Original text: Bankless
Translation & Compilation: Yuliya, PANews
Is Ethereum, as the leading smart contract platform, ready to support trillions of dollars in Real World Assets (RWA)? This is not just a technical question, but also concerns the future of its core value—decentralization. In this episode, Bankless invited two heavyweight guests, Professor Austin Campbell from NYU Stern School of Business and Professor Omid Malekan from Columbia University, to engage in a fascinating debate on this topic.
Interestingly, both guests are advocates of cryptocurrency and old friends, but their viewpoints are completely opposite:
Austin believes that Ethereum's decentralized characteristics, such as immutability and "code is law," are not advantages for RWAs that need to interact with real-world legal systems, but rather "defects." He argues that Ethereum is structurally unsuitable for RWAs.
On the other hand, Omid firmly believes that it is precisely Ethereum's decentralization and neutrality that will attract the world's largest financial powers, institutions, and even sovereign nations to entrust their assets and liquidity to it. Without decentralization, we would only have another TradFi system.
The core of this debate is: should we modify blockchain to adapt to the rules of the real world, or should we adhere to the principle of blockchain neutrality and let the real world adapt to it? PANews has provided a written compilation of this podcast.
When Hackers Come Knocking, Is Neutrality a Feature or a Flaw?
Bankless: Today, our debate topic is "Is Ethereum Ready for RWA?" Austin, the debate was sparked by your statement on social media where you said, "I don't think Ethereum is ready for prime-time RWA issuance," and you mentioned the Bybit hacking incident as an example. Can you elaborate on what you mean?
Austin: When we talk about Real World Assets (RWA), we encounter a core contradiction: who are you ultimately accountable to?
Take Bitcoin as an example; it is a borderless, sovereign-free, purely programmatic currency that has no physical representation in the real world to comply with the rules of any country, and that is where its value lies.
But RWAs are different. Imagine if we tokenized property ownership, and your grandmother's property deed became an NFT. If that NFT were stolen by a hacker (say, a North Korean hacker), the U.S. government would never allow them to actually move in.
This illustrates that real-world assets are always subject to legal and sovereign constraints, and there is tension between the immutability of blockchain and real-world rules. If the ledger cannot ultimately respond to reality, it will inevitably collapse in the long run. That is why I believe Ethereum's structural characteristics are not suitable for RWAs.
Bankless: How does this relate to the Bybit hacking incident you mentioned?
Austin: The Bybit incident is significant for two reasons:
First, the Ethereum community currently lacks a mature mechanism to handle such nation-state-level attacks. What if the entity attacked was not Bybit, but a stablecoin issuer like Tether? How would we respond?
Second, the key issue of this attack is not the specific tokens stolen, but the complexity of the attack—hackers directly infiltrated Bybit's internal systems. This raises a question: if one day Tether's smart contract were compromised, the consequences would be far more severe than the Bybit incident, as it would implicate the entire DeFi ecosystem.
My core concern is that information security is never perfect. Over a long enough timeline, being hacked is just a matter of time. The question is how much damage it will cause and how you can recover from it. If there are sufficiently sophisticated attackers in the world who can breach a company's internal security system, then I really want to know what the response plan is if Tether or USDC's smart contracts are hacked. How can you do this without disrupting 95% of the deployed applications on Ethereum?
Omid: I think the Bybit hack is actually the best advertisement for Ethereum. Because despite being a large-scale, complex attack, the Ethereum community's response was to "stay neutral" without human intervention. The only thing that blockchain can do well is neutrality and predictability; in terms of simplicity, performance, cost, and bandwidth, they cannot compete with Web2 and traditional finance. But they can do one thing well: provide a network that always operates according to preset rules, regardless of what legal, moral, or political commands the outside world tries to impose.
As for Austin's hypothetical of "Tether's smart contract being hacked," that is indeed a more serious risk, but I want to ask: since the risk exists, how do you think it should be addressed?
Austin: I believe that crypto-native assets like Bitcoin and Ethereum must have different "rules" than RWAs.
The design of ETH itself does not respond to federal judges' orders. A judge in the Southern District of New York can issue an order demanding all ETH validators do something, but the validators can completely ignore him.
However, if it involves a stablecoin like Tether, the situation is different. Suppose one day Tether's smart contract is compromised, and a U.S. court orders the freezing of related assets; Tether's custodian bank will inevitably comply.
Because the legal structures behind these two types of assets are fundamentally different, the network may need to have the capability to roll back or handle incidents like Tether being hacked, while this capability is not necessary for ETH itself. Many people might say that Tether can abandon the old contract and deploy a new one. But I want to point out that this would destroy almost all DeFi protocols that have integrated Tether, such as Uniswap, Aave, and Compound. Their liquidity pools are immutable, and suddenly, a core asset in the pool becomes worthless.
For Safety, Should We Introduce New Vulnerabilities?
