As financial giants push forward the tokenization of RWA (Real World Assets), blockchain technology is gradually reshaping the landscape of traditional financial markets. The emergence of projects like Ondo Finance accelerates this trend, but faces real challenges such as compliance, decentralization, and market liquidity.
Author: YBB
Translation: Baihua Blockchain
1. Introduction: Can RWA Become the Next Market Milestone?
With the launch of Bitcoin spot ETFs, the crypto industry is entering a new turning point. The policy direction during the Trump administration laid the groundwork for this field, and now traditional financial giants like BlackRock are further driving the development of the RWA (Real World Assets) sector. More and more financial institutions are exploring how to leverage blockchain technology to enable on-chain trading and management of traditional assets like stocks and bonds, reshaping the financial market landscape.
Recent initiatives like Ondo Finance's Ondo Global Markets and Ondo Chain mark a steady mainstreaming of the RWA sector. This transformation has also sparked a new round of competition on Wall Street, quietly changing the rules of the game between the crypto market and traditional finance.
2. Differentiation and Commonality of RWA Track Projects
1) Ondo Finance — A Representative Project Supported by BlackRock
Ondo Finance has been very active recently. On February 5, they launched the Ondo Global Markets platform, primarily providing blockchain integration services for stocks, bonds, and ETFs. Shortly after, Ondo Finance announced their new project — a Layer 1 public chain called Ondo Chain, aimed at building a more robust financial infrastructure and promoting the tokenization of RWA.
Ondo Chain serves as the infrastructure for Ondo Global Markets (Ondo GM), focusing on the integration of RWA tokenization and blockchain technology. Ondo Chain enables global investors to access securities listed in the U.S. (such as stocks, bonds, and ETFs) through blockchain, breaking geographical limitations and providing 24/7 trading services.
Ondo Chain has launched a solution that integrates institutional-level compliance into the public chain architecture, employing innovative methods such as permissioned validation nodes and native cross-chain protocols to address current pain points on the RWA chain. By using traditional financial assets as collateral, Ondo Chain ensures network security and interconnects with traditional clearing systems, further bridging on-chain and off-chain liquidity.
2) Ondo Finance's Competitiveness and Limitations in the Same Track
Its competitiveness is closely related to its unique architectural design and strong institutional resources, while also reflecting the power and interest games between blockchain and traditional finance.
A. Competitiveness
Collaboration with top financial institutions like BlackRock has enabled them to build a blockchain financial infrastructure capable of supporting large-scale RWA tokenization, maintaining a balance between compliance and decentralization.
Tokenization of RWA and Free Transfer: By pairing assets like stocks, bonds, and ETFs 1:1 with tokens, investors can freely transfer these tokenized assets outside the U.S. and engage in financial activities such as lending and yield farming in DeFi. Combination of Openness and Compliance: Ondo Chain merges the openness of public chains with the compliance of permissioned chains. Validators must pass compliance checks, while any developer or user can issue tokens and develop applications on-chain, ensuring innovation and activity. Institutional Participation and Ecosystem Building: Ondo Chain's advisory team includes financial institutions like Franklin Templeton, Wellington Management, and WisdomTree, promoting institutional-level applications in both traditional finance and DeFi. Oracle Mechanism and Data Security: The built-in oracle system ensures the accuracy and timeliness of on-chain data, reducing the risk of data tampering. This design enhances the credibility of key data such as asset prices, interest rates, and market indices. Cross-Chain Functionality and Security: Through Ondo Bridge, cross-chain asset transfers become possible, ensuring the security of the Decentralized Validation Network (DVN) and supporting institutional asset and liquidity management to meet the demands of large-scale trading.
B. Limitations
Ondo's heavy reliance on institutions limits the participation of retail users and decentralized communities, with centralized elements still dominating, and most power remaining in the hands of a few institutions.
Over-reliance on Institutions, Lack of Community Drive: Ondo Finance's architecture largely depends on the participation of traditional financial institutions, with the credibility and liquidity of tokenized assets primarily supported by these institutions. While this ensures asset quality and compliance, it also raises a core issue: its ecosystem is mainly oriented towards institutions, with limited participation from retail users. Compared to fully decentralized RWA projects, Ondo resembles an extension of the traditional financial world, where the circulation and trading of tokenized assets mainly occur between institutions, reducing the influence of individual investors and decentralized communities.
Centralized Power Distribution Under Institutional Control: Although Ondo Chain retains some openness, its validators are permissioned, meaning core power is concentrated in a few institutions. This sharply contrasts with fully decentralized RWA projects, where any participant can become a key node in the network. Ondo's design somewhat reflects the power structure of traditional finance, where most control remains in the hands of a few large financial institutions. This centralized control may lead to conflicts in future governance and resource allocation, especially when the interests of token holders conflict with those of institutional players.
