Author: A1 Research
Compiled by: Block unicorn
Introduction
Is the large-scale migration of institutional capital to DeFi inevitable? If you ask some of the world's largest fund managers, the answer is clear:
Scott Bessent - U.S. Treasury Secretary: "Recent reports predict that by the end of the century, the market size of stablecoins could reach $3.7 trillion."
Larry Fink - CEO of BlackRock: "Every stock, every bond, every fund—every type of asset—can be tokenized. If this happens, it will fundamentally change the way we invest. The market doesn't need to close. Transactions that currently take days will be completed in seconds. Billions of dollars currently frozen due to settlement delays can be immediately reinvested in the economy, creating more growth."
Kai Fehr - Global Trade Head at Standard Chartered: "Based on current market trends, we expect the demand for tokenizing real-world assets to reach $30.1 trillion by 2034."
The reason blockchain has attracted the attention of these financial giants is its ability to fundamentally change the way assets are owned, used, and transferred in unprecedented ways. Two key advantages of blockchain are programmability and composability.
Both advantages are enabled by smart contracts, which provide the basis for programmable logic on their respective blockchains. While not all blockchains support smart contract functionality (Bitcoin is the most notable example, although it offers limited programmability through Bitcoin Script for conditional spending mechanisms like multi-signature wallets and time-locked transactions), the rise of DeFi has benefited from the proliferation of smart contracts.
Ethereum was the first blockchain to use smart contracts, but now there are hundreds of active blockchains supporting DeFi applications through smart contracts in a universal programmable execution environment.
Smart contracts are inherently programmable, allowing developers to program specific features into assets, and even more. There has never been anything like large-scale programmable assets; this technology could bring new frontiers of innovation, introducing customization and dynamic features to assets for the first time.
Additionally, composability refers to the ability of smart contracts to communicate with each other by default without permission. This achieves unprecedented interoperability at the network, product, and asset levels, resulting in exponential efficiency improvements compared to traditional isolated and centralized infrastructures.
In recent years, the global financial industry has gradually entered the Web3 space. This has led some of the world's largest asset managers (including BlackRock, Franklin Templeton, Apollo Global Management, and Janus Henderson) to begin "tokenizing" portions of their funds, creating on-chain versions across multiple asset classes.
Although the adoption of blockchain technology has been encouraging so far, a turning point is ultimately approaching. The possibilities of tokenization and institutional on-chain finance not only sound enticing but will truly become a reality for the first time. One of the most important advancements in turning institutional possibilities into reality is the CLOB (Central Limit Order Book) infrastructure. Essentially, the largest and most liquid markets globally operate based on CLOB due to their superior performance. Today, on-chain CLOB is continuously evolving, and it will soon meet the performance standards of global markets while significantly improving existing financial infrastructure.
The Big Trend of Tokenization
In recent years, tokenization has gained increasing attention in institutional finance, leading some of the largest asset managers globally to deploy billions of dollars in capital on-chain. Notable examples include:
BlackRock's $2.1 billion BlackRock USD Institutional Digital Liquidity Fund (BUIDL)
Janus Henderson's $783 million Anemoy AAA CLO Fund (JTRSY)
Franklin Templeton's $717 million on-chain U.S. Government Money Market Fund (BENJI)
Market Size and Forecasts
Overall, the awareness and action surrounding tokenization have been steadily growing; since September 2022, the total value of tokenized assets has increased tenfold, now exceeding $30 billion (excluding stablecoins).
However, we have only just scratched the surface. Compared to the approximately $4 trillion cryptocurrency asset class, the share of tokenized real-world assets (RWA) is only 0.75%. But with the current growth rate and the shift from discussion to actual implementation of tokenization by institutions, there is potential for significant changes in the way assets are created, managed, and traded in the coming years.
Tokenizable assets exceed $12.8 trillion
As institutional participants increase their focus on tokenization, market growth forecasts are emerging, many of which are extremely optimistic about the future role of tokenization in the global market. Here are some recent examples of forecasts:
Business Research Company: Reaching $5.5 trillion by 2029 (including stablecoins)
Mordor Intelligence: Reaching $13.55 trillion by 2030 (including stablecoins)
Standard Chartered: Reaching $30.1 trillion by 2034 (including stablecoins)
Deloitte: Tokenized real estate reaching $4 trillion by 2035
When analyzing the potential future of tokenized assets, one key factor to remember is that tokenization is applicable to almost every major asset class globally. Therefore, its impact has the potential to extend far beyond any one region, market, or asset type.
