Introduction: Why Liquidity Matters in Tokenized RWAs

Real-world asset (RWA) tokenization has rapidly emerged as one of the most compelling trends in decentralized finance (DeFi) and digital assets. By converting physical or financial assets—such as real estate, private credit, commodities, or even fine art—into blockchain-based tokens, tokenization promises fractional ownership, faster settlement, and greater global accessibility.

One of the boldest claims often associated with RWA tokenization is its supposed ability to “unlock liquidity” in traditionally illiquid markets. Advocates argue that by making assets divisible, tradable 24/7, and accessible to a global investor base, tokenization inherently solves the liquidity problem.

But is this really the case?

This blog will take a critical look at liquidity and market dynamics in tokenized RWAs, exploring:

• Debunking the liquidity myth: Why tokenization alone doesn’t guarantee liquid markets.
• Valuation challenges: Price discovery, appraisal methods, and the struggle to mark illiquid assets to market.
• Institutional vs retail participation: How each group shapes liquidity, trust, and adoption.
• Market size, regulations, and technologies shaping the space in 2025.
• Case studies and expert insights to illustrate both successes and roadblocks.
• FAQs and actionable takeaways for investors, startups, and institutions.

With global RWA tokenization projected to reach $16 trillion by 2030 (BCG estimate), understanding liquidity dynamics in tokenized markets is crucial for investors, issuers, and regulators alike.

The Market Landscape: RWA Tokenization 2025

As of 2025, the tokenized real-world asset (RWA) market has matured into a notable segment of the broader digital asset ecosystem, with an estimated $4–5 billion in circulating tokenized assets. The bulk of activity is concentrated in tokenized treasuries, private credit instruments, and real estate investment vehicles, reflecting both institutional adoption and growing retail interest. This market growth is being fueled by multiple converging trends: increasing institutional participation in decentralized finance (DeFi) yield strategies, a rising need for alternative financing solutions in emerging markets, and significant advancements in blockchain infrastructure. Layer 2 solutions on Ethereum, along with interoperable ecosystems such as Cosmos, Polkadot, and Avalanche subnets, are improving scalability, reducing transaction costs, and creating a more seamless experience for participants in tokenized markets.

Regulatory clarity has historically been a key barrier to the expansion of tokenized RWAs, but 2025 is witnessing a turning point. In the European Union, MiCA regulations are beginning to provide a framework for compliant token issuance and trading. Meanwhile, Hong Kong and Singapore are introducing guidelines aimed at balancing innovation with investor protection, and pilot programs in the United States are testing practical frameworks for asset tokenization. These developments are crucial because they allow both institutional and retail participants to engage with RWAs with greater confidence, signaling that tokenized assets could soon move from niche experimentation to mainstream financial instruments. Ripple and BCG project the tokenized asset market could reach nearly $19 trillion by 2033, though liquidity and compliance remain the primary bottlenecks (CoinDesk).

Several use cases have already demonstrated strong traction, indicating the potential of RWAs to transform traditional finance. Fractionalized real estate ownership is allowing investors to access high-quality property assets with lower capital requirements. Tokenized private credit and invoice financing are providing flexible, on-chain alternatives to conventional lending markets, while treasury-backed stablecoins—such as BlackRock’s BUIDL—offer a secure entry point for risk-averse investors. In addition, commodities and ESG-linked assets like carbon credits are attracting environmentally conscious investors, creating a bridge between sustainable finance and blockchain innovation. These applications highlight the versatility of RWAs and the breadth of opportunities for tokenization across asset classes.

Despite these advances, liquidity remains the critical bottleneck for tokenized RWAs. While issuance and custody infrastructure have progressed, secondary market activity is still limited, often constrained by fragmented exchanges, low trading volumes, and operational inefficiencies. The evolution of robust liquidity solutions—whether through on-chain automated market makers, institutional market-making strategies, or hybrid decentralized-centralized marketplaces—will determine whether RWAs can achieve the scale and usability necessary for mainstream adoption. Without sufficient liquidity, tokenized RWAs risk remaining a niche product, valuable primarily for yield-hungry DeFi users or early adopters, rather than a core component of global financial markets.