Compliance and Traditional Institutions May Limit Innovation Speed: Since Ondo Finance's core pillars are compliance and institutional participation, this may limit its speed of innovation. Compared to fully decentralized projects, Ondo may face complex compliance processes and institutional approvals when launching new financial products or technologies. This could slow its response in the rapidly evolving crypto industry, especially when competing with more agile DeFi projects, where compliance and institution-oriented structures may become a burden.
3) Real Obstacles Faced by RWA Projects
Although blockchain technology provides the technical foundation for tokenizing real assets (RWA), current public chains still struggle to meet the demands of traditional finance in areas like high-frequency trading and real-time settlement. Additionally, the fragmentation and security issues of cross-chain ecosystems further complicate the deployment of RWA by institutions. The application of RWA in decentralized finance (DeFi) faces several real obstacles:
First, the trustworthiness and consistency of assets and on-chain data are core challenges for tokenizing RWA. The key to successfully tokenizing RWA lies in ensuring the consistency between real assets and on-chain data. For instance, once real estate is tokenized, the ownership and value recorded on-chain must match perfectly with legal documents and asset status in the real world. However, this involves two key issues: the authenticity of on-chain data, i.e., how to ensure the credibility and immutability of on-chain data; and the real-time synchronization of data, i.e., how to ensure that on-chain information reflects changes in the status of real assets. Addressing these issues often requires the introduction of trusted third parties or authoritative institutions (such as governments or certification bodies), which conflicts with the decentralized nature of blockchain, thus trust remains a core challenge for RWA tokenization.
Network security is also a significant issue. The security of blockchain networks typically relies on the economic incentive mechanisms of native tokens, but the volatility of RWA is usually lower than that of cryptocurrencies, especially during market downturns, which may lead to decreased network security. Furthermore, the complexity of RWA demands higher security standards, which existing blockchain systems may not fully meet.
Compatibility issues between RWA and DeFi architectures remain unresolved. DeFi was initially designed for crypto-native assets, not traditional securities. Tokenizing RWA involves complex financial behaviors (such as stock splits and dividend distributions) that are difficult to manage effectively within current DeFi systems. Particularly concerning is the oracle system, which struggles to meet the requirements of real-time performance and security when handling large-scale traditional financial data.
Fragmentation of cross-chain liquidity and security issues further complicate the tokenization of RWA. The cross-chain issuance of RWA leads to fragmented liquidity, increasing the complexity of asset management. Although cross-chain bridge mechanisms provide solutions, they also introduce new security risks, such as double-spending attacks and protocol vulnerabilities. Institutional regulation and compliance are the largest non-technical barriers to RWA tokenization. Many regulated financial institutions are unable to trade on public chains due to anonymity, lack of compliance frameworks, and differences in global regulatory standards. Compliance requirements such as KYC (Know Your Customer) and anti-money laundering further complicate the RWA tokenization process, and in some cases, even restrict the flow of funds.
Market liquidity and limitations on institutional participation also constrain the development of RWA. Currently, the overall market value of RWA is primarily concentrated in low-risk assets (such as government bonds and funds), while the tokenization of major asset classes like stocks and real estate is progressing slowly. The liquidity of RWA still relies on crypto-native protocols, and the overall market remains in its early development stage.
Finally, the conflict of trust mechanisms between DeFi and traditional finance is another issue that RWA tokenization must address. DeFi relies on code and cryptographic technology to establish trust, while traditional finance relies on legal contracts and centralized institutions. This difference in trust mechanisms makes traditional financial institutions cautious about blockchain technology, especially in key areas such as custody and risk control.
Although blockchain technology offers the possibility for RWA tokenization, many challenges remain in practical applications. From data consistency, network security, compatibility to liquidity, compliance, the integration of technical and economic models, and conflicts in trust mechanisms, these issues must be gradually resolved in the development process to achieve widespread application of RWA in DeFi.
4) If RWA Succeeds, Ondo Chain May Become a Key in the Power Redistribution Between Old and New Financial Systems in the "Wall Street Game"
Image Source: Occupy Wall Street
This chapter analyzes the core interests of Wall Street behind Ondo Chain and points out the necessity to go beyond the surface of blockchain and real asset tokenization phenomena, focusing on the logic of financial operations and the driving forces behind competitive interests. As mentioned earlier, the biggest non-technical challenge facing RWA is compliance, which is driven by the demand for recognition of strong centralized authoritative institutions.
