Author: Zuo Ye Web3
Liquidity for Returns: A Comprehensive Guide to RWA
The world is in the same boat, with both on-chain and off-chain companies vying for liquidity. Looking east, the stock market is vying for bank wealth management products; looking west, major AI companies are seeking funding to save themselves.
After 2008, banks were confined to the cage of regulations, but "private credit" transformed into an important source of corporate loans.
Since 2018, PE, BDC (Business Development Company) and private lending have taken $300 billion from banks, the vast majority of which has flowed to major internet companies, represented by SaaS.
Then came the 2020 pandemic, which completely fractured global financial markets, forcing everyone to rediscover their anchors. The Chinese stock market embraced hard technology concepts, while the US stock market went all-in on AI. Simply having stocks isn't enough; corresponding liquidity management methods are essential.
The liquidity surge initially came from massive monetary easing. In 2020, China cut the reserve requirement ratio three times, the Federal Reserve restarted quantitative easing and ultra-low interest rates, and the "nationwide fund buying" phenomenon once made Zhang Kun a Weibo celebrity.
However, in 2026, the shelling in the Persian Gulf shattered the illusion, and users' mentality changed. Compared with future returns, readily available cash became more important, and the search for liquidity formed the grand backdrop for this round of RWA craze .
Wall Street is initiating the on-chain process, which requires converting the AUM (Assets Under Management) of many of its products into transaction volume; otherwise, the pressure of repayment will directly overwhelm it.
Assets are not money; liquidity is what gives them trading value. This is the key significance of RWAfi. On-chain assets are liabilities, but they become assets when traded.
Image caption: Liquidity is more important than yield. Image source: @zuoyeweb3
In other words, the market is reassessing the pricing of the " liquidity premium ." The redemption wave in US private lending and the sluggish issuance of closed-end fixed-income products by Chinese banks all indicate that liquidity is vying for the position of yield.
This transmission or shadow means that the global financial market needs to find a new connector. Document No. 42 leaves an opening for "domestic assets + overseas issuance". A clear bill is likely to be the way out for interest rate arrangements. They understand each other and fight without breaking apart.
Undoubtedly, blockchain will become the future of global finance . However, in the United States, on-chain finance is Canton, while in China, it is the digital yuan. Global finance is the domain of Ethereum and Solana. The more antagonistic there is, the more we need a peace hotel.
Seeking liquidity globally is the ultimate goal of this round of RWAfi.
Seeking high-quality assets with a profit-driven approach.
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Things that have happened will not be forgotten, they just cannot be remembered.
Many people's impression of RWA is still stuck in the old memory of "everything on the blockchain". However, Aave co-founder Stani is also fond of photovoltaics on the blockchain. On the one hand, he warned that DeFi may become a passive private credit liquidity provider. On the other hand, he enthusiastically encouraged DeFi to move towards the $30 trillion Abundance Assets such as solar energy.
Unfortunately, the current mainstream practice of DeFi is precisely "private lending" and all electronic asset types, including US Treasury bonds, US stocks, CLOs (collateralized loan obligations), and even OnRe, which packages real-world reinsurance business onto the blockchain to absorb on-chain liquidity and generate interest for it.
Physical RWAs are a thing of the past; the future of energy-related entities being put on the blockchain is promising.
Image caption: RWA equity and bond fund overview, image source: @zuoyeweb3
In summary, RWA is an asset-based asset, which is quite rare; ETH is based on people's usage; BNB is based on Binance's trading volume; and BTC is based on a decentralized narrative.
This is the problem. The RWA project team seems to want to bring liquidity to it by putting a certain asset on the blockchain, but just like "antiques were luxury items at the time", high-quality projects do not lack liquidity off-chain. Putting something on the blockchain ≠ liquidity.
On-chain technology is a technical matter, while liquidity is a financial matter; they should not be confused.
On-chain transactions can only bring liquidity under one condition: when the on-chain action meets the expectation of liquidity access. For example, off-chain financial products that can only be purchased by institutional clients can be minted into Vault, a stablecoin that retail investors can deposit funds into.
Therefore, the RWA framework can be understood as three layers, from top to bottom: the Asset layer, the tokenized RWA assets, and the liquid RWAfi.
assets
RWA: Asset-Based Assets
RWAfi: Liquid asset-based assets
Image caption: RWA three-layer partitioning, image source: @zuoyeweb3
Without considering physical assets and future photovoltaic products, real-world assets can be categorized into four types: stablecoins, stocks, debt, and funds. Stablecoins pegged to the US dollar, such as USDT/USDC, and US stocks are the most familiar to most people.