Tokenization by Asset Class
Currently, the five leading asset classes in the tokenization trend are debt, equity, real estate, commodities, and private equity. The total value of these markets exceeds $12.8 trillion.
Total value of real-world assets (RWA)
Debt
As of Q1 2025, the total valuation of the global debt market reaches $324 trillion, making it the second-largest asset class globally after real estate.
Generally, "debt" is a broad asset class that encompasses various markets, such as:
Sovereign debt, issued by governments (e.g., U.S. Treasury bonds)
Corporate debt, issued by companies in the public market
Private credit, issued privately by companies to non-bank lenders
Personal debt, loans to individuals (e.g., auto loans, credit card loans, mortgages)
So far, based on verified public data, debt has been the most tokenized asset in the history of tokenization; currently, approximately $26 billion of tokenized private credit, U.S. Treasury bonds, non-U.S. government debt, and corporate bonds are circulating on-chain.
In addition to the aforementioned BUIDL and BENJI funds, some notable examples of tokenized debt include:
Ondo Finance's short-term U.S. government bond fund (OUSG) and dollar yield (USDY)
Circle's tokenized U.S. short-term Treasury bills (USYC)
Figure's cumulative over $12 billion in private home equity loans (HELOC)
Equity
Given the high participation rate of retail investors in the $127 trillion global equity market, tokenized equity has been one of the most anticipated and widely discussed solutions in the realm of real-world assets (RWA).
However, this anticipation has not yet translated into actual equity tokenization. Nevertheless, ongoing developments aim to change this situation in the near future. Currently, the two most important projects actively promoting equity tokenization are Ondo Finance and Backed Finance. While some "tokenized" assets are essentially synthetic on-chain stock price trackers, both Ondo and Backed support the tokenization of markets represented by actual underlying shares.
To date, Ondo Finance has tokenized approximately $290 million in equity value, including ETFs representing the S&P 500 Index (SPY, IVV), Nasdaq 100 Index (QQQ), and Russell 1000 Index (IWF).
Backed Finance has tokenized approximately $76 million in "xStocks," their on-chain equity product. Backed has not only brought several mainstream ETFs on-chain but has also launched digital versions of individual stocks, including Tesla (TSLA), MicroStrategy (MSTR), Nvidia (NVDA), and Circle (CRCL).
While Ondo leads in terms of tokenized value, Backed has established early dominance in attracting trading activity; since the launch of xStocks in June 2025, traders have generated over $4.5 billion in trading volume.
Real Estate
First, it is important to note that due to the relative lack of liquidity and transparency in the real estate market, real estate tokenization is not included in any of the aforementioned tokenization metrics.
Nevertheless, real estate is the largest asset class globally, estimated to be worth $654 trillion. Given its low liquidity, lack of transparency, and market size, the real estate market may be the asset class that benefits the most from widespread tokenization.
Leading the way in real estate tokenization is RedSwan Digital, which plans to tokenize $100 million in commercial real estate on the Stellar blockchain by the end of 2025.
While RedSwan is currently limited to private investments, a DeFi project bringing this innovation to the public is Propy, which allows users to tokenize their properties and list them for sale on-chain in fractional shares. To date, Propy has facilitated over $4 billion in transaction volume.
Commodities
Like the aforementioned asset classes, the total market value of major commodities (oil, gas, and precious metals) exceeds $170 trillion.
Among major commodities, gold has the highest demand in Web3. Specifically, Paxos and Tether have jointly tokenized approximately $2 billion in gold.
Another project innovating in the tokenization of commodities is Justoken, which currently offers markets for soybeans, soybean oil, cotton, and corn. However, trading of these tokens is currently limited to private investors in off-chain channels.
Private Equity
Although the transparency of the private equity market is far lower than that of most other markets, its global market value is estimated to be around $13 trillion by 2024.
Despite its relatively small size, private equity is currently one of the fastest-growing asset classes globally, expected to grow by about 54% over the next five years. The rise of private equity as a global asset class makes it an interesting candidate for tokenization, as its increasing importance attracts attention from investors across various fields of technological innovation.
Currently, two prominent institutions offering on-chain private equity funds are Apollo Global Management (through the Apollo Diversified Credit Securitization Fund) and Hamilton Lane (through the Hamilton Lane Secondary VI Securitization Fund). These two global institutions have tokenized approximately $133 million in private equity.
While more and more institutions are bringing their assets on-chain directly, a wave of native DeFi projects has recently emerged, aiming to accelerate this process—particularly in the private equity sector.
