The RWA market has grown primarily as a means for DeFi investors to gain on-chain exposure to stable, real-world yields, such as U.S. Treasuries and money market funds.
The recent surge in the RWA market reflects expansion concentrated in primary issuance, rather than an increase in actual on-chain trading activity or liquidity, which remains highly limited.
While tokenization can standardize the operational, settlement, and ownership-transfer processes of securities, it does not eliminate the underlying asset risks or regulatory constraints. As a result, today’s RWA market remains largely institutional, with trading confined to a restricted set of participants.
Historically, growth in primary markets has inevitably driven the need for secondary markets to enable price discovery and liquidity.
Likewise, the next phase of RWA market growth is unlikely to be driven by retail exchanges, but rather by secondary liquidity infrastructure that enhances capital efficiency and risk management for institutional capital.
The year 2025 marked a critical turning point in government approaches to crypto regulation and institutional participation. In the United States, the GENIUS Act, which established a legal framework for stablecoins, came into effect in July following its signing by President Donald Trump. The legislation introduced clear requirements for stablecoin issuers, including 1:1 reserve backing, auditing, and transparency standards, thereby creating a foundation for more secure institutional participation.
At the same time, competition across the industry to attract institutional capital intensified, triggering rapid expansion in the RWA market. As a result, the total market capitalization of RWAs grew dramatically—from approximately $15.2 billion in December 2024 to around $426.7 billion by December 2025, representing nearly a 28-fold increase within a single year.
While this rapid growth may initially appear to reflect significant capital inflows into DeFi via RWAs, a more granular, asset-level analysis reveals a different reality. Across much of the RWA market, blockchains continue to play a narrowly defined and limited role.
The RWA data platform RWA.xyz classifies RWA assets into two categories—Distributed Assets and Represented Assets—based on two criteria:
whether the asset can be transferred to wallets outside the issuance platform, and
whether peer-to-peer (P2P) trading is possible.
According to this framework, repurchase agreement (repo) assets, which account for the majority of the current RWA market capitalization, are classified as Represented Assets. These assets do not tokenize actual ownership of the underlying instruments. Instead, they serve as digital representations of repo contract states and settlement processes. As a result, they are not usable within DeFi protocols, nor can they be transferred to external wallets outside the issuance platform.
Repo RWAs represent approximately $388.4 billion in outstanding value—an order of magnitude larger than the combined market capitalization of all other RWA asset classes. Given their structural and regulatory constraints, the vast majority of these repo assets are currently managed on the Canton blockchain.
That said, this does not mean that Distributed Assets have failed to gain traction. On the contrary, the market capitalization of Distributed RWA assets grew from approximately $5 billion in December 2024 to over $18 billion by December 2025, representing more than a threefold increase within a year.
At the same time, RWA issuance infrastructure has attracted growing attention and expanded rapidly. Among the most prominent platforms, Securitize has played a central role in driving market expansion. Following the issuance of the BUIDL token in March 2024, Securitize partnered with multiple global asset managers in 2025 to launch RWAs such as ACRED (Apollo) and VBILL (VanEck), contributing meaningfully to the growth of the RWA market.
In recognition of this momentum, Securitize is preparing for a public listing on Nasdaq via a SPAC transaction, at a reported valuation of approximately $1.25 billion.
Another major RWA platform, Ondo Finance, launched Ondo Global Markets, enabling investors to gain exposure to tokenized U.S. equities. Meanwhile, Centrifuge partnered with Janus Henderson to tokenize an AAA-rated CLO fund, JAAA, making institutional-grade credit products accessible for on-chain investment.
As previously discussed, RWAs have not yet emerged as a meaningful driver of DeFi growth. The majority of today’s RWA infrastructure remains heavily focused on primary issuance, rather than on enabling active secondary trading.
Figure 4 summarizes the trading volumes of major RWA tokens and highlights a stark imbalance: despite the rapid growth in issuance, secondary market activity remains extremely limited. This disparity supports the view that most RWA investors enter the market primarily through issuance channels and, rather than engaging in active trading, tend to hold their positions.
This disparity is fundamentally driven by differences in the underlying business models of issuance infrastructure and trading infrastructure. In RWA issuance, key parameters—such as who is eligible to invest, redemption terms, pricing methodology, and the structure of investor rights—can be predefined and offered to a limited set of counterparties at the point of issuance.
By contrast, trading infrastructure only becomes viable when multiple independent actors simultaneously agree on regulatory compliance, risk management, and settlement processes. In practice, this means that a fragmented, jurisdiction-by-jurisdiction regulatory framework must be satisfied by all relevant stakeholders before a trading venue can function.
Moreover, most RWAs today remain closely tied to securities classifications. As a result, intermediating RWA transactions is highly likely to be treated as securities brokerage activity. In major jurisdictions such as the United States and Europe, securities intermediation requires appropriate licensing. This requirement applies not only to trading infrastructure providers themselves, but also to market makers that supply orders and liquidity to ensure orderly trading. Consequently, both groups face significant regulatory and licensing barriers to entry.
The current asset composition of the RWA market—largely centered on money market funds (MMFs) and private credit—also represents a meaningful barrier to entry from a market maker’s perspective. Even in traditional finance, these asset classes are not actively traded in secondary markets. Instead, transfers typically occur through limited channels such as bilateral assignments, institutional OTC transactions, or, where exchange trading is required, via ETF wrappers.
