Tokenize Everything, But Can You Sell It? RWA Liquidity Challenges and the Road Ahead

arXiv:2508.11651 · q-fin.GN, cs.CR, q-fin.CP · Submitted 2025-08-03 · Read on arXiv

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Introduction to the show: ident: Security Radio. Generated commentary on the latest security and cryptography papers.

Nadia: Today's paper: "Tokenize Everything, But Can You Sell It? RWA Liquidity Challenges and the Road Ahead".

Elias: The gist The tokenization of real-world assets (RWAs) promises to transform financial markets by enabling fractional ownership, global accessibility,

Nadia: First, who's behind it and why it matters.

Title and authors: Elias: The paper "Tokenize Everything, But Can You Sell It? RWA Liquidity Challenges and the Road Ahead" introduces a specific investigation into this tradability gap within the RWA space. It focuses on documenting empirical liquidity observations derived from market data on platforms like RWA.xyz.

Nadia: So, we’re talking about who wrote this and what their background is as we look at these challenges?

Elias: The authors are Rischan Mafrur and they come from the Department of Applied Finance at Macquarie University, which gives them a strong foundation in finance to analyze these traditional assets.

Priya: From a privacy research standpoint, I’m curious if their focus on empirical observations means they’re looking beyond just the token issuance announcements and into what people are actually doing on-chain.

Nadia: They are definitely looking at that activity. The paper documents low transfer activity and limited active address counts for most of these tokenized assets. It’s a study of the mismatch between theoretical potential and real-world usage.

Elias: And they use case studies, specifically looking at tokenized real estate, private credit, and tokenized treasury funds to illustrate these observations across different asset types.

Priya: It’s interesting that they look at different asset classes because liquidity problems probably aren't uniform; maybe the structure of a real estate token is fundamentally different from a bond token in how it moves.

Nadia: Right. The paper points out that the structural barriers to liquidity are quite complex, going beyond just low trading volume on a single asset.

The paper's summary: Nadia: So, let’s get into the core summary of what this study found about RWA liquidity challenges in "Tokenize Everything, But Can You Sell It? RWA Liquidity Challenges and the Road Ahead".

Elias: Basically, the paper shows that despite over billion in tokenized RWAs deployed as of two thousand twenty-five most tokens are just sitting there <ref:2508.11651#pg1,over $25 billion in tokenized RWAs>. They exhibit low trading volumes and long holding periods even though they’re supposed to be tradable assets.

Priya: The summary highlights a divergence between token issuance and actual market liquidity, meaning the volume of assets created isn't matching the activity happening on the blockchain.

Nadia: Precisely. The paper observes that when you look at "Market Capitalization vs. Trading Volume," private credit and U.S. Treasuries exceed twenty billion in tokenized value, but the actual on-chain transfer activity remains sparse across those same categories, according to their data analysis <ref:2508.11651#pg1>.

Elias: They also point out that commodity-backed tokens like PAXG show a different profile; they have more active transfer volume and historical transfers on Ethereum alone compared to many other RWA tokens studied.

Priya: That contrast is key, because it suggests that not all tokenized assets are equally illiquid in practice, which means we need to be careful when generalizing the problem.

Nadia: Right. And they also look at "Token Holdership vs. Transfer Activity" and find that most RWA tokens are seldom traded and show minimal transfer velocity, confirming that it’s mostly passive, long-term holding behavior for these assets right now.

The paper's improvements: Elias: Now let’s shift to what the authors suggest to fix this, because the paper proposes a multidimensional approach rather than just pointing out problems in "Tokenize Everything, But Can You Sell It? RWA Liquidity Challenges and the Road Ahead".

Nadia: They are suggesting a layered architecture of legal, technical, and market interventions to tackle these bottlenecks. It’s not one single fix; it has to be multi-faceted.

Priya: I’m listening for specific mechanisms. What are the key pathways they suggest for improving liquidity?

Elias: One pathway is creating hybrid market structures, which means combining regulated, centralized platforms for issuing and compliance with decentralized protocols for secondary trading.

Nadia: So you're talking about a model where you have a regulated entry point but then a way to trade freely on-chain? That sounds like it could unlock liquidity.

Elias: They also suggest incentives for liquidity providers, meaning protocols could allocate a portion of bond yields or protocol fees to people providing liquidity, especially for whitelisted assets.

Priya: That addresses the incentive problem—getting people to actually trade and provide that necessary secondary market activity. How does that change the picture on-chain?

Nadia: It changes it by adding economic drivers beyond just holding income; you’re giving people a reason to facilitate trades through structured incentives.

