Bryan Choe, Head of Research at RWA.xyz, says the tokenized real-world asset market is entering a new phase,  but warns that the industry still misunderstands what is required to turn tokenized products into functioning markets.

With roughly $30 billion worth of tokenized real-world assets on-chain and major financial institutions increasingly experimenting with tokenized products and blockchain-based distribution models, a growing number of market participants view tokenization as one of the most important trends shaping the future of finance.

Yet the market’s most important questions have changed and whether assets can be tokenized is no longer questioned. The debate rises up whether tokenization can create functioning markets around those assets. While issuing a token is pretty straightforward, what is far more complicated is building liquidity and infrastructure, along with distribution and user trust.

To better understand where tokenization stands today—and where it may be heading next—I spoke with Bryan Choe, Head of Research at RWA.xyz, a data and analytics platform tracking tokenized real-world assets across public blockchains.

On-Chain Capital Markets Are Still in Their Infrastructure Phase  

According to Choe, one of the biggest misconceptions about tokenization is that it was always a technology problem: 

“Every market needs infrastructure and participant buy-in to develop, and tokenization is no exception.” 

Actually, tokenization remained largely a niche concept for years, although the technology already existed.

It was institutions that first brought tokenized assets closer to the financial mainstream. Custodians, broker-dealers, fund administrators, auditors, oracles, and other service providers entered the ecosystem, making institutional investors increasingly comfortable holding and transacting in tokenized assets, according to Choe, and not because the technology improved overnight. 

The second catalyst came from stablecoins, which Choe sees as the capital base that made today’s tokenized asset market possible. The rapid growth and broader acceptance of stablecoins since 2022 helped create the conditions for tokenized assets to scale.

“We view total stablecoin market capitalization as a useful proxy for on-chain ‘dry powder' that can rotate into tokenized assets.”

At the same time, the macro environment changed. Higher interest rates and declining DeFi yields after the 2022 bear market pushed crypto-native capital toward tokenized Treasury products, he notes.

On the institutional side, asset managers began looking at tokenization through a different lens — not only as a cost-saving tool, but also as a revenue opportunity.

"BlackRock's 2024 launch of BUIDL helped establish a playbook and encouraged other financial institutions to tokenize existing products or launch new ones," he argues.

That difference between institutional and crypto-native demand helps explain why the first scalable use cases did not follow the consumer-focused narrative.

"We are still in the early stages of building a new on-chain capital market, and liquidity infrastructure use cases are the first major phase of this evolution."

As Choe puts it:

"For the reasons above, crypto-native capital initially moved into tokenized Treasury products for treasury management and yield. From there, onchain allocators have become more comfortable venturing out the risk curve as they have become more comfortable with additional structural risks that tokenized assets carry. Some investors are now seeking longer-duration or higher-risk opportunities that can generate incremental yield. We expect this progression to continue as onchain capital markets mature."

According to him, it is also worth distinguishing these products from non-yielding assets such as tokenized stocks and commodities, which are seeing stronger consumer-facing adoption in certain markets.

"These products provide easier access to dollar-denominated assets for offshore and non-U.S. users, particularly those already using stablecoins," he explains.

The Rise of Exposure Without Ownership

While tokenized Treasury products have attracted capital looking for yield and operational efficiency, another corner of the market has been growing for almost the opposite reason: exposure.

Recent months have seen rapid growth in synthetic RWA products and equity-linked perpetuals, highlighting demand that extends well beyond traditional notions of ownership.

"This shows that the market is split into two broad segments: participants who want exposure to an asset’s price performance, and participants who want ownership of the underlying asset," Choe says.

According to Choe, demand currently appears strongest from the first group. Many of the characteristics that made crypto markets attractive in the first place — leverage, 24/7 trading, and frictionless directional exposure — naturally translate to synthetic RWA products.

Actual tokenized securities are much harder.

"They are directly connected to the underlying securities and therefore need to account for corporate actions, transfer-agent integration, custody, disclosures, redemption mechanics, voting rights, tax treatment, and legal enforceability. Derivatives that provide economic exposure will likely remain popular in on-chain markets, but demand for tokenized securities should grow as the market matures," he says.