Market maker revenues, however, are primarily driven by two components:
bid–ask spreads, and
inventory risk premiums.
Assets such as T-bills, MMFs, and private credit instruments exhibit minimal price volatility and rely heavily on NAV-based valuation, making price discovery inherently difficult. As a result, they offer limited opportunities for market makers to monetize risk-taking or inventory management.
RWAs are, at their core, tokens issued against securities that originate from traditional financial structures. Consequently, the final redemption process must still follow off-chain legal, contractual, and settlement frameworks. In practice, this means that simply tokenizing MMFs or private credit instruments does not, by itself, improve liquidity. The structural constraints of the underlying assets remain largely unchanged.
In summary, the underdevelopment of RWA secondary markets can be attributed to three primary factors:
the multilateral regulatory and compliance requirements inherent in trading infrastructure business models;
fragmented, jurisdiction-specific licensing regimes and regulatory frameworks; and
the underlying characteristics of currently issued RWA assets, which are not naturally conducive to active secondary trading.
Addressing these constraints is essential for the RWA market to mature and to expand participation beyond its current, highly constrained investor base.
RWAs backed by assets such as money market funds (MMFs), private credit, active funds, and private equity generally do not provide immediately usable liquidity for DeFi when redemption is requested. This is largely because the final cash conversion of the underlying assets still relies on traditional custodial and banking infrastructure.
Figure 6 illustrates, in simplified form, the purchase and redemption flow of the BUIDL product. Since BUIDL is primarily backed by short-term U.S. Treasuries, its underlying assets can be considered relatively liquid. In addition, Securitize ****is working in collaboration with Circle to provide near-instant redemption liquidity via USDC.
However, RWAs backed by assets such as private equity funds and private credit are structurally illiquid. Even when stablecoin-based redemption services are supported, offering continuous or on-demand redemptions remains difficult due to the nature of the underlying assets. A clear example is ACRED, which is currently used as collateral in DeFi lending protocols such as Morpho and Loopscale, and operates on a quarterly redemption cycle.
As a result, if a looping position collateralized by ACRED were to face a liquidation event, a liquidator would be required to immediately absorb the asset, repay the outstanding debt, and bear the risk of holding an illiquid position until redemption. If no liquidator is willing or able to assume this risk, the protocol itself may ultimately be forced to absorb the loss.
Another structural factor that hinders effective price formation in RWA markets is the fact that most RWAs are valued on a NAV basis. Net Asset Value (NAV) represents the fair value of a fund’s assets minus its liabilities, divided by the number of outstanding shares or units.
For assets such as public equities or government bonds, which trade frequently and have observable market prices, valuation can be anchored directly to market prices. In contrast, private credit and fund-based assets trade infrequently and are therefore typically valued using mark-to-model approaches. These models incorporate inputs such as discount rates and expected loss assumptions, which are not updated in real time. Instead, they are typically revised on a monthly or quarterly basis, resulting in slow and discontinuous NAV updates.
This delay makes continuous price discovery difficult and materially weakens incentives for key secondary-market participants to enter the market. In particular, it reduces the attractiveness of RWAs for market makers, who rely on dynamic pricing and volatility, as well as for liquidators, who play a critical role in risk mitigation for lending protocols.
In the absence of functional secondary markets, issuers, investors, and DeFi protocols encounter increased friction in their ability to engage with RWA assets.
From the issuer’s perspective, the absence of secondary markets concentrates all liquidity demand into redemption requests directed at the issuer itself. This significantly increases the issuer’s short-term cash management burden. As assets under management (AUM) grow, pressure from redemption demand intensifies, ultimately imposing a structural ceiling on AUM growth.
For investors, the lack of secondary liquidity heightens exit uncertainty, which in turn raises the cost of portfolio rebalancing. Quarterly redemption cycles and non-instant liquidity are fundamentally misaligned with the behavioral patterns of DeFi investors, reducing the attractiveness of RWAs as investable assets and increasing the likelihood that demand for RWA products remains limited.
Finally, from the perspective of lending protocols such as Aave and Morpho, the absence of secondary markets complicates risk management during liquidation events. Without reliable exit liquidity, protocols face greater uncertainty around collateral recovery, which in turn discourages the adoption of RWAs as acceptable collateral.
Traditionally, the primary market refers to the market in which corporations or governments issue stocks or bonds to raise capital and sell them to investors for the first time. The secondary market, by contrast, is where already-issued securities are traded among investors.
While the depth and structure of secondary markets vary across different types of securities, history consistently shows that the development of secondary markets has played a critical role in driving the growth of primary markets.
The core function of secondary markets is price discovery. While prices in the primary market are largely designed prices—set by issuers, underwriters, and valuation models—prices in the secondary market emerge as a collective consensus, reflecting the aggregated information, risk perceptions, and liquidity demands of numerous buyers and sellers.
In this sense, the absence of price discovery means that the market lacks a clear signal of how an asset is truly valued. When price discovery fails to function effectively, investors are unable to assess critical factors such as when they can exit, at what price, and with what potential loss. As a result, investors demand higher returns to compensate for uncertainty, which in turn drives more conservative investors out of the market.
