection of oracles are used to broadcast the prices for altcoins to the CLOB in real-time, and the USDC is used to support all (or a majority of) liquidity. Ultimately, this enables efficient market activity without requiring deep liquidity for long-tail assets (a vast majority of altcoins).

This ability to reflect asset prices onchain without requiring collateral backing not only creates more possibilities when it comes to asset customization, but also enables global exposure to virtually any asset class:

Synthetic Perpetual Futures

The @injective L1 blockchain is built to host innovative, high-performance apps to support institutional trading activity on synthetic, programmable assets, which are known within the Injective ecosystem as iAssets. @HelixMarkets, the largest DEX on Injective, currently offers up to 25x leverage on synthetic stocks as well as custom indices such as the TradFi Tech Stock Index (TTI). It also offers leveraged exposure to commodity prices such as silver (50x leverage) and WTI oil (25x leverage). To source liquidity for these assets, Injective uses the Open Liquidity Program, which enables participation from professional market makers and retail individuals alike.

At Injective’s core is CLOB infrastructure, featuring an onchain orderbook (with offchain initial order relaying), as well as onchain matching and settlement. By combining CLOB infrastructure with innovative programmable assets, Injective features a powerful combination of performance and flexibility.

@OstiumLabs is another major player in the synthetic asset landscape, offering a wide selection of assets on @arbitrum, including:

• 100x leverage on global stock indices and individual stocks

• 100-200x leverage on FX pairs

• 50-100x leverage on commodities spanning precious metals, base metals, and energy

Rather than rely on traditional market makers to manage liquidity, Ostium uses a central USDC “market making vault” similar to the illustration above. To protect liquidity providers (LPs) from risk, Ostium also contains a liquidity buffer to absorb long/short imbalances and instant withdrawals from the DEX. Together, the market making vault and liquidity buffer form Ostium’s Shared Liquidity Layer (SLL).

In addition to providing one of the widest selections of high-leverage assets in DeFi, Ostium also brings a novel approach to DEX architecture. Rather than conform to common AMM/CLOB architectures, Ostium features specialized infrastructure to optimize for simulated price exposure while providing asynchronous onchain execution.

While Ostium’s pooled liquidity resembles VAMM architecture (see @DriftProtocol v2’s backup liquidity mechanism in our prior article for a comparison), LPs benefit by not requiring an immediate counterparty and avoiding impermanent loss. However, they take on a more traditional loss risk, as their performance is directly inversely correlated with the platform’s traders.

Synthetic Real Estate

@Parcl is a @solana-based application that uses programmable assets to offer 24/7 real estate exposure, enabling hedging and speculation on 20 key markets and counting. Liquidity is sourced via a central pool to facilitate transactions within each market, and live market data is sourced by Parcl Labs’ robust aggregated data ecosystem.

Not only does Parcl allow retail investors around the world to gain exposure (long or short) to some of the world’s most prominent real estate markets, but it enables this unprecedented speculation without requiring participants to purchase the underlying assets, significantly lowering the barrier to entry. Ultimately, Parcl puts the power of programmable assets on full display.

While Ostium and Parcl are not built on CLOB infrastructure, we’ve included them here because they demonstrate the ability to merge traditional assets with programmable technology. Along with Injective, these platforms highlight an interesting tradeoff that’s specific to web3; they remove the risks caused by price inefficiencies, but rely on oracle providers to stream price data accurately in real-time.

Programmable Token Architecture

While programmability can clearly transform how exposure to assets in any market is accessed, it can also specifically direct exposure to inherent “traits” within a single token. A popular project that demonstrates this use case is @pendle_fi, which offers customized tokens for yield-bearing assets. Specifically, any given yield-bearing asset is split into 2 tokens: a principal token (PT) which essentially functions as a zero-coupon bond, and a yield token (YT), which enables direct exposure to fluctuations in the asset’s yield. This is essentially an onchain version of bond stripping, but improves on the underlying mechanism by making it available for any yield-bearing asset and to any onchain participant.

Composability

Composability is related to programmability in that it enables unprecedented customization of assets. However, it specifically refers to the ability for smart contracts to interact with each other and create unique products. One way that composability is transforming DeFi is by addressing the aforementioned problem of fragmented liquidity. By integrating with smart contracts from various ecosystems, many developers are creating solutions to abstract chain-specific operations to establish a more unified UX.