However, it can be predicted that debt and fund-type products will have stronger development potential because they currently have the worst liquidity. They may only be switching the purchase process of institutional clients to the blockchain, but they cannot allow retail investors to participate directly.
A typical example is the Guotai Junan tokenized fund GUSDT and GHKDT sold by Hashkey, which users can neither trade nor withdraw, and is generally a version behind the US market.
At least in BlackRock's view, tokenization funds will disrupt Wall Street in the same way the internet disrupted the postal system. The logic is not complicated: tokenization funds target global markets and will completely eliminate existing national boundaries.
Of course, each category of currency, stock, bond, and fund can be infinitely subdivided. For example, stablecoins can be divided into anchors (USD <> crypto assets) or currencies (USD <> non-USD). Debt can be divided into issuers (national <> local <> corporate) or collateral (CLOs are based on loans <> CDOs are based on real estate).
But none of these are important, and there is no need to specifically study the institutional differences between the United States, Shenzhen, and Singapore. There are countless research reports on this topic, and these details are not the core concerns of capital operations and entry/exit.
We only need to keep an eye on the technology service providers that help put real-world assets on the blockchain, especially those with US backgrounds like Securites, SuperState, Canton, and Ondo; they will clear all obstacles for us.
Following the SEC's guidance on the applicability of securities laws to tokenized products, Securites welcomed Giang Bui, former head of listing the Nasdaq Spot Bitcoin ETF, and Brett Redfearn, a former senior SEC official.
Beyond the revolving door between government and business, traditional finance has also become involved.
Traditional asset management firm Invesco acquired SuperState’s $USTB tokenized Treasury bond product, while Circle’s USYC product has even surpassed giants like BlackRock’s BUIDL in terms of issuance volume.
Furthermore, the Canton Chain, backed by Goldman Sachs, could "beat" Ethereum in hosting DTCC's on-chain experiment.
Beyond the technological paradigm, the RWA middleware layer has completely degenerated into a map-coloring game for institutions, and they are vying for RWA's four major product lines, with no clear sphere of influence yet emerging.
However, at the RWAfi level, DeFi has shown a more tolerant and accepting attitude. For them, enabling more assets to have liquidity is also beneficial to themselves.
However, for RWA to jump to RWAfi, initial liquidity needs to be artificially created. If it is just used as an underlying asset to enter the existing stack, there is still the dilemma of "no one caring".
Where does liquidity come from?
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On-chain liquidity has become a high-premium product.
If RWA is prepared to seek liquidity from DeFi, then a 10% yield is the baseline. Compared to US Treasury bonds with yields of less than 4%, it is virtually impossible for the existing RWA to make up for the difference, let alone a higher rate of return. Retail investors have virtually no incentive to buy.
Therefore, they would mix sand into it to increase the yield.
Implicit withdrawal costs or time restrictions, such as Ethena's sUSDe redemption period recently changing from 7 days to dynamic, and the underlying assets include more non-US Treasury bonds. Essentially, it uses user funds to increase leverage, only without the volatility of perpetual contracts.
Including more subsidies, such as revenue from the sale of its own tokens, this is actually a controllable "Ponzi scheme." The underlying assets include US Treasury bonds to ensure minimum repayment, attracting liquidity with high interest rates, and then locking it up, allowing the project team to earn revenue from the scale of the funds.
However, the experience of 2025/2026 shows that from Huma to products such as Pharos and Bitway, the gap between off-chain and on-chain has always existed. Non-real-time third-party audits still only add legitimacy to "immobility" and do not enhance on-chain liquidity.
Although they all appear to be interest-bearing stablecoins, the underlying mechanisms of each protocol are difficult to understand.
Image caption: Tokenized funds, image source: @tokenterminal
Furthermore, by increasing leverage on TradeFi, a deceptive form of on-chain liquidity is created. The most typical example is Trade.xyz on Hyperliquid, which expands in the RWAfi field by increasing trading leverage for oil and precious metals.
