1. Abstract

2. Framing RWA Risk Domains

   1. Infrastructure Risk

   2. Counterparty risk

   3. Yield & Financial risk

   4. Liquidity & Access risk

   5. Legal & Regulatory risk

   6. Transparency & Auditability risk

3. Case Study: OUSG (Ondo Short-Term Tokenized U.S. Government Treasuries)

4. Conclusion

The present research piece introduces a structured, multi-dimensional framework for evaluating the risk profile of tokenized real-world assets (RWAs). It draws on institutional stablecoin frameworks such as Circle's Token Capital Adequacy Framework (TCAF), S&P's Stablecoin Stability Assessment, real-world asset public disclosures like Ondo's OUSG documentation, and cryptoeconomic risk frameworks originally developed in restaking ecosystems by Tokensight. As RWAs continue to proliferate across onchain finance, credible risk assessments must reconcile offchain legal enforceability with onchain transparency, collateralization, market access, and issuer behavior. This framework formalizes those concerns across six core dimensions (with 32 sub-dimensions) and proposes a unified scoring methodology applicable to diverse RWA instruments, including stablecoins, ETFs, T-bills, private credit, and real estate.

RWAs are tokenized representations of offchain assets and rights brought onto blockchain rails, namely financial instruments like T-bills and credit, real-world property such as real estate and commodities, and increasingly, physical goods, legal claims, and supply-chain assets. Their promise lies in merging the transparency, composability, and settlement efficiency of DeFi with the regulatory clarity and yield potential of traditional finance. This convergence offers a powerful innovation thesis: global 24/7 markets for traditionally illiquid assets, programmable ownership, and reduced friction for cross-border capital flows.

However, the hybrid nature of RWAs introduces a fundamentally new risk surface. Unlike traditional financial instruments, these assets must reconcile offchain enforceability with onchain guarantees; also, unlike DeFi-native primitives, they rely on legal rights and real-world entities for value preservation. As a result, RWAs sit at the intersection of two trust models: one governed by smart contracts, the other by legal entities and infrastructure counterparties.

Despite the rapid growth of RWAs in onchain finance, robust tooling or even simple frameworking for systematic risk evaluation remain limited. Most available frameworks target only stablecoins, offering narrow insight into the broader and more complex RWA landscape. Risk remains highly fragmented, product disclosures vary wildly, and end-users (whether retail or institutional) are often left without a clear understanding of the assets they're holding. Prominent RWA reports, such as RedStone’s, have echoed this concern: while market capitalization rises, credible frameworks for evaluating issuer integrity, collateral security, legal enforceability, or liquidity access remain scarce.

This framework formalizes that gap into a modular evaluation method across six primary domains:

• Infrastructure risk: Oracle resilience, Smart contract maturity, Composability and transferability, Base chain assumptions

• Counterparty risk: Issuer dependency, Custodial setup, Governance structure, Oracle-provider conflict of interest

• Yield & Financial risk: Nominal yield, Risk premium adequacy, Duration and credit risk profile, Inflation sensitivity, Yield sourcing clarity, Operational hurdles

• Liquidity & Access risk: Transferability constraints, Whitelisting restrictions, Peg stability, Redemption accessibility, Secondary market liquidity, Holder concentration, FX volatility exposure

• Legal & Regulatory risk: Bankruptcy remoteness, Jurisdictional robustness, Legal claims and redemption rights, Issuer’s legal profile, Event stress test

• Transparency & Auditability risk: Proof-of-reserves, NAV disclosures, Peg deviation monitoring, Redemption details, Issuer communication and disclosures, Jurisdictional transparency

Infrastructure risk encompasses the technical foundations underpinning the tokenized asset. It includes the reliability, composability, and security of the smart contract infrastructure and base chain environment.

• Oracle resilience: Valuation integrity often depends on the quality of NAV or pricing oracles. Feeds that update infrequently, pull from a single source, or lack manipulation resistance introduce systemic risks. Integration with trusted oracle networks (e.g., Chainlink, Redstone) or publication of timestamped NAVs can strengthen transparency and mitigate this vulnerability.