Empirical evidence supports this relationship. In Secondary Market Trading and Cost of New Debt Issuance (2017), Ryan L. Davis and Wayne E. Ferson show that lower secondary-market liquidity for existing bonds leads to higher issuance costs for newly issued debt by the same issuer. Conversely, more efficient price discovery and deeper liquidity in secondary markets are associated with lower costs of capital in primary markets.
Our results indicate that the illiquidity of outstanding bonds is priced into new debt issues by the same firm, where firms with current illiquid debt pay higher prices for subsequent debt issues. We also find that greater illiquidity reduces the likelihood that firms return to the debt market during periods of market turmoil. (Secondary Market Trading and Cost of New Debt Issuance)
The equity market exhibits a similar dynamic. In IPO Underpricing and After-Market Liquidity (2006), Andrew Ellul and Marco Pagano analyze 337 IPO cases in the United Kingdom. Their findings reveal a strong relationship between post-IPO secondary market trading costs and the degree of IPO underpricing.
Specifically, the study shows that the lower the liquidity investors expect in the secondary market, the greater the extent of IPO underpricing. In other words, when investors anticipate higher trading frictions after listing, issuers are forced to offer shares at a larger discount during the primary issuance to compensate for expected illiquidity.
Investors participating in IPOs want to be compensated not only for the firm’s fundamental risk and adverse selection costs in the IPO process, but also for the expected liquidity of the shares they are buying and for the risk of an illiquid secondary market. (IPO Underpricing and After-Market Liquidity)
Even mortgage-backed securities (MBS)—whose cash flows are inherently uncertain—have developed a specialized form of secondary market trading to address liquidity constraints. In the U.S. MBS market, this takes the form of the To-Be-Announced (TBA) forward trading market.
MBS allow for borrower prepayments, meaning that their average maturity and duration are not fixed. The TBA market transforms these otherwise non-fungible MBS pools into fungible instruments by trading them under standardized contract terms. In a TBA transaction, counterparties agree in advance on a limited set of key parameters—such as the issuer, maturity, and coupon—and commit to deliver an eligible MBS pool on a predetermined settlement date.
This standardization converts what were once highly customized and illiquid instruments into tradable, fungible assets, enabling active secondary trading. In doing so, the TBA market has not only improved liquidity but has also had a profound impact on the growth and efficiency of the primary MBS issuance market.
This mechanism is further supported by empirical research. In TBA Trading and Liquidity in the Agency MBS Market (2013), James Vickery and Joshua Wright of the Federal Reserve Bank of New York examine the role of TBA trading in the U.S. agency MBS market.
Agency MBS—issued by institutions such as Fannie Mae, which play a central role in providing liquidity and stability to the U.S. mortgage market—continued to be issued even after the 2007 financial crisis. Notably, approximately 90% of Agency MBS trading volume occurs through the TBA forward market.
The paper analyzes the liquidity premium associated with Agency MBS eligible for TBA trading and finds that this premium widens during periods of market stress. By allowing mortgage originators to lock in sale prices in advance for new loans, the TBA market enhances risk management and funding stability. The authors conclude that TBA-driven liquidity contributes to lower and more stable mortgage rates in the broader housing finance system.
In conclusion, regardless of the underlying asset, expectations of deep and active secondary market liquidity tend to have a positive impact on primary issuance, which in turn can expand participation across the broader market.
While secondary trading activity has yet to become truly vibrant, several firms are actively working to establish RWA secondary markets. Securitize received regulatory approval from the U.S. Securities and Exchange Commission in November 2020 to operate an Alternative Trading System (ATS). This approval was achieved through the acquisition of Distributed Technology Markets (DTM), an already registered broker-dealer and ATS.
Today, the Securitize platform supports secondary trading for six different categories of RWA assets. In addition, platforms such as tZERO and INX also operate RWA secondary trading venues. All of these platforms run their services under broker-dealer licenses and ATS approvals, reflecting the regulatory requirements associated with intermediating RWA transactions.
While these are not exchanges, enabling loans collateralized by RWAs plays an important role in creating liquidity indirectly. Allowing assets to be easily used as collateral has long been a well-established mechanism for generating secondary liquidity in traditional financial markets.
On Aave, one of Ethereum’s leading lending protocols, a permissioned lending market called Aave Horizon was launched as a fully segregated instance of Aave v3, designed specifically for institutional investors and verified participants. Institutions that have completed KYC and received approval can use RWAs such as USCC, JTRSY, and JAAA as collateral to borrow stablecoins including USDC, RLUSD, and GHO.
Notably, while stablecoin liquidity provision remains fully permissionless, allowing anyone to supply capital, borrowing RWAs themselves is not permitted. In addition, the aTokens (receipt tokens) issued upon depositing RWAs are non-transferable in order to maintain regulatory compliance.
Beyond Aave, lending protocols such as Morpho, Kamino, and Loopscale also support borrowing crypto assets against RWA collateral, further illustrating how collateralized lending serves as a key—albeit indirect—pathway for RWA liquidity formation.
In addition, crypto-focused prime brokerage services such as FalconX, as well as specialized crypto market makers, recognize RWAs like BUIDL as eligible collateral. These firms enable users to borrow against BUIDL or establish derivatives positions using RWA collateral, further extending indirect liquidity pathways beyond on-chain lending protocols.