The two projects leading this effort are Jarsy and PreStocks. Although their platforms are not entirely the same, both provide fractional shares of private equity in popular companies that are not yet publicly listed (such as SpaceX, OpenAI, ByteDance, etc.). Behind the scenes, both projects hold equity in their listed companies, which fully supports all circulating shares.
This is one of the most innovative real-world asset (RWA) solutions to date; it allows both retail and institutional investors to access private equity while leveraging the efficiency of blockchain channels, ensuring fast and cost-effective execution and settlement, with the convenience of 24/7 access.
Overall, these five major asset classes contain over $12.8 trillion in value, making tokenization one of the most potentially impactful trends in financial history. While the possibilities for adoption are exciting, global tokenization can only be realized if the supporting infrastructure is in place. So far, the Central Limit Order Book (CLOB) has been the most ideal solution.
Geographical Adoption Patterns
In recent years, there has been a continuous global synchronization in the adoption and implementation of digital asset technologies. So far, the tokenization movement among asset management companies has primarily been popular in the United States, led by the aforementioned companies such as BlackRock, Franklin Templeton, Apollo Global Management, and Janus Henderson.
Additionally, there has been a significant shift in openness in the U.S., advancing the exploration of digital assets through Web3-friendly regulations (such as the GENIUS Act), incentives for domestic projects, and the potential establishment of a sovereign wealth fund composed purely of digital assets.
However, looking globally, this is just part of a significantly enhanced global trend in recent years.
In Europe, notable institutional adoption efforts include:
Deutsche Bank managing €100 million in tokenized corporate bonds on Polygon
UBS launching $375 million in digital bonds and tokenized gold on Switzerland's SIX Digital Exchange (SDX) and ZKSync
Nine EU countries working to create euro-backed stablecoins regulated under MiCA
Several countries in Asia have also joined the global tokenization race—some recent highlights include:
China Asset Management Company (ChinaAMC), managing over $400 billion in assets, launching a $500 million tokenized money market fund on Ethereum
Singapore's second-largest bank, OCBC, recently initiated a plan to tokenize $1 billion in U.S. commercial paper
Moreover, tokenization has found use cases in Africa, South America, and Australia; here are some recent developments in these regions:
In Nigeria, the Lagos State government plans to implement tokenized real estate as part of a larger initiative to transition to a blockchain-based land registration system
Brazilian asset management company VERT Capital tokenized $130 million in agricultural receivables certificates as part of its XRP-based private credit platform's initial deployment
Australia and New Zealand Banking Group (ANZ) became the first commercial bank to launch tokenized Australian dollars, currently collaborating with China Asset Management Company and Fidelity International to enhance cross-border financial efficiency through tokenization.
Global Tokenization Examples
As the world gradually recognizes the potential benefits of tokenization for global capital markets, the attitudes of governments, central banks, and private companies have undergone significant changes. This shift provides the industry with a tailwind, fostering widespread attention to clear regulations to further drive its growth.
Current Infrastructure Limitations
Regulation and Compliance
Despite institutions repeatedly expressing a positive view of tokenization technology as a concept, a major barrier to their large-scale tokenization of traditional assets is the widespread lack of regulation. The industry has spent centuries creating and modifying strict compliance standards, with a particular focus on risk mitigation. Therefore, for them to embrace a new technology (no matter how enticing its prospects), a clear regulatory framework must be in place to ensure protection for companies, clients, and assets.
Interestingly, this issue seems to be gradually resolving itself; increased institutional interest in digital assets has prompted many countries to be more inclined to develop adequate compliance frameworks:
Recently, the GENIUS Act has garnered global attention as the first official digital asset regulatory framework in the U.S. The act is expected to take effect in January 2027, with its primary function being to regulate the issuance, reserves, operations, and secondary trading of stablecoins.
One of the most important aspects of the GENIUS Act is its impact on the demand for sovereign debt. Stablecoin issuers are required to back each token with high liquidity, low-risk assets (such as cash, insured deposits, U.S. Treasury bonds, or qualified repurchase agreements) at a 1:1 ratio. So far, U.S. Treasury bonds have been a common collateral choice for major stablecoin issuers; in fact, the world's largest stablecoin issuer, Tether, has now become the 18th largest holder of U.S. Treasury bonds.
Holdings of U.S. Treasury Bonds by Country
This trend is expected to accelerate rapidly in the coming years. According to Citibank's "20230 Stablecoin Report," they predict that by 2030, U.S. Treasury bonds held by stablecoin issuers could exceed those held by any single jurisdiction currently.