• Smart contract maturity: Audit history, code modularity, the presence (or absence) of upgradeable logic, and the usage of well-established libraries like OpenZeppelin. Protocols with audited, non-upgradeable smart contracts (or those protected by multisigs and timelocks) tend to exhibit stronger resilience against exploits and unauthorized changes.

• Composability and transferability: Token design has to align with ERC standards like ERC-20 or ERC-4626. However, tokens that restrict transferability (e.g., via whitelists or permissions) or lack integration with DeFi building blocks (e.g., lending markets, LPs, or structured products) significantly reduce user optionality and market utility. Siloed RWAs tend to become stranded from the broader DeFi ecosystem.

• Base chain assumptions: The security model of the underlying chain cannot be ignored. Ethereum mainnet provides a robust consensus and uptime guarantee, while newer L2s, sidechains, or app-chains may introduce additional bridge, validator, or uptime fragility. Bridge design, rollup security, and uptime monitoring all influence RWA reliability.

This dimension addresses the offchain institutions responsible for custody, issuance, and redemption of the tokenized asset.

• Issuer dependency: RWAs generally rely on a centralized issuer to manage minting, redemptions, NAV updates, and token supply adjustments. The greater the operational reliance on a single issuer—especially one without a strong legal or regulatory footprint—the higher the systemic exposure to both internal failure and external enforcement actions.

• Custodial setup: Strong custody standards involve bankruptcy-remote SPVs (Special Purpose Vehicles) or statutory trusts that separate user assets from company balance sheets. Regulated custodians (e.g., BlackRock, Coinbase Custody) that operate within recognized jurisdictions are far safer than unknown or offshore actors without insurance or audit obligations.

• Governance structure: The protocol’s admin controls should be safeguarded with a transparent governance model. Multisig wallets with distributed signers, public disclosures of key holders, and time-locked upgrades reduce manipulation risk. Conversely, single-signer admin wallets or opaque upgrade logic invite governance capture.

• Oracle-provider conflict of interest: If NAV pricing or valuation feeds are controlled by the issuer or custodian, manipulation risk rises. Independent third-party oracle providers and published NAV methodologies reduce this asymmetry.

This category assesses whether the yield offered by a token adequately compensates for embedded risks like duration, liquidity, and inflation.

• Nominal yield: RWA tokens often mirror benchmark rates (e.g., ~5% from T-bills), but headline APY ignores inflation and hidden risks like FX exposure or poor liquidity. Real yield and risk-adjusted return can be far lower once these frictions are factored in.

• Risk premium adequacy: Yields should be evaluated against the frictions and risks introduced by tokenization, including redemption gating, access restrictions, oracle opacity, or legal uncertainty. If these risks are non-trivial but the yield remains flat, the product is underpricing risk.

• Duration and credit risk profile: Treasuries represent low duration, high-credit (low default risk) assets but RWAs that wrap private credit, SME lending, or real estate may face long lockups or inferior creditworthiness. Hidden mismatches between redemption terms and underlying asset liquidity (e.g., daily liquidity on 1-year notes) create latent fragility.

• Inflation sensitivity: Fixed-rate RWAs can lose purchasing power during inflationary periods unless linked to floating-rate benchmarks or CPI adjustments. Instruments with flexible rates or SOFR-indexed (Secured Overnight Financing Rate) resets offer better inflation protection.

• Yield sourcing clarity: Yield may stem from offchain ETF yield passthrough (Ondo's OUSG), onchain rebasing mechanisms (Ondo's rOUSG), or synthetic tracking (Ethena's USDe). Lack of clarity around how yield is generated or distributed can obscure actual risk/return tradeoffs.

• Operational hurdles: Minimum redemption thresholds, slow processing times, and offchain KYC requirements reduce capital efficiency and degrade realized returns, particularly for smaller or non-institutional users. These frictions reduce composability and limit integration with automated vaults, rebalancing strategies, or real-time DeFi mechanisms.

