Bridging TradFi and DeFi: Tokenizing Real World Assets

As traditional banking and cryptocurrency continue to intersect, tokenized real-world assets offer enormous potential for decentralized finance growth via new products, customers, and infrastructure...

Bridging TradFi and DeFi: Tokenizing Real World Assets

Real-world assets and decentralized finance may appear to be mutually exclusive. However, as cryptocurrency evolves, tokenizing real-world assets such as real estate, loans, and US Treasuries provides a link between traditional and decentralized finance. While the pairing may appear odd, the opportunities it provides are obvious. This blog will present an overview of real-world assets in the crypto realm in order to understand key protocols and their significance.

What is the RWA Crypto Narrative About?

RWAs are the tokenization of real-world assets, these can vary from gold and real estate, as well as intangible assets such as bonds or carbon credits. Historically, these assets could only be obtained through centralized companies, such as brokerage firms.

Buying gold, for example, frequently meant going via a brokerage like Vanguard, where buyers acquire shares of gold without actually owning the commodity. However, because of this centralized structure, brokerage firms benefited from trading fees.

Blockchain-based RWA platforms, on the other hand, allow DeFi users to directly purchase and lend shares backed by real-world assets. This change shifts yield into the hands of DeFi participants rather than centralized intermediaries, providing crypto-native investors with flexibility and profitability.

Why the RWA Narrative is Important

We also see that DeFi yields have historically been very volatile, closely tied to market activity and sentiment. To put it lightly, these are reflexive markets with a tendency towards boom and bust cycles.

For example, stablecoin liquidity pool yields surged during bullish periods but dwindled during bear markets.

For DeFi to truly compete with traditional finance (TradFi), it must offer stable and reliable yields, rather than relying solely on hype and market volatility. The introduction of RWAs introduces stability and consistency, allowing DeFi to thrive even during bearish market conditions.

This integration of RWAs into decentralized finance holds the potential to revolutionize not only the crypto landscape but also traditional markets.

Consider the vast scope of traditional finance, with over $600 trillion in assets. If DeFi can capture just 1% of this market, it would constitute a monumental $6 trillion, significantly surpassing the current total market capitalization of the entire crypto space at $1.3 trillion.

RWAs allow DeFi investors to receive enticing, risk-adjusted rates on their stablecoin investments while also giving conventional businesses access to lower-cost financing than is available through conventional banking channels. This could thus benefit both DeFi investors and traditional companies looking for cost-effective capital.

Features Real World Assets in Crypto

RWAs thus encompass tangible assets from the physical world, skillfully introduced onto the blockchain through the transformative tokenization process. These assets take all forms imaginable and include real estate properties, commodities, artistic creations, loans, and even esteemed US Treasuries. The objective is to unlock these substantial real-world asset classes to fortify them within the DeFi ecosystem.

Key benefits of incorporating RWAs into blockchain include

  • DeFi investors can now tap into innovative sources of yield, extending well beyond the confines of the crypto asset realm.
  • RWAs furnish assets that exhibit diminished correlation with the volatility of the crypto market, boosting prospects for portfolio diversification.
  • Borrowers in developing economies are now afforded an enhanced avenue for accessing capital through heightened efficiency and accessibility.
Defi Lama

As of October 2023, the DefiLlama platform proclaims that RWAs have solidified their presence, commanding a substantial total value locked (TVL) exceeding $2,399 billion, symbolic of the growing niche they represent within the DeFi ecosystem.

Recent RWA Developments in Crypto

Intriguingly, the RWA sector has recently witnessed several notable developments, including:

  • The resounding success of tokenized gold, surging past the remarkable milestone of $1 billion in market capitalization. Leading issuers such as Pax Gold and Tether have played pivotal roles in this achievement.
  • The prediction by The Boston Consulting Group envisions the tokenized asset market's breathtaking potential, with an awe-inspiring projection of reaching $16 trillion by the year 2030.
  • A wave of interest from established financial entities, with both S&P Global and NASDAQ displaying interest towards exploring DeFi and crypto-related solutions.

Real Protocols Focusing on Real World Assets

Some DeFi protocols already made it their life purpose to be the next big thing on the blockchain providing real world assets for all. Opportunities sprang out of the virtual ground. We take a look at a few that are gaining traction.

DeFi Lama Scoreboard RWA's
  • Ondo Finance: Ondo Finance invests stablecoins into ETFs, offering varying APY rates based on risk levels. It managed $163 million in TVL and introduced an on-chain US Treasury yield product called Ondo USD Yield (USDY).
  • Maple Finance: Maple Finance promotes institutional borrowing from DeFi lenders while providing lenders with a diverse yield profile. It collaborates with credit specialists for underwriting and due diligence, focused on Bitcoin mining infrastructure loans and other real-world collateralized assets.
  • Goldfinch: Goldfinch offers loans to companies in emerging economies that are backed by cryptocurrencies. It has streamlined crypto yield opportunities for institutions and created loans totaling over $100 million.
  • Centrifuge: Centrifuge enables companies to mint tokenized credit lines backed by real-world assets like real estate and invoices, which can be used as collateral for crypto loans, aiming to bring private credit onto the blockchain.

RWA Critique

Discussions around Real-World Assets (RWA) often hinge on trust in entities issuing IOUs, rather than robust, verifiable assurances. RWA intermediaries typically lack transparency, which could be improved by using the transparency features of blockchain, for example, but is in the current landscape underutilized.

The same can be said of incorporating permissioned and censorable collateral into a permissionless financial system - it introduces contradictions. The widespread integration of USDC, a fully controlled asset, into main DeFi platforms exemplifies this issue.

Is this the true vision of decentralization - a permissionless, censorship-resistant financial system stuffed with permissioned and censorable collateral?

On the other hand, it is crucial to recognize that DeFi's growth into a trillion-dollar industry may necessitate assets beyond just those native to crypto.


Although still in its early stages, tokenization of real-world assets presents a promising option for linking traditional and decentralized finance. This partnership, albeit unexpected, has enormous potential.

The inclusion of real-world assets in DeFi is primed to bring in institutional-grade products and consumers, opening the door to a new stage of development and maturity for decentralized finance.

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*Important Disclaimer: While every effort is made on this website to provide accurate information, any opinions expressed or information disseminated do not necessarily reflect the views of Bitfinity itself. The information provided here is for general informational purposes only and should not be considered as financial advice.