Written by: JeanW

When analyzing cases in the Hong Kong market, one characteristic is found: the product structure is complete, the compliance path is clear, but there are no real external buyers.

Silver RWA STHK has a total scale of 17.6 million Hong Kong dollars. After flipping through the announcement, it was discovered that over half was bought by the chairman’s own BVI company, and the placement was completed just four days before the end of the fiscal year; RWA is used for the company's financial reports. Delin Holdings' property tokenization, right from the project launch, included the distribution of 60 million Hong Kong dollars in the announcement, packaging its own assets and "donating" them to target users.

This indicates that the problem lies not in execution but in asset selection: the tokenization of some assets does not create any value that traditional finance cannot provide, and some motives are not even focused on tokenization itself.

Therefore, it is necessary to build an asset evaluation framework.

First Question: Is this asset worth tokenizing?

If it were not tokenized, would the demand for this asset be satisfied? Look at the asset on two coordinate axes:

Horizontal axis: Entry friction in traditional finance. This includes geographical restrictions, legal exclusions, minimum investment amounts, and trading time windows. The greater the friction, the higher the "pipeline value" of tokenization.

Vertical axis: Real demand density. How many people want exposure to this asset? Is demand structural or speculative?

Four quadrants:

High demand + High friction → The place where RWA should exist the most. Tokenizing U.S. Treasury bonds is currently the most successful case. A large number of institutions and individuals around the world need risk-free return exposure, but different investor groups face different types of friction: non-U.S. investors lack legal avenues to buy T-Bills directly, on-chain protocols, and DAO treasuries lack native risk-free income assets, and even U.S. qualified investors face efficiency frictions due to the slow settlement and non-combinability of traditional funds.

Ondo's USDY opens exposure to U.S. Treasury returns to non-U.S. users through Reg S, addressing entry friction; OUSG targets U.S. qualified investors based on Reg D, solving efficiency friction. Different products, different compliance paths, and different frictions come together to support a scale of billions. Ondo's arbitrage structure is built on the gaps corresponding to these frictions: geographical arbitrage (USDY leverages Reg S to provide legal bypass channels for non-U.S. users), regulatory time window arbitrage (the SEC has not clarified the registration requirements for tokenized securities, and for each additional day the window stays open, hundreds of millions of dollars flow in), and infrastructure arbitrage (DeFi lacks native risk-free interest rates, with stablecoin yields at zero). The durability of these gaps varies and determines the lifecycle of different RWA products.

There are also many categories in this quadrant that have not been fully developed: private credit, infrastructure bonds, and sovereign debt in emerging markets have entry barriers (high thresholds, geographical restrictions, legal exclusions) similar to those of U.S. Treasury bonds, and the value proposition of tokenization is similar.

However, there is one category with a completely different source of friction: Pre-IPO equities, where the friction is liquidity lock-in. The PE/VC market size is $8.9 trillion, but the exit cycle of nearly ten years has trapped all LPs; tokenization addresses the exit issue. Whether through Republic's Mirror Tokens, EquityZen's dark pool matching, or Ventuals' synthetic exposure, technology and mechanism innovation is utilized to release trapped liquidity and minimize the loss of liquidity premium.

High demand + Low friction → Tokenization just switches tracks. U.S. stocks for U.S. users fall into this quadrant; Robinhood has achieved zero commissions, fragmentation, and mobile trading—tokenization does not create new value. However, the friction faced by the same category can be completely different in different markets. Growth in tokenized U.S. stock platforms comes almost entirely from non-U.S. markets; Ondo Global Markets, xStocks, and StableStock explicitly exclude U.S. users and promote with a consistent message of "global accessibility" rather than "on-chain innovation." For users in emerging markets who have USDT but lack brokerage accounts, U.S. stocks are high-friction assets, and tokenization solves the real access problem. Therefore, when using this quadrant, one must first ask: For whom is there low friction? The answer varies, resulting in different quadrants.