However, this perspective focuses solely on the additional demand for U.S. debt. While stablecoins have been almost entirely dollar-denominated so far, it is reasonable to envision that the impact of additional debt issuance will incentivize countries around the world to issue stablecoins denominated in their respective currencies and backed by assets including sovereign debt.
In addition to the GENIUS Act, the EU's Markets in Crypto-Assets (MiCA) framework, which came into effect in 2023, represents another significant advancement for global tokenization. MiCA aims to bring clarity and security to the Web3 industry by ensuring the protection of institutional clients' assets, requiring qualified information for new crypto projects, implementing reserve requirements for stablecoin issuers, and imposing limits on caps. Additionally, other similar comprehensive frameworks include Dubai's VARA, Hong Kong's VASP and VATP systems, and Switzerland's digital asset regulation under FINMA.
Major global asset managers, governments, central banks, and others are not only discussing but also interacting with blockchain and tokenized assets. As the pace of adoption and experimentation continues to accelerate, the process of establishing adequate compliance standards should continue to grow at an accelerated rate.
Infrastructure
In addition to the lack of compliance standards, DeFi infrastructure has not yet developed to a level that institutional fund managers feel comfortable with for large-scale participation in on-chain markets. This is due to current inefficiencies (and perceived inefficiencies), including a lack of custodial solutions, fragmented liquidity, and settlement finality.
Custodial Solutions
In institutional fund management, trusted custodians are needed to handle key tasks such as asset protection, trade processing, and transaction settlement.
Historically, digital assets have primarily been used by retail investors, and self-custody has been the main form of asset protection and management. However, to meet the demands of global institutions, a wave of custodial solutions has emerged. Notable custodians include Web3-native companies like Coinbase, Anchorage Digital, and Fireblocks, as well as traditional banks like Fidelity and BNY Mellon.
A recent development is the separation of collateral management and trading venues, exemplified by the integration of the OpenDollar stablecoin (USDO) from the tokenization platform OpenEden with Binance's bank tripartite custody. As Web3 gradually recognizes the need for such custodial services for institutions, we may see an entire trend develop around "off-chain exchange collateral (OEC)," as previously explained by the CEO of OpenEden.
Fragmented Liquidity
Another historical flaw that has limited institutional participation in decentralized finance (DeFi) adoption is fragmented liquidity. Currently, there are hundreds of blockchains supporting DeFi activities, holding over $200 billion in assets, with 54 blockchains having asset sizes of at least $100 million. While it is exciting to see so many blockchains contributing to the evolution of DeFi, the issue is that liquidity on each blockchain is often confined to its own.
It is important to note that the capital markets mentioned earlier contain over $12 trillion in assets. To facilitate even a small portion of those assets entering, DeFi liquidity needs to be as efficient as possible, meaning that liquidity on any one blockchain should be seamlessly accessible to applications on other blockchains. For example, just as U.S. stock accounts can trade stock products on any exchange (such as the NYSE, Nasdaq, CBOE/BATS, over-the-counter, etc.), the DeFi experience must enable users to access any application from a single source.
As the digital asset industry evolves, solutions to address the issue of fragmented liquidity are increasingly emerging. Notable examples include:
Interoperability protocols, such as Inter-Blockchain Communication (IBC), which enable communication between blockchains built on CosmosSDK (recently expanded to other ecosystems like Ethereum), and LayerZero, currently used by Tether, Ethena Labs, PayPal, Ondo, and Usual. A major selling point of LayerZero is that users can customize their Decentralized Verification Network (DVN), providing flexibility for institutional compliance. Additionally, LayerZero allows interchangeable tokens to exist across multiple chains through its Omnichain Fungible Token (OFT) standard, avoiding the wrapping process.
Decentralized exchange (DEX) aggregators, such as Jupiter and 1inch, which route trades through multiple decentralized exchanges, often within specific ecosystems.
Chain abstraction solutions, such as Particle Network or Arcana Network, focusing on providing DeFi participants with a single account to use seamlessly across multiple networks, avoiding the complexity of cross-chain operations being transferred to users.
Settlement Finality
It is understood that the traditional financial industry places great importance on the settlement of all transactions (or the final record of ownership transfer) adhering to specific compliance frameworks to mitigate all possible risks. Settlements are typically executed by clearinghouses; for example, many transactions in the U.S. are settled by DTCC, with the global securities transaction volume reaching $38 trillion in 2024.
Current processes in major economies require settlements to be completed at least one day after the actual transaction occurs. For instance, the U.S. "T+1" settlement and Europe's "T+2" settlement require the transfer of assets/cash to be formally completed one to two days after the transaction takes place. This is a key area where blockchain can improve, as some high-performance blockchains currently have settlement times of less than one second.