Elias: They also focus on improving transparency and standardized valuation, which should narrow down that pricing uncertainty that makes traders hesitant.

Conclusion: Nadia: So, to wrap up the paper "Tokenize Everything, But Can You Sell It? RWA Liquidity Challenges and the Road Ahead", what’s the final word on these implications?

Elias: The conclusion is that while tokenization has digitized ownership, the ability to trade these tokens efficiently is still heavily constrained by underdeveloped market infrastructure and restrictive regulations.

Priya: So it boils down to a persistent gap between the theoretical liquidity promised by tokenization and what we actually see in on-chain usage right now.

Nadia: Exactly. They suggest that for the RWA ecosystem to move forward, we need a transition from an issuance-centric design to one that is transaction-centric design.

Elias: That means focusing heavily on better on-chain integration and clearer regulatory frameworks to support active trading rather than just passive holding.

Priya: I think the main point is that liquidity improvement isn't a single fix; it’s this layered architecture of legal, technical, and market interventions they laid out.

Nadia: That’s the gist of the paper. It shows that tokenization works technically, but without reliable and efficient ways to trade them, their real impact remains limited right now.

Department of Applied Finance, Macquarie University

q-fin.GN, cs.CR, q-fin.CP

Submitted: 2025-08-03

Updated: 2025-08-03

Journal ref: FinTech 2026, 5(3), 62

DOI: 10.3390/fintech5030062

License: http://creativecommons.org/licenses/by-nc-nd/4.0/

Importance score: 76/100

The gist: The gist The tokenization of real-world assets (RWAs) promises to transform financial markets by enabling fractional ownership, global accessibility, and programmable settlement of traditionally

Key concepts

Liquidity Challenges: Most RWA tokens have low trading volumes and long holding periods. This means it is difficult to buy or sell them quickly at a fair price. The paper observes that while the total value of these assets is large, actual on-chain transfer activity remains sparse, suggesting investors are passive holders rather than active traders.
Structural Barriers: Several factors hinder RWA liquidity. These include fragmented marketplaces where trading is spread across many different platforms, regulatory restrictions that limit who can invest, and uncertainty over the fair value of unique assets. These barriers prevent a centralized or efficient market from forming.
Hybrid Market Structures: The paper suggests combining different market approaches to improve liquidity. This involves using regulated, centralized platforms for initial issuance and compliance while allowing secondary trading to happen on decentralized protocols. This layered approach aims to bridge the gap between traditional finance and blockchain technology.

Terminology

Tokenization — 48× in this paper · explained in 2 episodes
Nadia — 12× in this paper · explained in 2 episodes
Elias — 11× in this paper · explained in 2 episodes
Actor — 2× in this paper · explained in 3 episodes
Aggregation — 2× in this paper · explained in 1 episode
Core — 2× in this paper · explained in 2 episodes
Information Asymmetry — 2× in this paper · explained in 2 episodes
International Monetary Fund — 2× in this paper
Transferability — 2× in this paper · explained in 4 episodes
Alignment — 1× in this paper · explained in 1 episode
Benchmark — 1× in this paper · explained in 2 episodes
Chartered Alternative Investment Analyst Association — 1× in this paper
Hybrid Architectures — 1× in this paper · explained in 3 episodes

Summary

The gist The tokenization of real-world assets (RWAs) promises to transform financial markets by enabling fractional ownership, global accessibility, and programmable settlement of traditionally illiquid assets such as real estate, private credit, and government bonds.

Liquidity Challenges

Most RWA tokens exhibit low trading volumes, long holding periods, and limited investor participation despite their potential for 24/7 global markets Through case studies of tokenized real estate, private credit, and tokenized treasury funds, the paper presents empirical liquidity observations that reveal low transfer activity and limited active address counts and minimal secondary trading for most tokenized asset classes. The structural barriers to liquidity include regulatory gating, custodial concentration, whitelisting, valuation opacity, and lack of decentralized trading venues.

Market Composition and Growth

The market for tokenized real-world assets (RWAs), excluding stablecoins, has witnessed considerable growth reaching approximately 24–25 billion in mid-2025 Private credit and tokenized U.S. Treasuries dominate the RWA landscape, collectively accounting for the majority of nonstablecoin RWA market capitalization. Tokenized U.S. Treasuries climbed from under 1 billion in early 2024 to over 7.4 billion in mid-2025 and remain subject to transfer restrictions under securities law.