Traditionally, repo transactions have not been designed to create trading liquidity through the buying and selling of assets. Rather, they have been used as a mechanism for institutions to obtain liquidity without selling the assets they already hold. Recently, DTCC (The Depository Trust & Clearing Corporation)—a core piece of infrastructure for the repo market—has begun experimenting with integrating blockchain technology into existing financial infrastructure. DTCC’s Collateral Appchain, built on Hyperledger Besu, tokenizes and operates existing settlement, clearing, and collateral management systems. The significance of this initiative lies in the fact that it preserves the collateral settlement and management practices long used in repo markets, while migrating them directly onto a blockchain-based system.
However, it remains difficult to argue that these developments have already resulted in the formation of secondary liquidity for RWAs. To date, DTCC does not recognize on-chain native RWA assets such as BUIDL or VBILL as eligible collateral, leaving traditional financial systems and on-chain RWA markets effectively segmented. Nevertheless, the formal adoption of blockchain-based systems as institutional rails by traditional financial infrastructure represents an important development. Over time, this shift could increase the institutional and technical acceptance of crypto-native RWA assets as eligible collateral.
Accordingly, DTCC’s Collateral Appchain is better understood not as an initiative that directly creates secondary liquidity for RWAs, but as a signal that traditional financial infrastructure has begun to embrace blockchain-based collateral rails. While this development does not immediately expand on-chain RWA liquidity, it may serve as the starting point of a structural transition in which crypto-native RWA assets are eventually incorporated into institutional collateral frameworks.
RWAs initially gained attention as a way for users already active in DeFi to gain on-chain exposure to stable, real-world yields, such as U.S. Treasury interest. As a result, the early RWA landscape—once dominated by platforms offering on-chain private credit, such as Maple Finance and Centrifuge—gradually expanded to include Treasury-backed RWAs, which experienced significant growth as demand for stable yields increased.
Critically, RWAs were not designed to be traded rapidly or frequently. Their primary purpose has been to provide investors with on-chain access to stable, yield-bearing real-world assets, rather than to support high-velocity trading. This demand does not originate from retail DeFi users often referred to as “degen,” but rather from participants seeking to deploy and manage large pools of on-chain capital in a more stable and capital-efficient manner.
Tokenization can standardize many of the operational and legal ambiguities surrounding securities—such as ownership rights, data representation, settlement processes, and secondary transfers. However, it is not a technology that standardizes the underlying risk of the asset itself.
Even when tokenization streamlines operational workflows, the legal and regulatory frameworks remain unchanged. As a result, many RWAs remain assets that can be traded only among a restricted set of eligible participants. For this reason, the frequently repeated claim that tokenization alone will enable small investors to access or freely trade securities that were previously out of reach is fundamentally flawed—unless securities laws are fundamentally rewritten, or the products themselves are designed from inception to accommodate retail participation.
Historically, financial markets have been governed by rules designed to facilitate transactions between capital seekers and capital providers, and they were primarily markets for specialized professionals and high-net-worth participants. Even assets that are now accessible to retail investors—such as equities and government bonds—were originally professional-only markets, with retail participation introduced much later.
Money market funds and private credit remain institutional-dominated markets even today, while repo transactions are fundamentally inaccessible to retail investors. In addition, the current RWA market represents an extremely early-stage market in which even institutional-grade trading infrastructure has yet to be fully established.
Fund tokens such as BUIDL can currently be traded only in highly limited venues, primarily through select crypto OTC desks, and even then, trading volumes are too small to be meaningfully described as active sell-side demand. As discussed earlier, while both DeFi protocols and traditional financial infrastructure are pursuing their own approaches, the two systems remain fragmented at present, resulting in the creation of only limited liquidity.
However, throughout the history of financial markets, once primary issuance reaches a certain scale, structural demands for price discovery and liquidity have consistently led to the gradual formation of secondary markets. There is little reason to believe that the RWA market will be an exception to this pattern. As the volume of RWA issuance increases, demand will naturally emerge for secondary trading infrastructure, derivatives venues, and collateralized lending protocols designed to improve capital efficiency and liquidity.
That said, the secondary market for RWAs is unlikely to take the form of the open, high-frequency trading venues traditionally envisioned in DeFi. Instead, in its early stages, it is more likely to emerge as an institution-centric liquidity infrastructure aimed at maximizing capital efficiency among a limited set of participants. This path represents the most realistic trajectory for the growth of the RWA market.
[1] Ryan L. Davis A. Maslar, Brian S. Roseman : Secondary Market Trading and the Cost of New Debt Issuance (2017)
[2] Andrew Ellul, Marco Pagano : IPO Underpricing and After-Market Liquidity (2006)
[3] James Vickery and Joshua Wright : TBA Trading and Liquidity in the Agency MBS Market (2013)
[4] Rischan Mafrur : Tokenize Everything, But Can You Sell It? RWA Liquidity Challenges and Road Ahead (2025)
DocSend helps you communicate more effectively by telling you what happens to content after you send them and letting you keep control in real time.
Heejin Kim
Business Development, Radius
📧 heejin@theradius.xyz
The RWA market has grown primarily as a means for DeFi investors to gain on-chain exposure to stable, real-world yields, such as U.S. Treasuries and money market funds.
