RWAs are often characterized by the relative ease of holding them. Their returns tend to be predictable, and because they stem from offchain assets, RWAs offer refuge from the volatility that defines crypto.
If you view related media coverage and online discussion, prevailing sentiment often creates the impression that the category is largely solved, and that what’s next is a booming new growth phase to be spurred on by more compelling products, more widespread DeFi integration, and new adoption pathways that capture institutional flows.
We agree there’s plenty of growth to come, and have positioned accordingly, backing teams across the stack like OnRe and Kamino, and placing heavy emphasis on RWAs in our vault curation business. However, what you don’t hear in the mainstream is that RWA growth is actually constrained by an under-the-radar problem involving redemption liquidity, one that’s becoming increasingly difficult to ignore as the sector continues scaling.
Slow Assets in a Fast System
TradFi assets weren’t built for internet capital markets.
The overall assumption with them is that capital doesn’t need to move instantly. Their supporting systems rely on settlement processes that operate in fixed windows, often measured in days or even weeks.
DeFi, by contrast, operates with always-open markets. Execution is expected to be immediate, and users interact with assets under the assumption that they can enter and exit positions whenever they choose.
RWAs, existing onchain, inherit those DeFi UX expectations without shedding their underlying constraints, creating a disconnect between how they should behave and how they actually function in practice.
Although the act of holding an RWA may feel no different from holding a stablecoin or other properly liquid cryptocurrency, the moment a user attempts to exit, they’re faced with redemption friction, liquidity bottlenecks, and settlement timelines. And while this may not pose an issue in calm market conditions or for long-term holders, it becomes a critical limitation the moment liquidity is needed quickly, whether due to market volatility or exploits, portfolio rebalancing, or simply a change in user preference.
The Impact of Suboptimal RWA Liquidity
RWAs are an attempt to make inherently slow assets behave as if they were fast, but today’s liquidity setup doesn’t fully support that ideal reality.
In practice, RWAs depend on two forms of liquidity: primary liquidity through issuer redemptions, and secondary liquidity through markets where users can exit positions instantly by selling to another participant. Since primary redemption often remains constrained by offchain settlement timelines, RWAs rely on secondary markets to simulate the immediacy users expect from DeFi. The problem is that this liquidity is often shallow, fragmented, or expensive to sustain.
Automated Market Makers (AMMs)
AMMs partially address the problem but are an inefficient fix.
They serve as the default liquidity layer for many tokens, including RWAs, relying on pools of passive capital provided by users who are willing to take on price risk in exchange for fees. Their model works effectively when assets are highly liquid and continuously priced, but RWAs do not fit these assumptions. Their pricing is often slower to update, their redemption timelines introduce uncertainty, and their liquidity is ultimately anchored to offchain processes.
As a result, LPs are exposed to risks that are difficult to hedge, while the fees generated are rarely sufficient to compensate for that exposure. To keep these pools functional, RWA issuers are often forced to subsidize yield to keep pools alive, leading to compounding GTM costs.
Lending Protocols
To support an asset as collateral, a lending protocol must be confident that it can be liquidated quickly and reliably if a position becomes undercollateralized.
With RWAs, though, no reliable liquidator exists, so liquidation mechanisms become less predictable. This increases the risk of bad debt during periods of market stress, which is why lending platforms tend to avoid most RWAs. For those they do integrate, they impose strict caps on their usage, limiting scalability.
Unlocking RWA Scale
For users, RWA’s limitations translate into a noticeably degraded onchain experience compared to other digital asset categories. If RWAs are to scale to the potential that we, and many others believe they can, a solution is needed that approaches liquidity differently, built around the constraints of these assets.
Once redemption liquidity becomes consistent and readily accessible, even under volatile market conditions, RWAs will move more freely across internet capital markets, enabling them to maximize their next growth phase and onboard a new wave of investors.
That is a problem worth solving.