While blockchain automatically settles transactions based on the consensus mechanism of any given network, institutional adoption is currently limited by a lack of compliance standards. Although education (such as understanding when/how on-chain transactions are completed) can partially address this issue, institutions may require thorough compliance measures to ensure that on-chain settlements indeed represent absolute finality and to address and mitigate all potential risks (such as reversible transactions).
Why DeFi Has Finally Become "Good Enough"
While these are reasonable barriers to large-scale institutional participation, recent advancements in blockchain performance and innovations in on-chain Central Limit Order Book (CLOB) infrastructure provide promising solutions.
Until recently, the idea of blockchains achieving thousands of transactions per second or sub-second latency was considered speculative. However, these are now viewed as the minimum baseline standards for high-performance blockchains.
Of course, for blockchains to effectively support global market activities, they need world-class trading infrastructure. This is where CLOB comes into play.
With high-speed matching engines (either directly embedded in the execution logic of application chains or combined with off-chain processing and on-chain settlement), CLOB optimizes liquidity efficiency, trading throughput, complex order types, and more, bringing it closer to the performance threshold required by institutions.
CLOB Infrastructure is the Missing Link
Why Order Books are Crucial for Institutions
In high liquidity, high activity markets, Central Limit Order Book (CLOB) infrastructure is the most favored infrastructure among global exchanges (such as NYSE, Nasdaq, Tokyo Stock Exchange, Shanghai Stock Exchange, etc.).
One reason CLOB has become mainstream infrastructure in global liquidity markets is due to the transparency and efficiency of its internal matching engine. The transparency of the matching engine allows for real-time insights into order book activity, enabling efficient price discovery while ensuring participant anonymity. Additionally, the matching engine is specifically optimized to find the most efficient way to satisfy the continuous influx of buy and sell orders, making it an ideal mechanism for facilitating high-frequency trading.
Required Features
Over the past few decades, financial markets have undergone a series of significant transformations, giving rise to a range of features aimed at maximizing efficiency. Notable features include sub-millisecond execution, deep liquidity pools, complex order types, portfolio margining, and regulatory reporting.
Sub-Millisecond Execution
As mentioned earlier, there is a high emphasis on speed in global markets, especially due to high-frequency trading. Currently optimized CLOB matching engines can achieve speeds as fast as 10-100 microseconds, or 0.01-0.1 milliseconds.
Deep Liquidity Pools
According to daily reports from the Chicago Options Exchange, it is common for U.S. stock market trading volumes to exceed $1 trillion—most of which occurs within a 6.5-hour trading window. CLOB matching engines can efficiently integrate orders from numerous participants, essentially aggregating liquidity from a dispersed network and executing orders in real-time, thus handling such massive liquidity.
Complex Order Types
Another outcome of the evolution of global markets is that CLOBs can handle a variety of order types. Because order books contain highly detailed data, they naturally support flexible conditional orders to meet the needs of any institutional fund manager.
Portfolio Margining
By reading and broadcasting real-time information about market depth and liquidity, CLOBs become an effective data source for managing risk. Since they contain the accurate prices of all buy and sell orders at any given moment, models used by clearinghouses and institutions like Value at Risk (VaR) can continuously monitor overall risk and effectively calculate the amount of margin that should be allowed.
Regulatory Reporting
By maintaining a continuous order book, CLOBs provide transparency of price data, allowing regulators to monitor liquidity and market behavior. Furthermore, CLOBs can record data in a standardized manner, which is very useful for analysis and cross-referencing across different assets and markets.
Advantages of On-Chain Finance
For all the reasons mentioned above, CLOBs can effectively serve as the "missing link" between DeFi and traditional finance, providing institutions with familiar and sufficiently performant infrastructure. However, the built-in mechanisms of DeFi allow its applications to significantly improve the performance of traditional markets.
Achieving 24/7 Markets
First, it is important to note that CLOBs have always had the capability to operate around the clock. This is simply because they rely on algorithms rather than conventional human-machine interactions.
That said, the "pre-24/7 market era" came to an end with the advent of public blockchains. While some traditional markets have historically achieved 24-hour trading, a truly 24/7 active global market has never existed (the forex exchange comes closest, but it is usually still a "24/5" market). Nasdaq has been a pioneer in this area; earlier this year, its president announced a plan to enable stock trading 24 hours a day, five days a week, in the second half of 2026. Their CEO recently announced that Nasdaq will also support tokenized stocks.