The recent surge in the RWA market reflects expansion concentrated in primary issuance, rather than an increase in actual on-chain trading activity or liquidity, which remains highly limited.
While tokenization can standardize the operational, settlement, and ownership-transfer processes of securities, it does not eliminate the underlying asset risks or regulatory constraints. As a result, today’s RWA market remains largely institutional, with trading confined to a restricted set of participants.
Historically, growth in primary markets has inevitably driven the need for secondary markets to enable price discovery and liquidity.
Likewise, the next phase of RWA market growth is unlikely to be driven by retail exchanges, but rather by secondary liquidity infrastructure that enhances capital efficiency and risk management for institutional capital.
The year 2025 marked a critical turning point in government approaches to crypto regulation and institutional participation. In the United States, the GENIUS Act, which established a legal framework for stablecoins, came into effect in July following its signing by President Donald Trump. The legislation introduced clear requirements for stablecoin issuers, including 1:1 reserve backing, auditing, and transparency standards, thereby creating a foundation for more secure institutional participation.
At the same time, competition across the industry to attract institutional capital intensified, triggering rapid expansion in the RWA market. As a result, the total market capitalization of RWAs grew dramatically—from approximately $15.2 billion in December 2024 to around $426.7 billion by December 2025, representing nearly a 28-fold increase within a single year.
While this rapid growth may initially appear to reflect significant capital inflows into DeFi via RWAs, a more granular, asset-level analysis reveals a different reality. Across much of the RWA market, blockchains continue to play a narrowly defined and limited role.
The RWA data platform RWA.xyz classifies RWA assets into two categories—Distributed Assets and Represented Assets—based on two criteria:
whether the asset can be transferred to wallets outside the issuance platform, and
whether peer-to-peer (P2P) trading is possible.
According to this framework, repurchase agreement (repo) assets, which account for the majority of the current RWA market capitalization, are classified as Represented Assets. These assets do not tokenize actual ownership of the underlying instruments. Instead, they serve as digital representations of repo contract states and settlement processes. As a result, they are not usable within DeFi protocols, nor can they be transferred to external wallets outside the issuance platform.
Repo RWAs represent approximately $388.4 billion in outstanding value—an order of magnitude larger than the combined market capitalization of all other RWA asset classes. Given their structural and regulatory constraints, the vast majority of these repo assets are currently managed on the Canton blockchain.
That said, this does not mean that Distributed Assets have failed to gain traction. On the contrary, the market capitalization of Distributed RWA assets grew from approximately $5 billion in December 2024 to over $18 billion by December 2025, representing more than a threefold increase within a year.
At the same time, RWA issuance infrastructure has attracted growing attention and expanded rapidly. Among the most prominent platforms, Securitize has played a central role in driving market expansion. Following the issuance of the BUIDL token in March 2024, Securitize partnered with multiple global asset managers in 2025 to launch RWAs such as ACRED (Apollo) and VBILL (VanEck), contributing meaningfully to the growth of the RWA market.
In recognition of this momentum, Securitize is preparing for a public listing on Nasdaq via a SPAC transaction, at a reported valuation of approximately $1.25 billion.
Another major RWA platform, Ondo Finance, launched Ondo Global Markets, enabling investors to gain exposure to tokenized U.S. equities. Meanwhile, Centrifuge partnered with Janus Henderson to tokenize an AAA-rated CLO fund, JAAA, making institutional-grade credit products accessible for on-chain investment.
As previously discussed, RWAs have not yet emerged as a meaningful driver of DeFi growth. The majority of today’s RWA infrastructure remains heavily focused on primary issuance, rather than on enabling active secondary trading.
Figure 4 summarizes the trading volumes of major RWA tokens and highlights a stark imbalance: despite the rapid growth in issuance, secondary market activity remains extremely limited. This disparity supports the view that most RWA investors enter the market primarily through issuance channels and, rather than engaging in active trading, tend to hold their positions.
This disparity is fundamentally driven by differences in the underlying business models of issuance infrastructure and trading infrastructure. In RWA issuance, key parameters—such as who is eligible to invest, redemption terms, pricing methodology, and the structure of investor rights—can be predefined and offered to a limited set of counterparties at the point of issuance.
By contrast, trading infrastructure only becomes viable when multiple independent actors simultaneously agree on regulatory compliance, risk management, and settlement processes. In practice, this means that a fragmented, jurisdiction-by-jurisdiction regulatory framework must be satisfied by all relevant stakeholders before a trading venue can function.
Moreover, most RWAs today remain closely tied to securities classifications. As a result, intermediating RWA transactions is highly likely to be treated as securities brokerage activity. In major jurisdictions such as the United States and Europe, securities intermediation requires appropriate licensing. This requirement applies not only to trading infrastructure providers themselves, but also to market makers that supply orders and liquidity to ensure orderly trading. Consequently, both groups face significant regulatory and licensing barriers to entry.
The current asset composition of the RWA market—largely centered on money market funds (MMFs) and private credit—also represents a meaningful barrier to entry from a market maker’s perspective. Even in traditional finance, these asset classes are not actively traded in secondary markets. Instead, transfers typically occur through limited channels such as bilateral assignments, institutional OTC transactions, or, where exchange trading is required, via ETF wrappers.