Low demand + High friction → Tokenization is self-deception. Some assets are hard to trade not because there is a lack of an on-chain channel, but because there aren't many people wanting them to begin with. Tokenization does not create demand, it merely transmits demand. If an asset lacks real buyers in traditional finance, moving it on-chain merely showcases the same emptiness in a different place. The silver token of STHK falls into this quadrant, with a silver exposure of 17.6 million Hong Kong dollars, which is neither scarce nor difficult to obtain for professional investors—tokenization has not created new demand; it has simply packaged already existing trades in a new way.

Low demand + Low friction → RWA is not needed at all.

Assets that fall in the first quadrant (high demand, high friction) are the most worthwhile for tokenization.

However, the assessment of demand density cannot be detached from scale. The total demand for a category may be large (for example, global commercial properties), but if the scale of a single project is insufficient to cover the fixed costs of tokenization (establishing SPVs, auditing, oracle integration, ongoing compliance), it does not establish itself in the first layer, as the economic model does not support it.

Second Question: Is there a scenario on-chain that can accommodate this demand?

Demand existing is just the first step; there may not necessarily be any scenarios on-chain to meet it.

The use cases of an asset on-chain can be roughly divided into three categories:

Held. Buy tokens, store them in a wallet, stake to earn yields or wait for appreciation.

Traded. Trade price exposure through Perps or other derivatives, going long, short, or leverage without caring about the underlying asset itself.

Combined. Tokens enter DeFi protocols, becoming part of collateral for lending, liquidity pools, Perp margins, or underlying for structured products.

The three scenarios are not mutually exclusive; an asset can be held, traded, and combined simultaneously. The more scenarios there are, the more sources of liquidity, and the more stable the asset is on-chain.

Let’s verify with specific categories:

Gold: All three scenarios exist and reinforce each other; gold is currently the healthiest category.

Holding: PAXG/XAUT/XAUm has a total market capitalization exceeding $5.5 billion, and holders use it for gold exposure allocation.

Trading: In extreme market conditions, trading volume for precious metals Perps exceeds $5 billion in a single day.

Combination: PAXG serves as collateral for loans on Aave, and XAUm is integrated into Morpho/Curve.

Silver: The scenario only runs through one form, currently surviving only in the perp trading format.

Holding: XAGm was launched less than a month ago, with a market cap of $2.74 million, and it is too early to draw conclusions. But those wanting exposure to silver already have physical and ETF options off-chain; what extra value can on-chain provide? The true demand form for silver on-chain is "traded" rather than "held," meaning tokenizing physical silver might fundamentally be going in the wrong direction.

Trading: In Q1, the price game for silver was intense, with peak daily trading volume for silver Perps on Hyperliquid reaching $1.138 billion, but traders seek volatility exposure, not silver itself.

Combination: Matrixdock will likely promote DeFi integration, especially since there is already a precedent with XAUm on Morpho/Curve. However, DeFi protocols have criteria for accepting collateral, and based on the current market cap, there is no incentive for DeFi protocols to conduct risk assessments and integration. If holding scale doesn’t grow, the combination scenario cannot open up; if the combination scenario cannot open up, the attractiveness of holding decreases further. The silver token is currently stuck in this cycle.

U.S. Stocks: Two scenarios are being established.

Holding: There is real holding demand from non-U.S. investors (Ondo Global Markets saw $240 million in TVL just 48 hours after launch).

Trading: Trade[XYZ] launched Tesla, Apple, Nvidia, and other U.S. stock Perps and a synthetic Nasdaq index through Hyperliquid's HIP-3, accumulating a trading volume exceeding $100 billion since its launch in October 2025.

Combination: Still in its early stages. Hampered by the mismatch of traditional market closure times and 7×24 on-chain trading, the price continuity of trading scenarios still has defects.

These three scenarios are moving towards deeper integration. When RWA can be used as collateral, "held" and "traded" merge in the same account; when it enters lending protocols as collateral and is re-borrowed, "held" and "combined" also merge. The higher the degree of integration of these three scenarios, the more stable the asset stands on-chain. The more scenarios there are, the more reasons there are for different types of capital to hold it, adding another layer of liquidity sources.

However, the path to integration is not simple.