Essentially, public blockchains combine the algorithmic characteristics of CLOBs with the advantages of decentralization; their operation is not limited by any specific geographic location. This increased freedom finally allows CLOBs to realize their potential: achieving efficient operation around the clock globally, aggregating and processing liquidity from any source at any time.
Programmability and Composability
As briefly mentioned in the introduction of this article, on-chain finance unlocks two key features for contract-based assets: programmability and composability.
Asset Programmability and Synthetic Assets
Essentially, asset programmability allows developers to customize the functions of any specific asset, thereby changing how it operates and is used. A major trend reflecting programmability in Web3 is the creation of synthetic assets. In fact, many CLOBs currently utilize this feature to support most altcoin markets. The way it works is that traders deposit highly liquid tokens (such as USDC) into a centralized "vault" (or an account owned by the protocol) and use that vault to provide liquidity for all markets. Therefore, assuming the vault contains USDC, a series of oracles will broadcast the prices of altcoins to the CLOB in real-time, with USDC being used to support all (or most) of the liquidity. Ultimately, this enables efficient market activity without the need for deep liquidity in long-tail assets (the vast majority of altcoins).
Asset Programmability and Synthetic Assets
This ability to reflect asset prices on-chain without collateral support not only creates more possibilities for asset customization but also achieves global exposure to almost any asset class:
Synthetic Perpetual Futures
Injective's L1 blockchain is designed to host innovative high-performance applications to support institutional trading activities of synthetic programmable assets, referred to as iAssets within the Injective ecosystem. Helix is the largest decentralized exchange (DEX) on Injective, currently offering synthetic stocks with up to 25x leverage and custom indices, such as the TradFi Technology Stock Index (TTI). It also provides leveraged exposure to commodity prices, such as silver (50x leverage) and WTI crude oil (25x leverage). To provide liquidity for these assets, Injective employs an open liquidity program that allows both professional market makers and retail participants to engage.
At the core of Injective is the CLOB infrastructure, which includes an on-chain order book (via off-chain initial order relays) as well as on-chain matching and settlement. By combining CLOB infrastructure with innovative programmable assets, Injective showcases a powerful combination of performance and flexibility.
Ostium is another major player in the synthetic asset space, offering a variety of assets on Arbitrum, including:
100x leverage on global stock indices and individual stocks
100-200x leverage on forex pairs
50-100x leverage on precious metals, base metals, and energy commodities
Ostium does not rely on traditional market makers to manage liquidity but instead uses a centralized USDC "market-making vault" similar to the one shown above. To protect liquidity providers (LPs) from risk, Ostium also includes a liquidity buffer to absorb long/short imbalances and instant withdrawals from the DEX. The market-making vault and liquidity buffer together form Ostium's Shared Liquidity Layer (SLL).
In addition to offering the widest selection of high-leverage assets in the DeFi space, Ostium brings innovation to DEX architecture. Ostium departs from the common automated market maker (AMM)/CLOB architecture and instead adopts specialized infrastructure to optimize simulated price exposure and provide asynchronous on-chain execution.
While Ostium's pooled liquidity is similar to the VAMM architecture, liquidity providers benefit from not needing to match counterparties immediately and avoiding impermanent loss. However, they bear more traditional loss risks, as their performance is positively correlated with that of platform traders.
Synthetic Real Estate
Parcl is a Solana-based application that leverages programmable assets to provide 24/7 exposure to real estate, supporting hedging and speculation on 20 key markets (with more being added). Liquidity is provided through a central pool to facilitate trading in each market, with real-time market data supplied by ParclLabs' robust aggregated data ecosystem.
Parcl not only allows global retail investors to gain long or short exposure to some of the world's most important real estate markets but also enables unprecedented speculation without the need to purchase underlying assets, significantly lowering the entry barrier. Ultimately, Parcl fully demonstrates the power of programmable assets.
Although Ostium and Parcl are not based on CLOB infrastructure, we mention them here because they showcase the ability to merge traditional assets with programmable technology. Along with Injective, these platforms highlight an interesting trade-off unique to Web3: they eliminate the risks associated with price inefficiencies but rely on oracle providers to transmit price data accurately and in real-time.
Programmable Token Architecture
While programmability can clearly change the way asset exposure is accessed in any market, it can also specifically provide exposure to the inherent "characteristics" within a single token. A popular project that showcases this use case is Pendle, which offers customized tokens for yield-bearing assets. Specifically, any yield-bearing asset is split into two tokens: Principal Token (PT), which essentially functions like a zero-coupon bond, and Yield Token (YT), which allows holders to directly access the fluctuations of the asset's yield. This is essentially an on-chain version of bond stripping, but it improves the underlying mechanism by making it applicable to any yield-bearing asset and open to any on-chain participant.