Market maker revenues, however, are primarily driven by two components:
bid–ask spreads, and
inventory risk premiums.
Assets such as T-bills, MMFs, and private credit instruments exhibit minimal price volatility and rely heavily on NAV-based valuation, making price discovery inherently difficult. As a result, they offer limited opportunities for market makers to monetize risk-taking or inventory management.
RWAs are, at their core, tokens issued against securities that originate from traditional financial structures. Consequently, the final redemption process must still follow off-chain legal, contractual, and settlement frameworks. In practice, this means that simply tokenizing MMFs or private credit instruments does not, by itself, improve liquidity. The structural constraints of the underlying assets remain largely unchanged.
In summary, the underdevelopment of RWA secondary markets can be attributed to three primary factors:
the multilateral regulatory and compliance requirements inherent in trading infrastructure business models;
fragmented, jurisdiction-specific licensing regimes and regulatory frameworks; and
the underlying characteristics of currently issued RWA assets, which are not naturally conducive to active secondary trading.
Addressing these constraints is essential for the RWA market to mature and to expand participation beyond its current, highly constrained investor base.
RWAs backed by assets such as money market funds (MMFs), private credit, active funds, and private equity generally do not provide immediately usable liquidity for DeFi when redemption is requested. This is largely because the final cash conversion of the underlying assets still relies on traditional custodial and banking infrastructure.
Figure 6 illustrates, in simplified form, the purchase and redemption flow of the BUIDL product. Since BUIDL is primarily backed by short-term U.S. Treasuries, its underlying assets can be considered relatively liquid. In addition, Securitize ****is working in collaboration with Circle to provide near-instant redemption liquidity via USDC.
However, RWAs backed by assets such as private equity funds and private credit are structurally illiquid. Even when stablecoin-based redemption services are supported, offering continuous or on-demand redemptions remains difficult due to the nature of the underlying assets. A clear example is ACRED, which is currently used as collateral in DeFi lending protocols such as Morpho and Loopscale, and operates on a quarterly redemption cycle.
As a result, if a looping position collateralized by ACRED were to face a liquidation event, a liquidator would be required to immediately absorb the asset, repay the outstanding debt, and bear the risk of holding an illiquid position until redemption. If no liquidator is willing or able to assume this risk, the protocol itself may ultimately be forced to absorb the loss.
Another structural factor that hinders effective price formation in RWA markets is the fact that most RWAs are valued on a NAV basis. Net Asset Value (NAV) represents the fair value of a fund’s assets minus its liabilities, divided by the number of outstanding shares or units.
For assets such as public equities or government bonds, which trade frequently and have observable market prices, valuation can be anchored directly to market prices. In contrast, private credit and fund-based assets trade infrequently and are therefore typically valued using mark-to-model approaches. These models incorporate inputs such as discount rates and expected loss assumptions, which are not updated in real time. Instead, they are typically revised on a monthly or quarterly basis, resulting in slow and discontinuous NAV updates.
This delay makes continuous price discovery difficult and materially weakens incentives for key secondary-market participants to enter the market. In particular, it reduces the attractiveness of RWAs for market makers, who rely on dynamic pricing and volatility, as well as for liquidators, who play a critical role in risk mitigation for lending protocols.
In the absence of functional secondary markets, issuers, investors, and DeFi protocols encounter increased friction in their ability to engage with RWA assets.
From the issuer’s perspective, the absence of secondary markets concentrates all liquidity demand into redemption requests directed at the issuer itself. This significantly increases the issuer’s short-term cash management burden. As assets under management (AUM) grow, pressure from redemption demand intensifies, ultimately imposing a structural ceiling on AUM growth.
For investors, the lack of secondary liquidity heightens exit uncertainty, which in turn raises the cost of portfolio rebalancing. Quarterly redemption cycles and non-instant liquidity are fundamentally misaligned with the behavioral patterns of DeFi investors, reducing the attractiveness of RWAs as investable assets and increasing the likelihood that demand for RWA products remains limited.
Finally, from the perspective of lending protocols such as Aave and Morpho, the absence of secondary markets complicates risk management during liquidation events. Without reliable exit liquidity, protocols face greater uncertainty around collateral recovery, which in turn discourages the adoption of RWAs as acceptable collateral.
Traditionally, the primary market refers to the market in which corporations or governments issue stocks or bonds to raise capital and sell them to investors for the first time. The secondary market, by contrast, is where already-issued securities are traded among investors.
While the depth and structure of secondary markets vary across different types of securities, history consistently shows that the development of secondary markets has played a critical role in driving the growth of primary markets.
The core function of secondary markets is price discovery. While prices in the primary market are largely designed prices—set by issuers, underwriters, and valuation models—prices in the secondary market emerge as a collective consensus, reflecting the aggregated information, risk perceptions, and liquidity demands of numerous buyers and sellers.
In this sense, the absence of price discovery means that the market lacks a clear signal of how an asset is truly valued. When price discovery fails to function effectively, investors are unable to assess critical factors such as when they can exit, at what price, and with what potential loss. As a result, investors demand higher returns to compensate for uncertainty, which in turn drives more conservative investors out of the market.