The world's largest asset management company, BlackRock, after promoting Bitcoin ETFs, is also involved in the investment and construction of RWA. Essentially, this is an attempt to seize the initiative, aiming to achieve a power redistribution between the traditional financial system and the emerging decentralized technologies based on blockchain. This struggle is not only a competition of technological revolution or financial innovation but also a contest for the global financial rule-making power, capital control, and future wealth distribution mechanisms.
While blockchain technology brings the hope of decentralization, facing highly concentrated capital and power, Wall Street is attempting to incorporate this technological revolution into its control through market manipulation and new forms of asset securitization, thereby maintaining its dominant position in the global financial system.
3. Power Rebalancing in the Global Financial System
Wall Street has long 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 (such as banks, securities trading platforms, and clearing systems). However, the rise of blockchain technology has disrupted this situation:
Decentralized finance (DeFi) weakens Wall Street's long-term control over traditional financial infrastructure through decentralized intermediary roles. DeFi allows key functions such as capital flow and asset management to operate on decentralized platforms, enabling users to manage assets, lend, trade, and more directly on the blockchain without intermediaries like banks or investment banks. This poses a significant threat to Wall Street, as this power shift means that Wall Street may lose its dominant position in the global financial system.
1) Asset Tokenization: Who Can Control the New Financial Infrastructure?
The RWA tokenization driven by platforms like Ondo Chain aims to enhance asset liquidity, but it hides a deeper struggle for control over the new financial infrastructure. Blockchain networks are becoming the next-generation candidates for global financial infrastructure. Who can dominate this infrastructure will hold the key to connecting real assets to the blockchain in the future.
Wall Street's interests are reflected in its attempts to control these decentralized networks. They may not directly reject blockchain but instead seek to re-concentrate capital through investments, acquisitions, or partnerships with these emerging blockchain platforms. Although the design philosophy of blockchain is decentralization, a significant amount of capital and liquidity may still be concentrated in the hands of a few large financial institutions or hedge funds. This will ultimately lead to key resources (such as liquidity and protocol governance) on blockchain platforms being controlled by a few players, causing decentralized asset markets to operate under the influence of large centralized forces.
2) Regulatory Arbitrage and Extralegal Power
According to a Cointelegraph report on February 6, JPMorgan's latest survey of institutional traders shows that 29% of institutional traders have begun or plan to trade cryptocurrencies this year, an increase of 7 percentage points from last year.
Arbitrage has long been a trading strategy cleverly employed by Wall Street elites. In the face of the uncertain regulatory environment brought about by the decentralized nature of blockchain, Wall Street institutions may establish operational entities in regions with relaxed regulations, exploiting regulatory differences between countries and regions to evade stricter oversight. For example:
In projects like Ondo Chain, certain RWA tokenizations may bypass traditional securities regulations or financial market laws. By manipulating asset flows and capital structures in different regulatory environments, Wall Street can further strengthen its control over emerging markets. Such "gray area" operations may be one of Wall Street's strategies to achieve higher returns through blockchain.
3) Market Liquidity and Price Manipulation: The Struggle for Dominance Behind the Scenes
Liquidity is at the core of market manipulation, and even in seemingly "decentralized" markets, subtle price manipulation can be achieved. Ondo Chain's RWA tokenization provides new investment opportunities for global investors, but its liquidity and trading depth still heavily depend on the inflow of large-scale capital. Controlling liquidity will continue to be a core weapon for Wall Street players. Even in a decentralized blockchain environment, institutions with more capital, trading technology, and market insights can still dominate market trends.
4) RWA Hedge Funds: Reshaping the Asset Securitization Game
Historically, Wall Street has made huge profits through asset securitization (such as subprime mortgage-backed securities). RWA tokenization on the blockchain provides new opportunities for the next generation of asset securitization. For example, Wall Street can issue new financial products by tokenizing asset portfolios, attracting global investors. These products can be based on RWA, such as Real Estate Investment Trust (REIT) tokens or corporate bond tokens, providing more options for the market.
At the same time, the derivatives market can also be expanded through blockchain. Wall Street can design complex financial derivatives (such as options, futures, and swaps), repackaging risks and selling them to global investors. In the era of RWA tokenization, the game of risk transfer and profit generation will continue to unfold.
5. The Path Forward for the Crypto Industry: The Industry is Forced to Accelerate Development
We have analyzed three factors accelerating industry development — Bitcoin-dominated crypto asset ETFs, events related to Donald Trump, and the future of RWA — which drive industry growth in different ways. The direct impact of these factors has increased the difficulty of profitability in the industry. These factors influence the crypto industry through complex market dynamics, regulatory pressures, and the gradual infiltration of the traditional financial ecosystem.
1) Market Maturity Brought by ETF Launches
The launch of ETFs marks the gradual acceptance of the crypto industry by mainstream financial institutions and investors. However, this does not necessarily benefit the overall growth of the crypto industry, similar to how gold experienced a long period of price growth after being introduced through ETFs.