This category addresses tradability and usability. Even if an RWA is technically sound, usability bottlenecks impair smooth market functioning.

• Transferability constraints: Some RWA tokens enforce non-transferability or restrict transfers via smart contract rules (e.g., ERC-1404, allowlists). While this satisfies regulatory needs, it fragments liquidity, prevents secondary market formation, and blocks integration with permissionless DeFi primitives.

• Whitelisting requirements: Token issuance and wallet eligibility are often limited to KYC’d, accredited participants. With that, the holder base narrows, global access restricts, and exposure concentrates among a small set of institutional actors, exacerbating redemption queue risks and limiting broader utility.

• Peg stability: In stablecoins, peg stability relies on DEX/CEX arbitrage dynamics and timely redemption mechanisms. Pegs may slip during volatility or market stress if arbitrage pathways are weak, redemption windows are delayed, or reserve data is opaque. A resilient peg demands deep liquidity, arbitrage incentives, and real-time redemption assurance.

• Redemption accessibility: Redemption privileges are often limited to accredited U.S. institutions. This prevents broader participation, introduces geographic concentration, and cuts off global capital from accessing or exiting these instruments.

• Secondary market liquidity: Tokens lacking Uniswap pairs, Curve pools, or institutional OTC desks suffer from liquidity fragmentation. The absence of active, liquid markets leads to wide bid-ask spreads, long exit times, and poor price discovery.

• Holder concentration: A token dominated by a few whale wallets faces elevated redemption volatility, governance capture, and exit queue risk during stress periods. Diverse holder bases lead to healthier market behavior.

• FX volatility exposure: USD-denominated RWAs expose non-USD investors to currency risk, especially in macro cycles where the dollar strengthens. Unless explicitly hedged or paired with FX instruments, these risks go unmanaged.

Legal risk examines the enforceability of investor rights, bankruptcy protections, and jurisdictional clarity.

• Bankruptcy remoteness: The strongest RWA structures use SPVs or statutory trusts to separate onchain claims from issuer liabilities. This ensures that tokenholders can access the underlying assets even in issuer bankruptcy scenarios.

• Jurisdictional robustness: Tokens issued under U.S. law, or within European legal regimes, typically enjoy stronger legal defensibility and regulatory oversight than those structured via offshore entities (e.g., BVI, Cayman).

• Legal claims and redemption rights: The presence of formal claim rights, asset pledging, or clearly defined pro-rata redemption mechanics creates stronger enforceability. These features distinguish “real” RWAs from synthetic or wrapped instruments.

• Issuer’s legal profile: There’s a material difference between a registered broker-dealer, a public trust, or a Delaware corporation, versus a non-domiciled foundation. The legal structure of the issuer affects what recourse holders have during litigation or liquidation events.

• Event stress test: In adversarial cases (e.g., lawsuits, insolvency, or regulatory shutdown), the ability for tokenholders to assert standing and claim collateral is the ultimate test of legal security.

This dimension focuses on whether users and regulators can verify the backing, health, and mechanics of the asset on a continuous basis.

• Proof-of-reserves: The gold standard is daily, cryptographically provable attestations from trusted third parties. Alternatives include real-time Chainlink PoR feeds or manual audit trails with verifiable documentation.

• NAV disclosures: RWAs that publish consistent NAV data via tamper-proof oracles, or timestamped feeds (mirroring ETF disclosures), enable transparent valuation.

• Peg deviation monitoring: In stablecoin systems, transparency must extend beyond reserve snapshots to include real-time deviation monitoring across major DEXs/CEXs. The goal is to enable early detection of depegging events and enhances trust in collateral sufficiency and redemption timing.

• Redemption details: Clear, public documentation outlining minimums, timelines, eligible wallets, and processing fees reduces ambiguity and improves UX.

• Issuer communication and disclosures: Frequent reporting, open documentation, third-party audits, and financial statements contribute to trustworthiness. Issuers that remain silent or obfuscate core parameters weaken user confidence and institutional adoption.