In many ways, the popularity of tokenized private-market exposure challenges one of finance’s oldest assumptions: that ownership is always the primary objective. For a growing segment of investors, exposure itself may be enough.

As Choe notes, economic exposure is not the same as ownership. Many of these products provide no voting rights, no information rights, and no direct shareholder status. 

The distinction becomes even clearer when looking at how these products are structured.

According to Choe, it is important to differentiate between issuer-sponsored tokenized securities and third-party sponsored products. The former are issued directly by the company or fund behind the asset, while the latter often provide economic exposure to an asset’s performance without granting investors the same legal rights as traditional shareholders.

That difference is particularly relevant in private markets, where access to late-stage companies often remains limited for most investors. While third-party structures can provide exposure to a company’s upside, they typically do not offer voting rights, direct shareholder status, information rights, or equivalent claims in the event of a restructuring.

For now, convenience and accessibility appear to outweigh those limitations for many investors. But Choe expects the balance to shift as the market evolves.

"We think this becomes especially relevant as regulators, including the SEC, provide clearer frameworks around tokenized securities and as key infrastructure providers, such as DTCC and exchanges, explore tokenization as a way to upgrade existing market infrastructure."

As regulatory clarity improves and more financial incumbents enter the space, Choe expects issuer-sponsored models to become increasingly common. Over time, that could lead to a larger number of regulated tokenized securities that sit on equal footing with traditional assets while offering comparable investor protections and rights.

In that sense, the long-term evolution of tokenized markets may not be a choice between exposure and ownership. Rather, it may be a gradual progression from products designed primarily to provide access toward structures that increasingly replicate the rights and protections investors expect in traditional capital markets.

Tokenization Is Not Liquidity

If tokenized markets are increasingly able to provide access and exposure, the next question is more difficult: can they provide liquidity?

For Choe, this is where much of the industry still gets the story wrong.

"People still confuse tokenization with liquidity. Liquidity comes from balance sheets, redemption certainty, funding lines, market-maker economics, and confidence that a token can be converted into its underlying value under stress. Tokenization changes how an asset moves, but it does not guarantee that someone standing on the other side will trade the asset."

That distinction cuts to the heart of the current RWA debate.

Tokenization can make an asset easier to transfer. It can make ownership records more transparent. It can reduce settlement friction and open new distribution channels. But none of that automatically creates a deep market.

For a market to be liquid, someone still needs to warehouse risk.

That is particularly important in tokenized assets because many of them depend on underlying traditional-market processes. A token may move instantly on-chain, but the asset behind it may still have redemption windows, legal restrictions, transfer-agent requirements, custody processes, or limited exit routes.

As Choe sees it, sustainable liquidity will not appear first in fully open secondary markets.

"Sustainable liquidity requires someone to warehouse risk, especially when markets are stressed. For that reason, we do not expect deep liquidity to appear first in secondary markets. We think it will first develop through issuer backstops, redemption facilities, and liquidators willing to hold the asset and redeem through the issuer."

That view also explains why the phrase "tokenized RWA" can be misleading when used too broadly. A tokenized money market fund, a tokenized Treasury product, a tokenized equity, a commodity-backed token, and a private-market exposure product may all sit under the same RWA label, but their liquidity models are fundamentally different.

Some products are designed around primary issuance and redemption. Others need active secondary trading. Some require continuous market-making. Others depend on the ability to redeem with the issuer. The microstructure matters.

"These differences become increasingly important as the RWA ecosystem moves beyond simple, short-duration products," Choe says.

Today, many tokenized assets still achieve liquidity mainly through primary issuance and redemption. That model works reasonably well for money market funds and short-duration Treasury products, where the redemption process is more straightforward.

But the equation changes when the market moves toward longer-duration, higher-yielding, or less liquid assets.

"Many of these assets have longer redemption windows, more restrictive terms, and higher operational or legal hurdles around exit," Choe says.

In theory, deep secondary markets could solve that problem. In practice, those markets need a foundation before they can function.

Choe believes that foundation will likely come from redemption facilities, issuer backstops, and professional liquidators before there is enough capital and confidence for continuous trading to develop.