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Debunking the Liquidity Myth in Tokenized RWAs

Tokenization is often marketed as a solution to the illiquidity problem in real-world assets. However, tokenizing an asset doesn’t automatically make it liquid.

Demand-Side Limitations

Despite the promise of fractionalization, demand-side challenges continue to constrain liquidity in tokenized real-world assets (RWAs). Breaking a $10 million property into thousands of $100 tokens, for example, does not inherently generate active buyers. Liquidity relies not only on the ability to subdivide assets but also on a sufficient pool of participants willing and able to transact. Without robust investor interest, trading volumes remain low, which in turn can discourage new participants from entering the market due to the difficulty of exiting positions efficiently.

Investor education is another significant barrier. Many retail investors remain unfamiliar with the risks, technical mechanisms, and nuances of tokenized assets. Unlike traditional financial instruments, RWAs on blockchain involve considerations such as smart contract risk, custody solutions, regulatory compliance, and on-chain settlement mechanics. This knowledge gap reduces confidence in participation, particularly among conservative investors who may view tokenized assets as experimental or volatile. As a result, even highly fractionalized assets may struggle to achieve meaningful market activity.

Geographic and regulatory limitations further compound these demand-side challenges. Cross-border participation is often restricted by securities laws, licensing requirements, or compliance hurdles, which naturally limits the number of potential buyers. Markets remain fragmented, with investors confined to specific jurisdictions where regulatory clarity exists. This segmentation restricts the global liquidity pool, slowing price discovery and creating inefficiencies that are particularly pronounced for niche asset classes such as private credit or ESG-linked commodities. One study highlights, tokenization often creates “paper liquidity” but not real tradability, since secondary markets remain thin and fragmented (arXiv).

In combination, these factors underscore that tokenization alone cannot guarantee liquidity. While technological innovation enables fractional ownership, a thriving secondary market ultimately depends on educating investors, harmonizing regulatory frameworks, and fostering broad, global participation. Without addressing these demand-side limitations, tokenized RWAs risk remaining a compelling theoretical innovation with limited real-world trading activity.

Regulatory Gating

• KYC/AML Compliance: Unlike Bitcoin or Ethereum trading, RWA tokens are often gated by compliance checks. This slows down trading and reduces spontaneous liquidity.
• Securities Classifications: Many tokenized RWAs fall under securities law, requiring regulated platforms and limiting secondary market freedom.

Absence of Market Makers

A critical barrier to liquidity in tokenized real-world assets (RWAs) is the lack of active market makers. In traditional crypto markets, liquidity is often underpinned by automated market makers (AMMs) and professional trading firms, which continuously provide buy and sell quotes, absorb order flow, and narrow spreads. These participants play a central role in ensuring that assets can be traded efficiently and with minimal slippage. By contrast, the RWA market frequently lacks this supportive infrastructure, resulting in thin and often inactive order books. Without market makers, even highly fractionalized assets may remain illiquid, leaving investors hesitant to commit capital for fear of being unable to exit positions quickly.

The challenges of market making in RWAs are compounded by high operational and compliance costs. Unlike crypto-native tokens, which can be listed and traded almost instantly, RWAs typically require robust custody solutions, legal agreements, regulatory oversight, and adherence to jurisdiction-specific compliance rules. These frictions create significant overhead for potential liquidity providers, reducing the incentives to engage in market-making activities. The result is a vicious cycle: limited liquidity discourages market makers, and the absence of market makers further suppresses trading activity.

Moreover, the illiquidity risk is accentuated by the heterogeneous nature of RWAs themselves. Each asset—whether a tokenized property, private credit instrument, or carbon credit—often has unique characteristics, legal structures, and settlement requirements. This fragmentation makes it difficult for market makers to standardize pricing and manage risk efficiently across the asset class. Consequently, liquidity remains highly fragmented, with sporadic trading activity concentrated in a handful of well-known or professionally managed assets.