Another common example of composability is the creation of vaults, which are web3-specific structured projects that can be customized in virtually any way possible. An early example of custom vault creation was that of @yearnfi, which initially used vaults to automatically rotate deposited funds into whichever DeFi apps were offering the highest stablecoin yield. However, as DeFi innovation grows, so grows the potential use cases for vaults.

In the CLOB space, two projects taking composability to its next stage within onchain markets are Valhalla and World Capital Markets, which are both described in our previous report: Real-time Blockchains and the Rise of Onchain CLOBs.

Composability is also currently being used to solve the issue of liquidity fragmentation within the RWA space. Many institutions have a wide selection of funds, and as more and more are tokenized, they must be well-integrated into DeFi platforms to avoid the potential risk of remaining illiquid. @aave, a decentralized lending market and the top web3 app by TVL (~$75 billion), is harnessing the power of composability specifically for institutions with their newest product: Horizon, which enables qualified users (including institutions) to use RWAs as collateral for stablecoin loans. By integrating with one of the most popular apps within DeFi, this is a crucial step towards institutional assets benefitting from onchain liquidity.

Ultimately, composability and programmability have the potential to vastly improve global markets. By enabling built-in features for RWAs, the realm of possibilities for tokenization extend far beyond simply bringing assets onchain; it can transform their utility and accessibility by enabling brand new features within and across asset classes, and extend their reach beyond institutions to the general public. By bringing assets to public blockchains, tokenization potentially enables anyone with a blockchain address to gain exposure, which naturally increases the available liquidity to flow into markets. This can be particularly beneficial for markets with potential inefficiencies due to low liquidity and low accessibility (e.g. real estate, private equity, corporate debt, etc.).

8. The Path Forward

With demand for stablecoins, tokenization, and onchain finance heating up on a global scale, it's never been more clear that a major shift is already underway. In this unique moment in time, we're experiencing a merge between traditional organizations (e.g. financial institutions, governments, central banks) and web3 projects at the forefront of the tokenization trend.

At the intersection of these two worlds are CLOBs: commonly-used infrastructure in traditional global markets, repurposed for a world where digital assets become the new standard. While this progression has been the goal of blockchain developers for years, the advancements in onchain infrastructure are reaching a point where, for the first time, they can provide the necessary level of performance and compliance to facilitate global market activity.

Ultimately, onchain CLOBs provide a similar experience for institutions while also serving as the foundation for a new generation of programmable tokenized assets. This migration ushers in a new realm of possibilities for how assets can be transacted, used, and engineered, while also enabling more reliable liquidity via broader public exposure to all markets.

As this trend continues to unfold, we’ll undoubtedly see the existing tailwinds converge to accelerate adoption. To conclude, we'll dive into some potential scenarios of how this evolution may play out, as well as some potential milestones and new developments that may occur as a result.

Timeline Predictions

Future acceleration of the tokenization trend boils down to two main tailwinds: the developing global regulatory landscape and the seemingly-infinite ($1.2+ quadrillion) scope for tokenized assets. However, a third tailwind is quickly emerging as well: infrastructure capable of supporting institutional-grade assets and markets – specifically, CLOBs. Just as programmability and composability are the enablers of DeFi to transform capital markets, CLOBs serve as the foundation for which that transformation takes place.

The next 1-2 years will likely see all three of these tailwinds act as a flywheel for institutional adoption, setting the stage for an exponential uptick in the total RWA market capitalization rate. Here’s one way that we could imagine this scenario playing out:

• Regulators around the world continue to create compliance frameworks that not only fulfill the regulatory gap, but also encourage participation from institutions and governments

• A major opportunity is identified by institutions, who begin to tokenize relatively liquid, low-risk funds as a “test” (i.e. BUIDL) – we are currently in the early stages of this phase

• Simultaneously, traditional/web2 neobanks (e.g. Revolut, Chime, etc.) will increasingly integrate blockchain rails into their products to stay competitive

• DeFi projects optimized for institutional DeFi begin to integrate these RWAs into various apps (which has already begun with Aave Horizon)

• Institutional managers and clients get a firsthand perspective of the benefits of composability and programmability (and they like it a lot)

• As the institutional migration onchain picks up speed, developers realize the opportunities from their end (i.e. the ability to customize/program financial products)

• This leads to a notable departure of developers from the “web2” industry into web3, attracting more talent and innovation to the industry

• As more specialized and high-performance products are built by the influx of new builders, institutions become more comfortable with increasing the size and selection of assets deployed onchain

• This results in an expansion of early tokenization trends in nascent technologies – a leading example is the tokenization of GPU financing due to the increasing needs for compute to drive AI innovation

Whether or not that exact scenario plays out in the coming years, the following remains clear: on a global scale, the interest from governments, regulators, and institutions to adopt and use onchain finance has grown substantially in recent years, and these tailwinds have never been stronger.