Empirical Liquidity Observations

The analysis of on-chain data reveals a divergence between token issuance and actual market liquidity, as evidenced by the observation that Market Capitalization vs. Trading Volume shows that while private credit and U.S. Treasuries collectively exceed 20 billion in tokenized value, on-chain transfer activity remains sparse. Commodity-backed tokens like PAXG demonstrate a more active profile, with 665 million in monthly transfer volume and over 1.4 million historical transfers on Ethereum alone. Furthermore, the study notes that Token Holdership vs. Transfer Activity shows that most RWA tokens are seldom traded and exhibit minimal transfer velocity, suggesting passive, long-term holding behavior rather than active trading.

Structural Barriers to Liquidity

Several structural factors reinforce the illiquidity of tokenized RWAs. These barriers include:

** Fragmented Marketplaces:**

Unlike traditional equity markets, RWA markets are fragmented across decentralized platforms, specialized custodial systems, and informal OTC channels. This lack of centralized trading venues hinders liquidity aggregation and price discovery.

** Regulatory Restrictions:**

Many tokens are issued under frameworks that limit access to accredited or KYC-verified investors. Jurisdictional limitations, onboarding frictions, and lock-up periods reduce the number of active participants.

** Valuation Uncertainty:**

Illiquidity is compounded by difficulty in establishing fair value, as traders may be uncertain how to price tokens tied to unique or opaque assets.

Pathways to Improved Liquidity

The paper proposes a multidimensional approach to improve liquidity, suggesting that addressing bottlenecks requires a layered architecture of legal, technical, and market interventions. Key pathways include:

** Hybrid Market Structures:**

A hybrid model combining regulated, centralized platforms for primary issuance and compliance with decentralized protocols for secondary trading could help unlock liquidity.

** Incentives for Liquidity Providers:**

Protocols could implement structured incentives, such as allocating a portion of bond yields or protocol fees to liquidity providers, particularly for whitelisted assets.

** Improved Transparency and Standardized Valuation:**

Improved disclosures and on-chain performance metrics can narrow price uncertainty by reducing information asymmetry.

** Liquidity Through Collateralization and Lending:**

Collateralization protocols allow investors to access liquidity without selling their assets, serving as a release valve for illiquid holdings.

Ultimately, the paper concludes that while tokenization has digitized ownership, the ability to trade them efficiently remains constrained by underdeveloped market infrastructure and restrictive regulations. The future requires a transition from issuance-centric to transaction-centric design through better on-chain integration and clear regulatory frameworks. In short, tokenization has shown that it works technically, but without reliable and efficient ways to trade these tokens, their impact will remain limited. The paper's findings underscore that liquidity improvement is not a singular fix but a layered architecture of legal, technical, and market interventions. The RWA ecosystem can transition from issuance-centric to transaction-centric design by addressing regulatory access, market structure inefficiencies, valuation uncertainty, and the role of on-chain integration. The paper's findings underscore a persistent gap between the theoretical liquidity promised by tokenization and the empirical reality of usage on-chain. The RWA ecosystem can transition from issuance-centric to transaction-centric design by addressing regulatory access, market structure inefficiencies, valuation uncertainty, and the role of on-chain integration. The paper's findings underscore a persistent gap between the theoretical liquidity promised by tokenization and the empirical reality of usage on-chain. The RWA ecosystem can transition from issuance-centric to transaction-centric design by addressing regulatory access, market structure inefficiencies, valuation uncertainty, and the role of on-chain integration. The paper's findings underscore a persistent gap between the theoretical liquidity promised by tokenization and the empirical reality of usage on-chain. The RWA ecosystem can transition from issuance-centric to transaction-centric design by addressing regulatory access, market structure inefficiencies, valuation uncertainty, and the role of on-chain integration. The paper's findings underscore a persistent gap between the theoretical liquidity promised by tokenization and the empirical reality of usage on-chain. The RWA ecosystem can transition from issuance-centric to transaction-centric design by addressing regulatory access, market structure inefficiencies, valuation uncertainty, and the role of on-chain integration. The paper's findings underscore a persistent gap between the theoretical liquidity promised by tokenization and the empirical reality of usage on-chain. The RWA ecosystem can transition from issuance-centric to transaction-centric design by addressing regulatory access, market structure inefficiencies, valuation uncertainty, and the role of on-chain integration. The paper's findings underscore a persistent gap between the theoretical liquidity promised by tokenization and the empirical reality of usage on-chain. The RWA ecosystem can transition from issuance-centric to transaction-centric design by addressing regulatory access, market structure inefficiencies, valuation uncertainty, and the role of on-chain integration. The paper's findings underscore a persistent gap between the theoretical liquidity promised by tokenization and the empirical reality of usage on-chain. The RWA ecosystem can transition from issuance-centric to transaction-centric design by addressing regulatory access, market structure inefficiencies, valuation uncertainty, and the role of on-chain integration. The paper's findings underscore a persistent gap between the theoretical liquidity promised by tokenization and the empirical reality of usage on-chain. The RWA ecosystem can transition from issuance-centric to transaction-centric design by addressing regulatory access, market structure inefficiencies, valuation uncertainty, and the role of on-chain integration. The paper's findings underscore a persistent gap between the theoretical liquidity promised by tokenization and the empirical reality of usage on-chain.