Addressing the absence of market makers is therefore essential for unlocking the full potential of tokenized RWAs. Solutions may include incentivized AMMs designed for illiquid assets, partnerships with professional trading firms, or hybrid centralized-decentralized marketplaces that reduce operational friction. Without these mechanisms, tokenized RWAs risk being perceived as innovative but illiquid instruments, limiting adoption beyond early adopters and niche institutional investors.

Valuation Challenges in Tokenized Assets

Even if liquidity improves, valuation remains a major obstacle for tokenized RWAs. Researchers have proposed frameworks for valuation and custody of tokenized RWAs, highlighting the operational complexity behind seemingly simple token issuance (arXiv paper).

Price Discovery

• Infrequent Trading: Many tokenized assets—like commercial real estate or fine art—don’t trade frequently enough to establish transparent market prices.
• Reliance on Appraisals: Token issuers often rely on traditional appraisal methods, which can lag behind real market conditions.

Marking to Market

• Opaque NAV Reporting: Tokenized funds or real estate vehicles may only update net asset value (NAV) monthly or quarterly, leaving token prices stale.
• Disconnection from On-Chain Prices: Secondary market trading may deviate significantly from NAV, creating distortions.

Handling Illiquidity

• Discounts for Liquidity Risk: Investors often demand higher yields or apply discounts when trading illiquid tokenized assets.
• Forced Redemption Risks: In stressed scenarios, issuers may face liquidity mismatches, similar to traditional funds during redemptions.

Institutional vs Retail Participation: Different Roles in Liquidity

The next big question: Who will drive liquidity in tokenized RWAs—institutions or retail investors?

Institutional Participation

Institutional involvement in the tokenized real-world asset (RWA) market presents both significant opportunities and notable challenges. On the positive side, institutions bring credibility, deep financial expertise, and access to large-scale capital, which are essential for driving adoption and instilling confidence in a market that is still viewed as experimental. Their participation can also facilitate the development of structured financial products—such as tokenized real estate funds, private credit tranches, or ESG-linked investment vehicles—that make tokenized assets more accessible and attractive to traditional investors. In doing so, institutions can help bridge the gap between decentralized finance (DeFi) and conventional financial markets, creating new avenues for both liquidity and investor diversification.

However, institutional engagement is not without hurdles. One of the foremost challenges is custody: institutions require robust, secure, and compliant custody solutions for blockchain-based assets, which are still evolving and often lack the same legal protections as traditional custodial arrangements. Legal clarity is another critical factor; institutions must be confident that ownership rights in tokenized assets are enforceable across jurisdictions, especially when assets are fractionalized or involve complex contractual structures. Additionally, seamless integration with existing TradFi infrastructure—covering settlement, reporting, accounting, and regulatory compliance—is essential for institutions to manage risk and operate efficiently in tokenized markets.

These barriers explain why institutional adoption, while highly promising, has been measured and cautious. Until custody solutions, legal frameworks, and operational integration reach maturity, institutions may hesitate to act as active liquidity providers or market makers in the RWA space. Nevertheless, once these obstacles are addressed, institutional participation has the potential to be a transformative force. It could provide the deep liquidity and credibility necessary to move tokenized assets from niche experiments to widely trusted financial instruments.

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Retail Participation

Retail investors represent a critical component of the tokenized real-world asset (RWA) ecosystem, offering the potential to significantly broaden market demand. By enabling fractional ownership, tokenization lowers the barrier to entry for asset classes that were traditionally accessible only to high-net-worth individuals or institutional players—ranging from prime real estate and fine art to carbon credits and other ESG-linked investments. This democratization of investment not only increases participation but also introduces greater diversity and inclusivity into financial markets, allowing a wider range of investors to benefit from the growth of alternative assets.

However, the involvement of retail investors also presents distinct challenges. Many retail participants have lower risk tolerance compared to institutional players and may be unfamiliar with the technical and financial nuances of RWAs. Tokenized assets carry unique considerations, including smart contract risk, custody arrangements, compliance obligations, and potential illiquidity, all of which can be difficult for retail investors to fully assess. This education gap limits confident participation and can exacerbate volatility if inexperienced investors enter or exit positions in concentrated numbers.