Milestones To Watch

As we continue to approach the mass migration of assets from TradFi to DeFi, there are some key milestones to watch for which could stoke further awareness and interest of onchain finance. To add context for these potential milestones, we can use a reference of what’s happening in the present to determine what’s likely to happen in the (short-term) future.

Important current developments include:

• Major institutions tokenizing their own managed assets (BlackRock, etc.)

• High-performance blockchains/CLOBs closing in on institutional-grade speeds

• Continuous buildout of regulatory frameworks (GENIUS Act, etc.)

• Increased interest in tokenized assets from major exchanges (e.g. Nasdaq, LSE)

• Wave of “stablecoin network” announcements/launches (e.g. Plasma, Tempo, Stable, Arc, etc.)

Based on the assumption that each one of these trends continues to accelerate, we could see some monumental events take place relatively soon.

Tokenized IPO

One potential milestone that seems likely to occur within the next ~2 years is the first onchain IPO. Specifically, this would involve a private company choosing to issue their equity to the public in tokenized form rather than on a traditional exchange.

It just so happens that we’re already on this path with Bullish’s unprecedented endeavor to receive $1.15 billion of their IPO proceeds in stablecoins. While we should expect new asset issuance from all asset types (similar to the UBS digital bond), it will likely have the largest impact if it happens in equity markets due to their wide mix of retail and institutional participants.

$1T of RWAs

On the metrics side, aggregate tokenized RWAs (on public blockchains, excluding stablecoins) surpassing the $100 billion and $1 trillion levels would also mark watershed moments for the web3 industry. Given that the current market cap is ~$30 billion, this may sound like a massive leap. However, if we assume that the rate of adoption continues to increase, we’re already on pace to reach these levels in the next several years.

At the current rate of growth, the aggregate RWA market cap is expected to be ~$36.45 billion at the end of 2025 – an increase of 1,889% since 2021 (108.4% CAGR). Considering the accelerating mindshare within institutions and the resulting eagerness to deploy assets onchain, it’s not unreasonable to expect 50% to 100% CAGR over the next 5 years.

Below are the aggregate RWA market caps for each consecutive year, extrapolated to the year 2030 assuming scenarios of 50% and 100% CAGR (not including stablecoins):

Asset Class Optimization

We should also anticipate various evolutions of the “stablecoin network wars.” Stablecoins have widely been touted as the first true web3 product to achieve global product market fit. However, with blockchains now optimizing for stablecoins, a slight shift in perspective reveals that blockchains themselves are now starting their journey to achieve this as well; if the newest thematic wave of blockchains are currently optimizing for stablecoins, it’s only a matter of time before we see optimizations for other areas of major demand – especially given the available resources to customize onchain assets.

One example that may serve as a foundation for this advancement is @plumenetwork, which specifically caters to “RWAfi” projects and products by assisting with each step in the process of merging TradFi and DeFi. Specifically, their infrastructure is built to make the tokenization process efficient, ensure regulatory compliance, provide custody solutions, and immediately integrate with a broad ecosystem of DeFi-native products. While Plume isn’t optimized for any asset class in particular, the space could theoretically evolve to produce such platforms via the addition of other L1 blockchains/appchains, L2 rollups, or even applications within a Plume-like ecosystem.

Crypto OS

Another potential milestone that could stem from this line of thinking is a wave of UX abstraction solutions. As we established earlier, a severe limitation constraining web3 right now is liquidity fragmentation; if true mass adoption is to happen, there must be solutions to this issue. So, there exists the potential for an overarching OS-type solution to bring greater efficiency to web3 via seamless cross-chain access. This may exist in the form of a Windows/Android/iOS-type interface for managing cross-chain and cross-platform activity, or something entirely brand new.

———————————————————————————————————————————————————

The content provided in this article is for educational and informational purposes only and should not be construed as financial, investment, or trading advice. Digital assets are highly volatile and involve substantial risk. Past performance is not indicative of future results. Always conduct your own research and consult with qualified financial advisors before making any investment decisions. A1 Research is not responsible for any losses incurred based on the information provided in this article. This campaign contains sponsored content. A1 Research and its affiliates may hold positions in the projects and protocols mentioned in this article.