Empirical evidence supports this relationship. In Secondary Market Trading and Cost of New Debt Issuance (2017), Ryan L. Davis and Wayne E. Ferson show that lower secondary-market liquidity for existing bonds leads to higher issuance costs for newly issued debt by the same issuer. Conversely, more efficient price discovery and deeper liquidity in secondary markets are associated with lower costs of capital in primary markets.
Our results indicate that the illiquidity of outstanding bonds is priced into new debt issues by the same firm, where firms with current illiquid debt pay higher prices for subsequent debt issues. We also find that greater illiquidity reduces the likelihood that firms return to the debt market during periods of market turmoil. (Secondary Market Trading and Cost of New Debt Issuance)
The equity market exhibits a similar dynamic. In IPO Underpricing and After-Market Liquidity (2006), Andrew Ellul and Marco Pagano analyze 337 IPO cases in the United Kingdom. Their findings reveal a strong relationship between post-IPO secondary market trading costs and the degree of IPO underpricing.
Specifically, the study shows that the lower the liquidity investors expect in the secondary market, the greater the extent of IPO underpricing. In other words, when investors anticipate higher trading frictions after listing, issuers are forced to offer shares at a larger discount during the primary issuance to compensate for expected illiquidity.
Investors participating in IPOs want to be compensated not only for the firm’s fundamental risk and adverse selection costs in the IPO process, but also for the expected liquidity of the shares they are buying and for the risk of an illiquid secondary market. (IPO Underpricing and After-Market Liquidity)
Even mortgage-backed securities (MBS)—whose cash flows are inherently uncertain—have developed a specialized form of secondary market trading to address liquidity constraints. In the U.S. MBS market, this takes the form of the To-Be-Announced (TBA) forward trading market.
MBS allow for borrower prepayments, meaning that their average maturity and duration are not fixed. The TBA market transforms these otherwise non-fungible MBS pools into fungible instruments by trading them under standardized contract terms. In a TBA transaction, counterparties agree in advance on a limited set of key parameters—such as the issuer, maturity, and coupon—and commit to deliver an eligible MBS pool on a predetermined settlement date.
This standardization converts what were once highly customized and illiquid instruments into tradable, fungible assets, enabling active secondary trading. In doing so, the TBA market has not only improved liquidity but has also had a profound impact on the growth and efficiency of the primary MBS issuance market.
This mechanism is further supported by empirical research. In TBA Trading and Liquidity in the Agency MBS Market (2013), James Vickery and Joshua Wright of the Federal Reserve Bank of New York examine the role of TBA trading in the U.S. agency MBS market.
Agency MBS—issued by institutions such as Fannie Mae, which play a central role in providing liquidity and stability to the U.S. mortgage market—continued to be issued even after the 2007 financial crisis. Notably, approximately 90% of Agency MBS trading volume occurs through the TBA forward market.
The paper analyzes the liquidity premium associated with Agency MBS eligible for TBA trading and finds that this premium widens during periods of market stress. By allowing mortgage originators to lock in sale prices in advance for new loans, the TBA market enhances risk management and funding stability. The authors conclude that TBA-driven liquidity contributes to lower and more stable mortgage rates in the broader housing finance system.
In conclusion, regardless of the underlying asset, expectations of deep and active secondary market liquidity tend to have a positive impact on primary issuance, which in turn can expand participation across the broader market.
While secondary trading activity has yet to become truly vibrant, several firms are actively working to establish RWA secondary markets. Securitize received regulatory approval from the U.S. Securities and Exchange Commission in November 2020 to operate an Alternative Trading System (ATS). This approval was achieved through the acquisition of Distributed Technology Markets (DTM), an already registered broker-dealer and ATS.
Today, the Securitize platform supports secondary trading for six different categories of RWA assets. In addition, platforms such as tZERO and INX also operate RWA secondary trading venues. All of these platforms run their services under broker-dealer licenses and ATS approvals, reflecting the regulatory requirements associated with intermediating RWA transactions.
While these are not exchanges, enabling loans collateralized by RWAs plays an important role in creating liquidity indirectly. Allowing assets to be easily used as collateral has long been a well-established mechanism for generating secondary liquidity in traditional financial markets.
On Aave, one of Ethereum’s leading lending protocols, a permissioned lending market called Aave Horizon was launched as a fully segregated instance of Aave v3, designed specifically for institutional investors and verified participants. Institutions that have completed KYC and received approval can use RWAs such as USCC, JTRSY, and JAAA as collateral to borrow stablecoins including USDC, RLUSD, and GHO.
Notably, while stablecoin liquidity provision remains fully permissionless, allowing anyone to supply capital, borrowing RWAs themselves is not permitted. In addition, the aTokens (receipt tokens) issued upon depositing RWAs are non-transferable in order to maintain regulatory compliance.
Beyond Aave, lending protocols such as Morpho, Kamino, and Loopscale also support borrowing crypto assets against RWA collateral, further illustrating how collateralized lending serves as a key—albeit indirect—pathway for RWA liquidity formation.
In addition, crypto-focused prime brokerage services such as FalconX, as well as specialized crypto market makers, recognize RWAs like BUIDL as eligible collateral. These firms enable users to borrow against BUIDL or establish derivatives positions using RWA collateral, further extending indirect liquidity pathways beyond on-chain lending protocols.