However, we must recognize that the liquidity triggered by transactions and the illiquidity of private lending are two sides of the same coin in this crisis. This principle is not complicated; any mature market needs three elements:
Low-cost funding
High leverage strategy
Large-scale market
Buffett used insurance float and ultra-long-term time leverage to dominate the US financial market. Similarly, the US banking industry's resistance to stablecoin interest-bearing mechanisms is also an attempt to monopolize users' demand deposits.
However, the cost of maintaining the market for perpetual contracts in the crypto industry is very high, which is the price of perpetuality. Otherwise, the delta neutral mechanism would not exist. But now, Ethena has partially abandoned the rate arbitrage strategy.
Even projects like Saturn and APyx have started to use micro-strategy stocks ($MSTR) as underlying assets to build on-chain interest-bearing products, which already illustrates the trading crisis in the crypto industry.
While celebrating the growth in Trade.xyz's trading volume, let's not forget the crisis signals following Binance's significant reduction in VIP standards.
In summary, the current problem is that we need to rely on US Treasury bonds, token subsidies, and market-making strategies to make up the 10% gap with US Treasury bonds, and even hope to widen it to a higher level. There are even bizarre phenomena such as Phraos and Gaib raising funds on the blockchain to provide online lending to people in the third world.
Therefore, the payment, fund, and bond markets, which are not directly leveraged transactions, are more important for the development of RWAfi, such as the deposits of payment companies and Galaxy's CLO loans secured by BTC.
The latter, in particular, involved Galaxy's VC investment in Arch Lending, a company that allows users to borrow stablecoins using BTC as collateral. Galaxy then packaged Arch's debt into a CLO product, which Sky invested in through Grove, receiving corresponding returns. During this process:
User: No need to sell BTC, and avoid capital gains tax from liquidation.
Arch: Obtaining institutional-grade "low-cost funding" without selling tokens to support scale expansion.
Galaxy: Expanding the "mass market," CLO products based on BTC are easily accepted by DeFi protocols.
Sky/Grove: "High-leverage strategies" – RWA assets outside of Treasury bonds, with potentially higher returns.
Of course, things won't be perfect. The success of this case is undoubtedly related to the various interests of Galaxy. However, looking at the entire RWAfi market, this is a better and safer strategy to increase returns.
Galaxy CLO uses BTC as collateral, and as mentioned earlier, products like Saturn use US stocks as collateral. Let's consider a DeFi path that uses US stocks as collateral.
US Treasury bonds, the US dollar, and US stocks, as the world's strongest financial assets, are developing at different stages. US Treasury bonds and the US dollar have supported the rapid rise of dollar stablecoins and TMMFs (tokenized money market funds), but the tokenization of US stocks has only just begun.
Image caption: T-Stocks' divergent paths, image source: @zuoyeweb3
Beyond the conventional processes of issuance, management, custody, auditing, and liquidation , the types of leveraged trading in US stocks are exceptionally diverse. Based on the principles of long-term and short-term holding, from brokerage margin trading to leveraged ETF products and more flexible options, it can basically meet the various needs of retail investors.
If we broaden the scope to institutional or professional investors, futures are already close to the perpetual contract concept commonly used in the cryptocurrency world.
Furthermore, even with a high concentration in the seven major financial markets, the US stock market itself has more abundant liquidity. Technologies such as T+0 trading are irrelevant to asset issuance and will not be discussed excessively. The opportunity for DeFi lies in becoming a lending service provider .
It's not that US stocks are seeking liquidity on-chain, but rather that DeFi is actively incorporating US stock assets.
There is a counterintuitive assumption here: DeFi is actually in dire need of high-quality assets to expand its market size, otherwise BTCFi would not have been repeatedly invented. However, large holders of cryptocurrencies will prioritize protecting their principal, and the gap has not yet been filled.
Similar to Kamino and Morpho vaults, US stocks can be used as a more flexible rebalancing asset under the guarantee of SuperState, bridging the dual needs of TradeFi and DeFi.
In comparison, US Treasury bonds serve as a cornerstone of risk-free returns, while US stocks are more liquid and volatile assets.
In short, blockchain cannot be used merely as a technological infrastructure by TradeFi; it needs to leverage TradeFi assets to expand itself.
Conclusion
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The road to large-scale markets.
Due to space limitations, stablecoins will not be discussed in detail. On the one hand, stablecoins have grown into a large-scale market with abundant liquidity. On the other hand, the interest generated by stablecoins, foreign exchange (non-USD stablecoins), and stablecoins pegged to on-chain assets are all in constant flux and will be discussed in separate articles later.