Additionally, regulatory constraints continue to restrict retail engagement. Cross-border access is often limited, and investors may be confined to platforms compliant only in specific jurisdictions. These restrictions fragment the retail market, limiting both the breadth of participation and the liquidity available for tokenized RWAs. To scale retail demand sustainably, platforms must invest in comprehensive investor education programs, provide clear and transparent disclosures on risks and rights, and work with regulators to create inclusive frameworks that allow broader, compliant participation.

In essence, retail participation holds the promise of mass adoption and diversification for tokenized RWAs, but realizing this potential requires a careful balance of education, transparency, and regulatory alignment. Only with these measures can retail investors contribute meaningfully to market liquidity and stability, helping transform tokenized RWAs from niche innovations into mainstream financial instruments.

The Bridge: TradFi Integration

A critical factor for the widespread adoption of tokenized real-world assets (RWAs) is the integration of traditional finance (TradFi) infrastructure with blockchain-based markets. Bridging these two worlds allows tokenized assets to benefit from the speed, transparency, and programmability of blockchain while maintaining the regulatory compliance, security, and trust inherent to conventional financial systems. Regulated exchanges such as SIX Digital Exchange in Switzerland and the Abu Dhabi Global Market (ADGM) are at the forefront of this movement, enabling tokenized assets to trade within familiar, legally recognized frameworks. By providing a compliant on-ramp, these platforms reduce friction for institutional investors while ensuring adherence to local and international regulations.

Custody remains another cornerstone of TradFi integration. Institutional participants require robust and legally defensible custody solutions to safeguard blockchain-based assets. Leading providers like Fireblocks, Anchorage, and Copper are filling this gap by offering secure, insured, and compliance-focused custody infrastructure. These solutions address one of the most significant institutional hurdles—ensuring that tokenized assets are not only secure from cyber threats but also recognized under regulatory and legal standards. Reliable custody builds investor confidence, which is essential for unlocking deeper liquidity in tokenized markets.

On the decentralized finance (DeFi) front, innovative protocols are creating regulated environments that embed compliance directly into the smart contract layer. Platforms like Centrifuge, for example, are developing credit marketplaces that allow tokenized assets to flow seamlessly into DeFi while adhering to legal and regulatory requirements. This convergence of TradFi and DeFi is particularly powerful: institutions gain exposure to blockchain-enabled yield opportunities without sacrificing compliance, and retail investors gain access to high-quality assets that were previously inaccessible.

Together, these efforts are creating a foundational bridge that connects TradFi and DeFi ecosystems, enabling tokenized RWAs to move fluidly across markets. By harmonizing regulatory compliance, secure custody, and blockchain innovation, the integration of TradFi infrastructure promises to expand participation, reduce market fragmentation, and enhance liquidity—critical steps for transforming tokenized RWAs from niche experiments into mainstream financial instruments.

Risks in Tokenized RWA Liquidity

While tokenized real-world assets (RWAs) hold immense promise for broadening access to alternative investments and enhancing market efficiency, their liquidity comes with a set of significant risks that both investors and issuers must carefully navigate. Regulatory uncertainty remains one of the most pressing challenges. Definitions of what constitutes a security, and the associated compliance obligations, are still evolving across jurisdictions. Changes in regulatory interpretation or enforcement could restrict trading, delay adoption, or even lead to retroactive compliance requirements, introducing uncertainty for market participants.

Custody risk is another critical consideration. Unlike traditional financial assets held in regulated custodial accounts, tokenized RWAs require secure custody solutions that ensure the legal enforceability of ownership rights. If an issuer defaults or a custodian faces insolvency, questions may arise over the true ownership of tokenized assets, potentially leaving investors exposed to losses. Even in seemingly liquid markets, liquidity traps can form during periods of market stress. Token holders may find it difficult or impossible to sell their positions quickly, resulting in sudden collapses in tradability and unexpected valuation swings.