"Those primary-market mechanisms give market makers the confidence to quote tighter markets. Once that foundation is in place, secondary trading can deepen, and the cold-start problem begins to resolve as more capital and participants enter the market."

Collateral, Not Just Investment

The liquidity question is closely tied to another shift in how tokenized assets are being used.

A tokenized Treasury fund share sitting in a wallet is not especially revolutionary by itself. It becomes more important when it can be pledged, transferred, financed, or settled against, Choe explains.

This is where tokenization begins to look less like a new investment wrapper and more like financial infrastructure.

Once tokenized assets can move across venues, counterparties, and time zones with the speed of stablecoins, they can begin to change how capital is managed and make collateral movement more efficient.

Still, Choe cautions that the harder challenge is not simply technical.

The financial system already has long-standing settlement, netting, and collateral-management practices that exist for economic, operational, and regulatory reasons. Tokenization has to deliver benefits large enough to justify changing them.

"That said, the key challenge is less about the technology itself and more about whether the industry can adopt new standards and upgrade long-standing netting and settlement practices," he says.

If enough participants adopt common tokenization standards, the infrastructure may start to evolve around them. But that evolution will depend on incentives.

As Choe puts it, "In finance, function usually follows money."

From Tokenized Products to Tokenized Market Structure

The more the market develops, the clearer it becomes that tokenization is not simply about creating new assets.

It is about changing how existing assets are distributed, financed, transferred, and used.

Choe expects the first phase of migration to happen where "the commercial incentives are clearest." Right now, he says, many institutions see real value in tokenizing existing products because it can expand distribution and create new growth opportunities. 

On the investor side, Choe also sees growing interest from large capital allocators, including pensions, endowments, and other institutions that already understand private fund structures.

Many of these investors are used to products where capital can be locked for years. Exiting those positions has traditionally been slow, costly, and dependent on intermediaries such as investment banks, placement agents, or secondary-market brokers.

"If tokenization can concentrate more capital on common venues, such as blockchains, and if products can be structured to meaningfully improve liquidity, then these allocators will have a strong reason to participate," Choe says. "They will embrace tokenization if it gives them a better version of an investment they already understand, with similar economics and better liquidity, transparency, or transferability."

Still, not every part of financial infrastructure is ready to move on-chain.

According to Choe, the harder transition lies in middle-market infrastructure: marketplaces, lending platforms, and other venues that require deep liquidity, risk management, compliance, and institutional workflows to operate at scale.

Today, much of that activity is still dominated by crypto-native platforms. Choe expects that to continue for some time.

"Incumbent infrastructure players will eventually move on-chain, but translating their role into an open or semi-open blockchain environment is much harder than launching a tokenized fund."

That distinction matters.

Launching a tokenized product is one thing. Rebuilding the market infrastructure around that product is much harder.

The Hybrid Future of Finance

The final question is what this market looks like if tokenization continues to scale.

Will it become the open, permissionless financial system that crypto-native builders have long imagined? Or will it become a more efficient version of traditional finance, with the same institutions operating on new rails?

Choe does not expect either side to fully win.

"There will always be tension between crypto-native organizations that want the open and composable promise of DeFi, and traditional financial institutions that are used to closed, permissioned infrastructure," he says.

The likely outcome, in his view, sits somewhere in the middle.

Regulated institutions will look for ways to connect with open DeFi systems, but those connections may be limited, controlled, or partial. They may not adopt the full DeFi model. But they will adopt the pieces that improve their products, expand distribution, reduce costs, or increase margins.

"One thing is clear: money will continue to dictate how the market evolves. If crypto-native features such as composability, global access, 24/7 availability, and faster settlement help institutions grow revenue or improve margins, they will find ways to incorporate those features into their products."

That may be the most realistic version of tokenized finance.

"The end state is unlikely to be the fully open, composable world that crypto enthusiasts imagined. It is also unlikely to remain as closed as incumbents would prefer. A successful outcome is probably a hybrid market structure where finance becomes more programmable, more globally accessible, and more efficient, while still operating inside regulatory and institutional guardrails."

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.