Composability
Composability is related to programmability as it supports unprecedented customization of assets. However, it specifically refers to the ability of smart contracts to interact with each other and create unique products. One way composability is changing DeFi is by addressing the aforementioned issue of liquidity fragmentation. By integrating with smart contracts from different ecosystems, many developers are creating solutions to abstract the operations of specific chains, establishing a more unified user experience (UX).
Another common example of composability is the creation of vaults, which are structured projects unique to Web3 that can be customized in almost any way. An early example of customized vault creation is yearn, which initially used vaults to automatically rotate deposited funds into DeFi applications offering the highest stablecoin yields. However, as DeFi innovations have grown, the potential use cases for vaults have also increased.
In the CLOB space, two projects pushing composability to the next stage of on-chain markets are Valhalla and World Capital Markets, which were described in our previous report, "The Rise of Real-Time Blockchain and On-Chain CLOB."
Currently, composability is also being used to address the issue of liquidity fragmentation in the RWA space. Many institutions have a wide range of fund options, and as more funds are tokenized, they must integrate well with DeFi platforms to avoid potential risks of illiquidity. Aave, a decentralized lending market and top Web3 application (with a TVL of approximately $75 billion), is leveraging its latest product, Horizon, to specifically provide composability features for institutional users. This product allows eligible users (including institutional users) to use RWAs as collateral for stablecoin loans. By integrating with one of the most popular applications in the DeFi space, this is a key step for institutional assets to benefit from on-chain liquidity.
Ultimately, composability and programmability have the potential to greatly improve global markets. By enabling built-in features for RWAs, the possibilities of tokenization go far beyond simply bringing assets on-chain; it can change the utility and accessibility of assets by enabling new functionalities within asset classes and across asset classes, expanding their reach from institutions to the general public. By bringing assets to public blockchains, tokenization has the potential to provide exposure to anyone with a blockchain address, which naturally increases the available liquidity flowing into the market. This is particularly beneficial for markets that may experience inefficiencies due to low liquidity and accessibility (such as real estate, private equity, corporate debt, etc.).
The Road Ahead
As the demand for stablecoins, tokenization, and on-chain finance heats up globally, it is evident that a significant transformation has begun. At this unique historical moment, we are witnessing the convergence of traditional organizations (such as financial institutions, governments, and central banks) with Web3 projects at the forefront of the tokenization trend.
At the intersection of these two worlds is CLOB: the infrastructure commonly used in global traditional markets, being repurposed for the future where digital assets become the new standard. While this has been the goal of blockchain developers for years, advancements in on-chain infrastructure are reaching a critical point, capable for the first time of providing the performance and compliance levels required to support global market activities.
Ultimately, on-chain CLOBs provide institutions with a similar experience while laying the groundwork for a new generation of programmable tokenized assets. This migration opens up new possibilities for asset trading, usage, and design, while providing more reliable liquidity for all markets through broader public exposure.
As this trend continues to evolve, we will undoubtedly see existing favorable factors converge to accelerate its adoption. Finally, we will delve into some potential scenarios that this evolution may bring, as well as some milestones and new developments that may arise.
Timeline Predictions
The accelerated development of the future tokenization trend can be attributed to two major favorable factors: the evolving global regulatory landscape and the seemingly limitless market space for tokenized assets (over $12 trillion). However, a third favorable factor is also rapidly emerging: the infrastructure capable of supporting institutional-grade assets and markets—specifically, CLOB. Just as programmability and composability are driving the transformation of capital markets in DeFi, CLOB is also foundational to achieving this change.
In the next 1-2 years, these three favorable factors are likely to create a flywheel effect, accelerating institutional adoption and laying the groundwork for exponential growth in the total market value of real-world assets (RWAs). We can envision a scenario like this:
Global regulators continue to create compliance frameworks that not only fill regulatory gaps but also encourage participation from institutions and governments.
Institutions identify significant opportunities and begin to tokenize relatively liquid, low-risk funds as a "test" (i.e., BUIDL)—we are currently in the early stages of this phase.
At the same time, traditional/Web2 neobanks (such as Revolut, Chime, etc.) increasingly integrate blockchain channels into their products to remain competitive.
DeFi projects optimized for institutional use begin to integrate these RWAs into various applications (Aave's Horizon has already started this process).
Institutional managers and their clients experience the benefits of composability and programmability for the first time (and they are very satisfied with it).