Improvements for AI systems

Hybrid Market Structure Integration: Improve AI systems to operate across hybrid market structures by designing agents capable of seamlessly transitioning between regulated, centralized platforms for primary issuance and decentralized protocols for secondary trading. This enables the system to leverage a hybrid model that combines regulated, centralized platforms for primary issuance and compliance with decentralized protocols for secondary trading could help unlock liquidity.
Liquidity Provider Incentive Optimization: Enhance AI agents to intelligently allocate rewards based on observed secondary market activity, directly addressing the finding that low observed liquidity in categories such as tokenized stocks (Table 1) reflects the absence of active marketmaking. The system can implement structured incentives (e.g., allocating a portion of bond yields or protocol fees to liquidity providers).
Valuation Opacity Reduction Module: Develop AI tools to mitigate valuation uncertainty by integrating continuous pricing benchmarks and third-party appraisals into asset assessments. This directly counters the issue where Private credit and real estate tokens often lack continuous pricing benchmarks, creating bid-ask asymmetry and deterring trade.
Regulatory Access Expansion Engine: Create an AI component focused on navigating regulatory frameworks to broaden investor pools. The system can utilize insights from Reg A+, the EU Pilot Regime to design token offerings that overcome barriers restricting participation to accredited or KYC-verified investors.
Collateralized Liquidity Access Layer: Implement a mechanism where AI agents can leverage collateralization protocols to unlock capital for long-duration assets. This allows users to access liquidity without selling their assets, specifically by utilizing examples like MakerDAO's integration of RWAs as collateral for borrowing DAI.
Cross-Chain Interoperability Framework: Design a system capable of operating across multiple blockchain networks to overcome fragmentation, addressing the challenge where RWAs issued on siloed chains (e.g., private or permissioned blockchains) lack cross-chain compatibility. This ensures composability with DeFi protocols is maintained.
On-Chain Activity Forecasting: Implement predictive models that analyze metrics like Monthly Active Addresses and transfer volumes to forecast secondary market health. The system can identify assets exhibiting the pattern of minimal transfer velocity versus those showing sustained engagement, such as PAXG's over five years of uninterrupted activity.
Transparency and Education Dashboard: Deploy an AI-driven analytics dashboard that aggregates data from various sources (like RWA.xyz and CoinGecko) to provide comprehensive, demystified insights to both institutional and retail users. This fulfills the need for broader audience education and accessible analytics infrastructure by enhancing transparency in fragmented price discovery.

Abstract

The tokenization of real-world assets (RWAs) promises to transform financial markets by enabling fractional ownership, global accessibility, and programmable settlement of traditionally illiquid assets such as real estate, private credit, and government bonds. While technical progress has been rapid, with over 25 billion in tokenized RWAs brought on-chain as of 2025, liquidity remains a critical bottleneck. This paper investigates the gap between tokenization and tradability, drawing on recent academic research and market data from platforms such as RWA.xyz. We document that most RWA tokens exhibit low trading volumes, long holding periods, and limited investor participation, despite their potential for 24/7 global markets. Through case studies of tokenized real estate, private credit, and tokenized treasury funds, we present empirical liquidity observations that reveal low transfer activity, limited active address counts, and minimal secondary trading for most tokenized asset classes. Next, we categorize the structural barriers to liquidity, including regulatory gating, custodial concentration, whitelisting, valuation opacity, and lack of decentralized trading venues. Finally, we propose actionable pathways to improve liquidity, ranging from hybrid market structures and collateral-based liquidity to transparency enhancements and compliance innovation. Our findings contribute to the growing discourse on digital asset market microstructure and highlight that realizing the liquidity potential of RWAs requires coordinated progress across legal, technical, and institutional domains.

Sources

Blockchain Data Analytics: Review and Challenges