The RWA Boom Is Leaving DeFi Behind
Tokenized real-world assets just crossed $37 billion on-chain, spread across nearly 1.6 million holders. And, with analysts at Standard Chartered forecasting $2 trillion in tokenized RWAs by 2028, it’s hard to imagine the initial skepticism from institutions just a few years ago.
The RWA boom is hitting up against a reality check: A lack of composability that dramatically limits the potential value generated by RWAs. Of the roughly $28 to $30 billion in tokenized RWAs that DefiLlama tracks, only around $2.5 billion is actually deployed inside DeFi protocols. That’s a utilization rate of less than 9%, which means that nearly nine of every ten tokenized dollars are currently sitting in closed environments.
So what’s holding RWAs back?
The argument for tokenizing assets on public blockchains was never that a blockchain is a better database. Databases are cheap, accurate, and work very well. The stronger argument was always composability: assets can interact across protocols in a way that unlocks new financial primitives and innovations – all in a permissionless environment.
A tokenized Treasury, for instance, could become collateral in a lending market. That lending position could then back a structured product that’s plugged into an automated portfolio strategy. Each layer adds value, creating the building blocks of a more flexible financial system that’s also more valuable: the sum is greater than the parts.
But RWAs are being held back by the misconception that compliance and composability are mutually exclusive or somehow in conflict.
Compliance and composability are complementary
In traditional finance, compliance is enforced by intermediaries. A transfer agent or custodian is the middleman between the asset and the market. By vetting counterparties and approving transactions, they added credibility and trust to the system.
Under that model, however, compliance and composability are structurally difficult to reconcile. Since the intermediary ensures that each transfer or transaction is compliant, it’s nearly impossible to build something that operates permissionlessly. Any transaction that bypasses the established intermediary creates legal and regulatory risk.
That’s not the case with blockchains, where compliance and composability reinforce each other. Thanks to open token standards like ERC-3643, rules can be embedded directly into the asset. That means the transfer restrictions and eligibility checks are enforced on every transaction no matter which protocol initiates it. There are also identity frameworks, such as ONCHAIN ID, that let holders prove they’re permitted counterparties, all without surrendering keys or privacy.
When compliance is embedded into the token, it travels with the assets and creates a variety of opportunities for greater transparency, all without sacrificing speed, cost, or control. For example, when a tokenized government bond sits in a lending protocol, counterparties can verify who holds it, enforce transfer restrictions, and generate real-time regulatory reports. This happens permissionlessly on-chain, unlocking truly 24/7 global markets.
Protecting the composability premium
So what makes a tokenized asset more valuable than a traditional one?
If a tokenized bond can’t be used as collateral, interact with open protocols, or be built upon without a permission grant from the original issuer, then it offers only incremental improvements in settlement and record-keeping. Genuine improvements, but not transformative ones.
On the flip side, composability is what creates something genuinely new: an asset that can simultaneously serve as collateral, generate yield, back a structured product, and report to regulators, all without manual intervention.
This composability premium, or the additional value an asset earns by being programmable, o is the main case for tokenisation Yet we’re at risk of never taking full advantage of the benefits of composability. There are hundreds of billions of dollars in institutional capital committed to tokenization but not yet issued as freely interoperable tokens.
The design choices being made right now will determine whether that institutional money lands in a financial system that’s genuinely more capable than what came before, or in one that captures only a fraction of the value that this technology promises.
Collaboration provides the path forward. Embedding compliance into the token requires careful alignment across issuers, regulators, custodians, legal advisors, and protocol developers. We’ll need shared standards, mutual trust, and the kind of iterative dialogue between the public and private sectors that responsible financial innovation has always depended on.
Of course, that alignment takes time and diligent work among stakeholders, institutions, investors, and regulators. But the direction is clear and the work is already underway to remake the entire financial system as more connected, efficient and valuable.