Valuation risk is particularly pronounced in tokenized RWAs. Many underlying assets—such as private credit instruments, real estate, or fine art—lack standardized appraisal mechanisms or widely accepted pricing models. This opacity can make it difficult for investors to assess fair value, increasing the potential for mispricing or speculative bubbles. Additionally, technological risks introduce another layer of vulnerability. Smart contract exploits, protocol bugs, or platform insolvencies can compromise both the security of the tokens and the broader liquidity of the market.

Together, these risks highlight that liquidity in tokenized RWAs is not guaranteed simply by fractionalization or blockchain-based trading. Market participants must prioritize rigorous due diligence, robust legal and compliance frameworks, reliable custody solutions, and strong technological governance. Only by acknowledging and actively managing these risks can tokenized RWAs move toward sustainable, liquid markets capable of attracting both institutional and retail investors.

Future Trends: Where Liquidity Is Heading

Looking ahead, the liquidity landscape for tokenized real-world assets (RWAs) is poised for significant evolution, driven by technological innovation, institutional adoption, and regulatory alignment. One of the most notable trends is the emergence of hybrid market models, which combine the structure and compliance of regulated exchanges with the efficiency and accessibility of DeFi liquidity pools. By integrating these two worlds, hybrid models aim to provide robust, compliant trading venues while preserving the speed, transparency, and automated execution that blockchain-based markets offer. This approach could help overcome the liquidity bottlenecks that have historically constrained tokenized assets.

Technological advancements are also shaping the future of liquidity. AI-powered valuation engines, integrated with real-time market data and decentralized oracles, promise to deliver more accurate and dynamic net asset value (NAV) reporting. This reduces valuation gaps and enhances price discovery, enabling investors to make more informed decisions and trade with greater confidence. In parallel, interoperability solutions are making it increasingly feasible for tokenized assets to move seamlessly across multiple blockchain networks and integrate smoothly with traditional financial infrastructure. This cross-chain liquidity is expected to expand trading pools and reduce market fragmentation, further enhancing tradability.

Institutional DeFi is another key trend with significant implications for liquidity. Permissioned DeFi platforms, tailored to the needs of banks, asset managers, and other regulated institutions, provide compliance safeguards while enabling participation in blockchain-based yield and lending markets. These platforms bridge the gap between conservative institutional investors and high-efficiency DeFi markets, potentially unlocking large pools of capital that have been historically underrepresented in tokenized RWA markets.

Finally, regulatory convergence is set to play a pivotal role in shaping liquidity. Frameworks such as the EU’s Markets in Crypto Assets (MiCA) regulation and Hong Kong’s tokenization initiatives are expected to establish global benchmarks for compliant issuance, trading, and custody of tokenized assets by 2026. Greater regulatory clarity across jurisdictions will reduce friction for cross-border participation, increase investor confidence, and incentivize both retail and institutional actors to engage in tokenized RWA markets.

Taken together, these trends suggest a future in which liquidity for tokenized RWAs becomes more robust, dynamic, and resilient. By harmonizing innovation, institutional participation, and regulatory oversight, the market is moving toward a state where tokenized assets are not just accessible but also reliably tradable—paving the way for broader adoption and mainstream integration into global financial markets.

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Conclusion

RWA tokenization in 2025 carries immense potential, with market opportunities projected in the trillions, but liquidity remains the defining challenge. Tokenization itself does not create liquidity—it merely enables it, and vibrant markets still depend on demand, valuation clarity, and regulatory alignment. Valuation challenges and regulatory gating continue to constrain growth, while institutions provide the scale and trust needed for adoption, and retail investors contribute breadth and accessibility. The success of U.S. Treasuries as the leading tokenized asset highlights a crucial lesson: liquidity flows where valuations are transparent and regulatory frameworks are clear. For investors, startups, and institutions, the real focus must be on building strong infrastructure, ensuring valuation transparency, and enabling cross-market integration rather than assuming tokenization automatically guarantees liquidity. Ultimately, the next wave of growth will hinge not on technology alone, but on the convergence of regulation, institutional confidence, and deep, resilient secondary markets.

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