As institutional on-chain migration accelerates, developers recognize opportunities from their perspective (i.e., the ability to customize/program financial products).
This leads to a significant shift of developers from the "Web2" industry to Web3, attracting more talent and innovation into the space.
With the influx of new builders, more specialized and high-performance products are built, and institutions become more comfortable increasing the scale and variety of on-chain deployed assets.
This results in the early tokenization trend expanding into emerging technologies—one leading example is the emergence of GPU financing tokenization due to increased computational demands from AI innovations.
Whether this scenario will unfold in the coming years remains to be seen, but the following points are clear: globally, there has been a significant increase in interest from governments, regulators, and institutions in adopting and using on-chain finance, and these favorable factors have never been stronger.
Milestones to Watch
Acceleration of the Tokenization Trend
As the large-scale migration of assets from traditional finance (TradFi) to decentralized finance (DeFi) approaches, several key milestone events are worth noting, as they may further stimulate awareness and interest in on-chain finance. To better understand these potential milestones, we can refer to what is currently happening to gauge what may occur in the (short-term) future.
Current important developments include:
Large institutions tokenizing their self-managed assets (e.g., BlackRock).
High-performance blockchains/CLOBs nearing institutional-grade speeds.
Ongoing construction of regulatory frameworks (e.g., the GENIUS Act).
Growing interest from major exchanges in tokenized assets (e.g., Nasdaq, London School of Economics).
A wave of announcements/releases regarding "stablecoin networks" (e.g., Plasma, Tempo, Stable, Arc, etc.).
Assuming these trends continue to accelerate, we may soon witness some significant events.
Tokenized IPOs
A potential milestone that could occur within the next two years is the first on-chain IPO. Specifically, this would involve a private company choosing to issue its equity to the public in a tokenized form rather than through a traditional exchange.
Coincidentally, we are already on this path, as Bullish's unprecedented effort has received $1.15 billion in IPO proceeds in stablecoin form. While we expect new assets to be issued across all asset types (similar to UBS's digital bonds), if this occurs in the stock market, it could have the most significant impact due to the diverse range of retail and institutional participants in the stock market.
$1 Trillion in RWAs
From a metrics perspective, the total amount of tokenized RWAs (on public chains, excluding stablecoins) surpassing $100 billion or even $1 trillion would mark a watershed moment for the Web3 industry. Considering that the current market cap of Web3 is approximately $30 billion, this may seem like a huge leap. However, if we assume that the adoption rate continues to grow, we are poised to reach this level in the coming years.
At the current growth rate, the total market cap of RWAs is expected to reach approximately $36.45 billion by the end of 2025, representing a 1,889% increase from 2021 (with a compound annual growth rate of 108.4%). Given the increasing attention from institutional investors towards RWAs and the resulting enthusiasm for deploying assets on-chain, it is not unreasonable to expect a compound annual growth rate of 50% to 100% for RWAs over the next five years.
Here are the projected total market values of RWAs for consecutive years, assuming compound annual growth rates of 50% and 100% (excluding stablecoins), projected to 2030:
Potential Acceleration of Total RWA Market Value
Asset Class Optimization
We should also anticipate various evolutions in the "stablecoin network wars." Stablecoins have been widely touted as the first true Web3 product to achieve global product-market fit. However, as blockchains are optimizing for stablecoins, a slight shift in perspective reveals that the blockchain itself is also embarking on a journey to achieve this goal; if the latest wave of blockchain innovation is currently optimizing for stablecoins, it is only a matter of time before we see optimizations targeting other major demand areas—especially given the available resources for customized on-chain assets.
One possible example that could serve as a foundation for this advancement is Plume, which specifically targets "RWAfi" projects and products by assisting in every step of merging TradFi with DeFi. Specifically, its infrastructure is designed to enhance the efficiency of the tokenization process, ensure compliance, provide custodial solutions, and integrate immediately with a wide range of DeFi-native product ecosystems. While Plume is not optimized for any specific asset class, theoretically, this field could evolve by adding other L1 blockchains/application chains, L2 Rollups, or even applications within ecosystems like Plume to generate such platforms.
Crypto Operating Systems
Another milestone that this line of thinking could bring about is a wave of user experience abstraction solutions. As we mentioned earlier, a significant issue currently constraining Web3 is liquidity fragmentation; to achieve true mass adoption, solutions must be found to address this problem. Therefore, there exists a comprehensive solution akin to an operating system that enhances the efficiency of Web3 through seamless cross-chain access. It could exist in a format similar to Windows/Android/iOS for managing cross-chain and cross-platform activities, or it could be an entirely new solution.
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