Decrease in Market Liquidity and Volatility The launch of ETFs means that crypto assets are entering traditional financial markets, attracting more conservative institutional investors. At the same time, the increase in financial derivatives has also led to a decrease in the volatility of crypto assets. This decrease in volatility means fewer opportunities for high-frequency trading and arbitrage, which are crucial for retail traders and crypto hedge funds, thereby reducing profit potential.
Concentration of Capital Flows ETFs lead to a more concentrated flow of capital in the crypto market, primarily directed towards large assets like Bitcoin. This may result in the liquidity depletion and price decline of smaller crypto assets, weakening the development opportunities for smaller projects. Consequently, the profit opportunities for emerging projects decrease, making overall industry profitability more challenging.
Increased Competition from Traditional Finance The launch of ETFs signifies that crypto assets are being institutionalized as traditional financial products, bringing greater market transparency and competition. This intensifies the competition between the crypto industry and traditional financial instruments such as stocks, bonds, and commodities, diverting funds and investor attention.
2) Market Uncertainty Brought by the Trump Effect
Political figures like Trump can influence the crypto market through their policies, regulatory stances, and international relations, increasing uncertainty and complexity in the industry:
Increased Policy Uncertainty Trump's policy positions and leadership style are often filled with uncertainty, especially regarding economic and financial regulation. During his administration, any regulatory policy (such as cracking down on or easing regulations on digital currencies) could directly impact market sentiment and increase instability in the crypto market. This uncertainty brings greater policy risks to the crypto industry, affecting the stability of long-term profitability.
Stricter Anti-Money Laundering and KYC Requirements Due to political figures like Trump potentially implementing stricter anti-money laundering (AML) and Know Your Customer (KYC) regulations, trading platforms and crypto projects will face higher compliance costs. This will significantly increase operational costs and compress profit margins, especially for crypto companies lacking compliance experience.
"Trump" Meme Coins Creating a "Siphon Effect" in the Market High volatility often attracts speculative capital, and "Trump" itself has a natural marketing effect that can draw significant funds into this single asset. In a market with limited liquidity and capital, this concentration effect may lead to a "siphon effect," causing funds to flow into this meme coin. However, as prices decline, liquidity may struggle to redistribute, potentially harming the overall market balance.
3) Traditional Finance Infiltration and the Development of RWA
The rise of RWA (Real World Assets) tokenization in the crypto space marks the gradual integration of the crypto market with traditional financial assets, but this integration also increases the difficulty of achieving profitability:
Introduction of Traditional Financial Cost Structures and Competition Once RWA projects are tokenized and scaled on the blockchain, traditional financial assets such as bonds, stocks, and real estate will compete within the same ecosystem as crypto assets. The maturity, cost efficiency, and low-risk characteristics of traditional financial products will attract institutional investors, meaning that crypto assets must compete with these already established financial products.
Conflict Between Decentralization and Compliance RWA tokenization involves complex regulatory requirements, particularly regarding compliance and legal liabilities. The introduction of RWA may push many crypto projects towards compliance, leading to the exit of some projects that fail to meet regulatory standards, thereby reducing profit opportunities.
Capital Flowing to Low-Risk Assets The tokenization of real-world assets such as government bonds and corporate bonds will attract conservative investors into the blockchain market. As more funds flow into low-risk RWAs, high-risk, high-reward projects in the crypto market (such as DeFi protocols or emerging tokens) may lose some financial support. The shift of capital towards low-risk assets will further compress the profit margins in the crypto market.
6. Conclusion: Is RWA a Narrative Bubble or a Game Changer for the Market?
Based on the above discussion, my personal view is that the rise of ETFs, the Trump effect, and the emergence of RWA will increase the difficulty of profitability in the crypto industry through different channels and intensities. The market maturity and institutionalization brought by ETFs reduce market volatility and profit opportunities; Trump's policies may increase market uncertainty and bring additional policy risks; meanwhile, the introduction of RWA means that the crypto market will face more competition from traditional finance. As the crypto market becomes more "normalized," it will encounter more bottlenecks, and future challenges will be greater.
Therefore, whether RWA is a "narrative bubble" or a "market game changer" depends on the maturity of its technological foundation, market demand, and implementation path. From its early development and the challenges it faces, RWA exhibits some characteristics of a "narrative bubble," but with the participation of well-known institutions, it has the potential to become a new catalyst for transformation in the crypto market.
Article link: https://www.hellobtc.com/kp/du/02/5676.html
Source: https://medium.com/ybbcapital/wall-streets-on-chain-securities-battle-the-secretive-capital-struggle-in-the-rwa-space-81bc77344732
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