• Jurisdictional transparency: Products domiciled in jurisdictions requiring regular filings, financial audits, or regulatory registration (e.g., SEC, BaFin) offer stronger visibility than those structured offshore with no reporting mandates.

OUSG represents tokenized exposure to short-term U.S. Treasuries via a Delaware-domiciled, bankruptcy-remote SPV administered by Ondo Finance. The SPV invests primarily in institutional-grade money market funds (e.g., BlackRock’s BUIDL, Fidelity’s FYHXX, Franklin FOBXX), backed by U.S. Treasury securities. Investors acquire OUSG tokens by depositing USDC or PYUSD, which are exchanged offchain through Coinbase or Circle before being allocated into the underlying fund holdings. Each OUSG token reflects a limited partnership interest in the fund.

Two versions of the token exist: OUSG (accumulating), which reflects yield via increasing NAV, and rOUSG (rebasing), which keeps a fixed $1 price and distributes yield as additional tokens. Conversions between OUSG and rOUSG are supported natively via wrapper contracts, allowing for composable representations of yield-accruing collateral. While redemptions above instant thresholds are subject to offchain processing and business-day constraints, smaller transactions (≥$5K) can be executed instantly, depending on available daily limits.

OUSG contracts are deployed on Ethereum using OpenZeppelin standards, audited by Zellic, and governed by a time-locked multisig. Daily NAVs are computed offchain and pushed onchain via a non-real-time oracle, introducing mild price latency. The rebasing logic for rOUSG reflects NAV increases through automatic token supply adjustments. Smart contract design is robust, but programmability remains limited: OUSG itself is non-transferable and excluded from DeFi rails, and only rOUSG (held by eligible wallets) may be composable in controlled contexts.

Underlying asset custody is handled by top-tier TradFi institutions (BlackRock, Fidelity, Franklin, etc.), while fund administration is retained by Ondo Capital Management. Token issuance, redemption, and NAV mechanics remain under Ondo’s operational control. While the architecture is legally sound and custody partner quality is high, ultimate execution (minting, NAV sync, redemption) depends on Ondo's offchain processes. In a failure scenario—such as operational downtime or misreporting—there are no automated recovery paths, multisig-controlled overrides, or independent oracles to resume NAV servicing or redemption.

OUSG passively tracks the blended yield of its Treasury-backed fund portfolio, with current APYs near 5% depending on market rates. Yield flows from the underlying ETF portfolio into the NAV of OUSG, which then increases rOUSG balances through rebasing. Manual redemption processing may lower effective yields for small or delayed exits due to offchain friction. Instant redemption is limited to predefined caps, while larger withdrawals require 1–3 business days. Realized returns may be affected by offchain frictions and minimum redemption thresholds ($100K non-instant). FX exposure exists for non-USD investors, as the instrument is not hedged. Management fees (0.15%) are currently waived through 2026.

OUSG tokens are non-transferable and permissioned, available only to accredited U.S. investors who pass KYC/AML verification. No DEX or CEX integration exists. rOUSG tokens can be transferred between whitelisted wallets within Ondo’s Qualified Access Fund network, but neither version can be held or interacted with by non-KYC’d wallets. Economic exposure for non-whitelisted entities may be facilitated indirectly via OTC arrangements or wrapped fund structures, but such holders lack direct redemption rights. Exit friction remains high for any holders outside the compliance perimeter.

The fund operates under Section 3(c)(7) of the Investment Company Act and Rule 506(c) of Reg D, restricting access to verified accredited investors. Legal protections and redemption rights are clearly articulated in public documents, but only enforceable by onboarded LPs. Assets are bankruptcy-remote and segregated from Ondo’s balance sheet. There is no FDIC/SIPC (Federal Deposit Insurance Corporation/Securities Investor Protection Corporation) insurance, but legal clarity and structural safeguards significantly exceed industry norms for tokenized RWA instruments.

