Most RWAs today are tokenized nonsense

The ability to mint money — whether through traditional bank loans or via crypto leverage and new tokens — is crucial for funding growth and innovation. 

And stablecoins, the most liquid and widely adopted onchain real-world assets (RWAs), are increasingly forming the backbone of DeFi, mirroring the role of credit in today’s global economy. Multiple stablecoins now enable efficient cross-border transactions, thereby reducing reliance on traditional banking systems and supporting complex financial products like decentralized lending platforms, liquidity pools and yield farming protocols.

However, let’s be clear: Most tokenized nonsense is a waste of time. 

Real estate, for example, is barely liquid in the real world due to difficulty in pricing (no two locations or buildings are exactly the same) and a lengthy and complex legal system to process legitimate changes in ownership (not to mention enforcement of leases for cash flow, maintenance, etc.). Publicly traded REITs and mortgage backed securities use rating agencies and bundling to circumvent these liquidity problems. Tokenization of individual real estate (e.g., NFTs of buildings) does not solve these fundamental problems. In fact, tokenization introduces a new problem — aligning legal ownership with token ownership (there is no future where stealing an NFT of a house will confer legal ownership of that house).

Tokenization of REITs, bonds and stocks, while cool in theory, is so heavily regulated that even platforms like Uniswap won’t show them on their frontend. Synthetics and perpetuals that cover stocks are just player vs. player markets for funding rates, not real-world assets.

Within today’s RWA ecosystem, stablecoins do solve problems. Stablecoins as digital cash can easily serve as bearer assets. Holding it is owning it. This feature enables the primary use case for stablecoins — the globalization and decentralized adoption of one of the most sought-after assets in the world, US dollar-denominated assets.

Read more from our opinion section: Don’t use your NFT for that

But while bringing money market fund style activities onchain provides immense benefits, there are also some sizable risks. Historical precedents like the liquidity crunches in “near-money” money market funds in 2008 and 2020, which necessitated US government bailouts, serve as stark reminders of potential systematic market volatility.

These risks are precisely why stablecoins are needed — to help ensure the responsible growth of the RWA sector in DeFi by providing a stable, liquid asset that mitigates the risks of systemic market volatility. Unlike other RWAs, stablecoins maintain a stable value by being pegged to fiat currencies or other low-volatility assets, thereby reducing the likelihood of liquidity crunches similar to those experienced in past financial crises. This stability is essential to prevent large-scale disruptions as the market for onchain RWAs expands.

As a result, dollar-denominated stablecoins like Circle’s USDC and Tether’s USDT have become indispensable components of the DeFi infrastructure. These stablecoins generate revenue from the spread of interest received on their underlying assets, a mechanism similar to traditional money market funds. For example, Circle and Tether do not pay interest on the stablecoins held by users, yet they earn interest on the assets backing these stablecoins.

Less liquid assets and loans just don’t have the same appeal. 

MakerDAO experienced this first-hand with the defaults of Centrifuge-backed loans of minted DAI by projects like ControlFreight and HarborTrade. Instances like these underscore the challenges of using less liquid and more complex assets in DeFi, relative to more liquid assets that maintain a closer peg to the US dollar.

And while dollar-denominated stablecoins share many similar features, different projects have been associated with different user behaviors. Recent market data highlights significant shifts in stablecoin usage across different time zones. For instance, USDC’s transfer volume on the Ethereum Mainnet peaks during NYSE hours, Tether during London hours, and DAI during Tokyo hours. Notably, since 2024, DAI has seen a substantial increase in transfer volume across all hours, indicating a growing preference for crypto-native and crypto-adjacent stablecoins and RWAs.

We must be careful not to overgroup different types of real-world backed assets (e.g., tokenized real estate), equity stablecoins, debt stablecoins and attempts-to-be-stable tokenizations (GHO, AMPL, Frax, etc.). The future of DeFi will benefit from a diverse constellation of stablecoins and other RWAs as different applications and risk tolerances necessitate varied stability mechanisms. 

However, the current focus should remain on lower-risk USD-backed stablecoins to ensure stability and trust as the ecosystem matures over time. In the near-to-medium future, we expect more projects to prioritize bringing the most liquid “near money” onchain through major 1:1 dollar-backed stablecoins like USDC, USDT and newer entrants like PayPal USD. 

As we look towards a future where RWAs in DeFi can reach trillion-dollar market caps, the path forward must involve balancing innovation with stability. This approach has the best chance of ensuring that the rapidly expanding RWA sector ultimately benefits, rather than destabilizes, the global economy.

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.