"Traded" itself has a cost structure. @thecryptoskanda has explained why on-chain scenarios for RWA are concentrated in categories like gold and stock indices that have mature price sources. Order book + market maker models are costly, and the longer tail varieties become harder to handle; RFQ + LP pool models are cheaper, but depend on the coverage and speed of oracle quotes, whereas the types and update frequencies of mainstream oracle quotes still pose a bottleneck for long tail RWA varieties.

The challenges on the market-making side of "traded" are deeper. Market makers' capital commitments for RWA are far below that for crypto-native assets because there is a lack of corresponding hedging tools off-chain. Additionally, market makers in different jurisdictions face various compliance constraints regarding the same on-chain contract, leading to illiquid pools that cannot be shared. This explains an intuitive anomaly: some assets clearly have scenarios that can run through, yet liquidity fails to increase. The infrastructure has not kept up with market demand.

In "combined," the familiar yield-splitting from crypto-native Pendle does not apply as effectively to RWA. The PT/YT model's premise is that underlying yields must be high enough or volatility sufficiently large. With a 4%-5% annual yield on U.S. Treasuries, splitting into YT leaves the interest income per token very thin, and on-chain trading friction may consume the returns. Unless the underlying TVL reaches tens of billions, the absolute amounts will not sustain the friction costs. Yield splitting in the current interest rate environment and the scale of most RWA categories looks more like a narrative than an executable path.

Aside from yield splitting, "combined" can also involve risk dimension splitting to create tiered structures. Centrifuge divides asset pools into Senior and Junior tranches, where Senior receives fixed income, and Junior bears priority losses but earns excess returns. Both types of funds get what they need. Goldfinch uses exactly this structure for collateral-free loans to emerging markets and has disbursed over $114 million in loans. Tiered structures have been running in DeFi for several years; however, tiered products for RWA categories are still rare, and few understand them.

The second layer of judgment criteria: What scenarios does this asset have on-chain that can accommodate its demand? Is it held, traded, or combined? How many scenarios can successfully operate? If conventional scenarios fail to function, are there alternative paths? The more scenarios there are, and the deeper the integration, the more stable the asset will be on-chain. Liquidity is a natural result after these scenarios run successfully.

Conclusion

Whether it is worth pursuing or whether there are scenarios to catch it is a category-level judgment. However, obtaining entry tickets through the first two layers only provides initial access.

In the tokenization gold track, XAUT has $3.3 billion, PAXG has $2.3 billion, and XAUm has $57 million. All three have the same underlying assets and consistent evaluations in the first two layers, but the market cap differences are vast. The variables determining share include brand trust of the issuer, existing distribution networks, breadth of listings on CEX, and depth of DeFi integration, with different weights for different categories, markets, and stages. The first two layers are only thresholds; passing them does not guarantee success. Even if everything else is passed, if the legal structure is not robust enough, the upper limit of growth will be constrained because this directly affects whether institutional capital dares to enter on a large scale.

Returning to the framework. The two-layer funnel is progressive. The first layer filters out assets that should not be pursued—ones with non-existing demand or insufficient friction. Tokenization, in such cases, merely fixes a pipeline where none is needed. The second layer filters out assets that, even if pursued, cannot thrive—assets with existing demand but no on-chain scenarios to meet them; if the tokens are issued, no one will use them!

Liquidity only appears after the scenarios are able to function—it's a result, not a goal.

The RWA products with the highest TVL at this stage are nearly all benefiting from some form of arbitrage. Some of these arbitrage opportunities are durable, while others will narrow with changes in interest rate cycles and regulations.

In order of durability: Gold > Pre-IPO > U.S. Stocks > U.S. Treasuries. Tokenized gold benefits from the storage and liquidity frictions of the physical commodity and does not rely on policy windows. Pre-IPO equity capitalizes on structural frictions in the PE/VC exit cycle—as long as the holding period in the primary market is not shortened, gaps will persist. Tokenized U.S. stocks leverage global access barriers, while there is significant divergence in global regulation regarding securities-type RWA. Tokenized U.S. Treasuries benefit from interest rate cycles; the on-chain world lacks a window for risk-free returns, and a 200 basis point rate cut could erase the interest margin, leading the product logic to zero.

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