Ondo provides detailed disclosures on fund mechanics, legal terms, partner relationships, and several smart contract audits performed. Daily NAV updates are verifiable and accompanied by rebasing events in rOUSG. However, no cryptographic proof-of-reserves system exists presently. NAV attestations rely on administrative reporting and fund disclosures, not zero-knowledge proofs or trust-minimized onchain attestations. As such, reserve verification depends on offchain institutional trust rather than immutable onchain guarantees. Transparency remains strong relative to peers, but is ultimately constrained by the limitations of the offchain legal and operational architecture.

OUSG is one of the most legally and operationally robust tokenized Treasury products on the market. Structured through a Delaware SPV and backed by top-tier custodians (BlackRock, Coinbase, Circle), it offers strong guarantees on legal recourse, yield transparency, and investor protections. Its dual-token design (OUSG/rOUSG) supports institutional use cases like cash management and fund representation, with daily NAV updates and clear redemption mechanics.

That said, OUSG reflects the tradeoffs of compliance-first architecture: permissioned access, non-transferability, and U.S.-only investor eligibility severely restrict composability, liquidity, and global accessibility. The product lacks a fallback oracle or multisig-neutral redemption route, and indirect holders (those gaining exposure via feeder funds, wrappers, or OTC intermediaries) have no legal standing. Proof-of-reserves are not cryptographic. In effect, OUSG behaves less like a DeFi-native asset and more like a secure, digitized LP share optimized for institutional use under U.S. law.

• Legal, Custody, and Counterparty Risk: Low – Bankruptcy-remote SPV, regulated custodians, and full disclosures provide a strong legal base.

• Infrastructure & Composability Risk: Medium‑Low – Audited contracts and multisig governance enhance execution integrity, but permissioning and oracle centralization (offchain NAV feed) limit programmability.

• Access & Redemption Risk: Medium – Only whitelisted accredited investors can mint/redeem; all redemptions are routed offchain, and indirect holders lack enforceable access.

• Liquidity & Exit Risk: Medium‑High – No onchain liquidity venues (DEXs/AMMs) for OUSG (nor rOUSG); both tokens are non-transferable, and there is no secondary market. Redemption is the sole exit path, gated by KYC compliance and processed offchain with delay.

Risk Rating: Low‑Medium (3.5/10)
Owing to its bankruptcy‑remote structure, institutional‑grade custody, and transparent yield mechanics, OUSG is one of the lower‑risk tokenized RWA products. It loses points on composability, global access, and indirect holder protections, functioning as a permissioned digitized fund rather than a permissionless onchain asset: secure and transparent, yet siloed.

Tokenized RWAs blend traditional assets with onchain programmability, but beneath their compliant architectures lie varied and often underexplored risk exposures. This framework introduces a structured method to evaluate those risks across infrastructure, counterparty, yield, liquidity, access, and legal enforceability. To fully demonstrate its value, the framework should be applied across diverse RWA categories, such as tokenized equities, gold, real estate, or private credit where design constraints differ but core risk vectors persist. Long-term RWA growth will require not only attractive yields but rigorous, comparable, and transparent risk assessments.

• Tokensight's restaking risk methodology: https://paragraph.com/@tokensightxyz, https://u--1.com/avs/0x870679e138bcdf293b7ff14dd44b70fc97e12fc0

• AVS Risk Evaluation Report, Tokensight & P2P: https://hackmd.io/0JLYtkeLQg-Bt7vq3YHG0A?view

• The RWA Handbook (Part 1), Minerva: https://minervacrypto.substack.com/p/the-rwa-handbook-part-1?utm_source=activity_item

• Real-World Assets in Onchain Finance Report, RedStone, RWA.xyz & Gauntlet: https://blog.redstone.finance/2025/06/26/real-world-assets-in-onchain-finance-report/

• Beyond Basel: A New Capital-Risk Framework for Stablecoins, Circle: https://www.circle.com/blog/beyond-basel-a-new-capital-risk-framework-for-stablecoins

• Stablecoin Stability Assessment, S&P Global: https://www.spglobal.com/ratings/en/products/stablecoin-stability-assessment

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