Traditionally, repo transactions have not been designed to create trading liquidity through the buying and selling of assets. Rather, they have been used as a mechanism for institutions to obtain liquidity without selling the assets they already hold. Recently, DTCC (The Depository Trust & Clearing Corporation)—a core piece of infrastructure for the repo market—has begun experimenting with integrating blockchain technology into existing financial infrastructure. DTCC’s Collateral Appchain, built on Hyperledger Besu, tokenizes and operates existing settlement, clearing, and collateral management systems. The significance of this initiative lies in the fact that it preserves the collateral settlement and management practices long used in repo markets, while migrating them directly onto a blockchain-based system.
However, it remains difficult to argue that these developments have already resulted in the formation of secondary liquidity for RWAs. To date, DTCC does not recognize on-chain native RWA assets such as BUIDL or VBILL as eligible collateral, leaving traditional financial systems and on-chain RWA markets effectively segmented. Nevertheless, the formal adoption of blockchain-based systems as institutional rails by traditional financial infrastructure represents an important development. Over time, this shift could increase the institutional and technical acceptance of crypto-native RWA assets as eligible collateral.
Accordingly, DTCC’s Collateral Appchain is better understood not as an initiative that directly creates secondary liquidity for RWAs, but as a signal that traditional financial infrastructure has begun to embrace blockchain-based collateral rails. While this development does not immediately expand on-chain RWA liquidity, it may serve as the starting point of a structural transition in which crypto-native RWA assets are eventually incorporated into institutional collateral frameworks.
RWAs initially gained attention as a way for users already active in DeFi to gain on-chain exposure to stable, real-world yields, such as U.S. Treasury interest. As a result, the early RWA landscape—once dominated by platforms offering on-chain private credit, such as Maple Finance and Centrifuge—gradually expanded to include Treasury-backed RWAs, which experienced significant growth as demand for stable yields increased.
Critically, RWAs were not designed to be traded rapidly or frequently. Their primary purpose has been to provide investors with on-chain access to stable, yield-bearing real-world assets, rather than to support high-velocity trading. This demand does not originate from retail DeFi users often referred to as “degen,” but rather from participants seeking to deploy and manage large pools of on-chain capital in a more stable and capital-efficient manner.
Tokenization can standardize many of the operational and legal ambiguities surrounding securities—such as ownership rights, data representation, settlement processes, and secondary transfers. However, it is not a technology that standardizes the underlying risk of the asset itself.
Even when tokenization streamlines operational workflows, the legal and regulatory frameworks remain unchanged. As a result, many RWAs remain assets that can be traded only among a restricted set of eligible participants. For this reason, the frequently repeated claim that tokenization alone will enable small investors to access or freely trade securities that were previously out of reach is fundamentally flawed—unless securities laws are fundamentally rewritten, or the products themselves are designed from inception to accommodate retail participation.
Historically, financial markets have been governed by rules designed to facilitate transactions between capital seekers and capital providers, and they were primarily markets for specialized professionals and high-net-worth participants. Even assets that are now accessible to retail investors—such as equities and government bonds—were originally professional-only markets, with retail participation introduced much later.
Money market funds and private credit remain institutional-dominated markets even today, while repo transactions are fundamentally inaccessible to retail investors. In addition, the current RWA market represents an extremely early-stage market in which even institutional-grade trading infrastructure has yet to be fully established.
Fund tokens such as BUIDL can currently be traded only in highly limited venues, primarily through select crypto OTC desks, and even then, trading volumes are too small to be meaningfully described as active sell-side demand. As discussed earlier, while both DeFi protocols and traditional financial infrastructure are pursuing their own approaches, the two systems remain fragmented at present, resulting in the creation of only limited liquidity.
However, throughout the history of financial markets, once primary issuance reaches a certain scale, structural demands for price discovery and liquidity have consistently led to the gradual formation of secondary markets. There is little reason to believe that the RWA market will be an exception to this pattern. As the volume of RWA issuance increases, demand will naturally emerge for secondary trading infrastructure, derivatives venues, and collateralized lending protocols designed to improve capital efficiency and liquidity.
That said, the secondary market for RWAs is unlikely to take the form of the open, high-frequency trading venues traditionally envisioned in DeFi. Instead, in its early stages, it is more likely to emerge as an institution-centric liquidity infrastructure aimed at maximizing capital efficiency among a limited set of participants. This path represents the most realistic trajectory for the growth of the RWA market.
[1] Ryan L. Davis A. Maslar, Brian S. Roseman : Secondary Market Trading and the Cost of New Debt Issuance (2017)
[2] Andrew Ellul, Marco Pagano : IPO Underpricing and After-Market Liquidity (2006)
[3] James Vickery and Joshua Wright : TBA Trading and Liquidity in the Agency MBS Market (2013)
[4] Rischan Mafrur : Tokenize Everything, But Can You Sell It? RWA Liquidity Challenges and Road Ahead (2025)
DocSend helps you communicate more effectively by telling you what happens to content after you send them and letting you keep control in real time.
Heejin Kim
Business Development, Radius
📧 heejin@theradius.xyz
Subscribe to Radius
Subscribe to Radius
>1.2K subscribers
>1.2K subscribers
Share Dialog
Share Dialog
No comments yet