Austin: So my point is that Ethereum may need to introduce some mechanism at the network level to address the risks of RWAs. This does not necessarily have to be executed directly by validators, but validators need to enforce: "Do not put time bombs on our chain." There can be various solutions, such as:
Deploying RWAs on a permissioned validator network (like an Avalanche subnet), where validators can collectively intervene if something goes wrong.
Or designing smart contracts with a built-in "circuit breaker," which freezes the relevant contracts when a trusted oracle is triggered, allowing users to only withdraw assets.
Otherwise, once the Tether contract is attacked and abandoned, almost all DeFi protocols relying on USDT will be chain-ruined, which is a systemic risk that Ethereum cannot afford.
Bankless: Omid, what do you think of Austin's proposed solutions like "emergency stop switches" or "permissioned validators"?
Omid: Introducing "backdoor" mechanisms into DeFi protocols could pose even greater risks. The Ronin hack is a living example, where a permissioned validator network controlled by multi-signature was breached by North Korea's Lazarus group, resulting in hundreds of millions of dollars in losses. Such social engineering attacks are much easier when you know who the validators are, who their employees are, and where the computers are.
While DeFi protocols can consider fail-safe mechanisms for extreme situations, sacrificing the certainty of the vast majority of users to address black swan events is not worth it.
In the long run, protocols with "backdoors" may attract less capital because users will worry about the backdoors being exploited by hackers or weaponized to harm their transactions.
Bankless: Omid, you seem to firmly oppose allowing Ethereum validators to intervene and roll back transactions. Why do you think this is a bad idea?
Omid: This mechanism may sound good in theory, but there are huge practical problems. It would introduce a whole new governance mechanism, the complexity of which could be beyond imagination.
The governance of decentralized systems is already very chaotic and prone to failure, and the new mechanism would control the fate of the entire chain and possibly involve huge amounts of money. Who decides when to take action? Is it through voting or on-chain or off-chain coordination?
Bankless: Austin, perhaps your point is more that if a chain is completely immutable, permissionless, and decentralized, it may not be the home for RWAs. This is more like Bitcoin's approach, which only handles the transfer of Bitcoin, while everything else is off-chain. Ethereum, on the other hand, mixes various tokens. Maybe you are just saying that RWAs do not belong on Ethereum?
Austin: The Ethereum ecosystem has some ideological contradictions when dealing with real-world assets, while Bitcoin is relatively more straightforward. For tokenized RWAs, adhering to the real-world legal system is not a compromise but a core feature of the product. Take stablecoins as an example; if their reserves are U.S. Treasury bonds, the operators must prioritize responding to the demands of U.S. legislators, regulators, and judiciary. The real-world legal system has the power to enforce assets, such as through sanctions laws or the Office of Foreign Assets Control (OFAC) seizing assets.
To achieve tokenization of RWAs on the blockchain, multiple redundancy mechanisms must be established to ensure the chain can respond to the relevant legal framework; otherwise, there is a risk of assets becoming unusable due to legal proceedings. If this issue is not addressed, assets may ultimately become unusable due to interference from real-world laws.
A Neutral "World Computer" or a Divided "Digital United Nations"?
Bankless: Omid, you mentioned that Ethereum's neutrality might be its greatest advantage. Can you explain specifically why neutrality could be the "killer app" for bringing RWAs on-chain?
Omid: The neutrality of blockchain could be key to the coexistence and interaction of global assets. If an asset regulated by the U.S., an asset custodied in London, and an asset controlled by China can coexist on a neutral blockchain, it would provide a unique appeal to global users.
U.S. users might choose that chain because it is not controlled by China, while Chinese users would make the same decision because it is not influenced by the U.S. At the same time, a tokenized gold issuer in London might see a chain with huge liquidity in both dollars and renminbi as an ideal custodial platform. This neutrality can attract more users and assets because it treats all participants equally, free from political interference.
When the real-world legal system attempts to intervene in on-chain transactions, neutrality will become the core competitive advantage of blockchain success, while any blockchain with political or censorship mechanisms may lose its edge.
Austin: A completely permissionless transaction and a hypothetical world where nation-states cannot intervene does not exist.
London and the United States control the operation of gold tokens and U.S. stablecoins, respectively, as freezing reserves and issuers can achieve control over the tokens. The government's ability to intervene can destroy the value proposition of the chain; for example, when the U.S. prohibits certain transactions and seizes related funds, if the blockchain cannot reflect this reality, the tokens on the chain will become invalid.
Decentralization is an advantage in the absence of trust and the need for neutrality, but when the underlying assets themselves are not decentralized, this characteristic becomes a flaw in the system. Forcing the concept of "decentralization" that does not interact with reality into the system is like placing a grenade that could explode at any moment.
Bankless: Austin, the solution you just described—having tokens declare which jurisdiction they are accountable to at the time of deployment—sounds very much like the Swift system already present in traditional finance.
Austin: You could say that, but I believe that blockchain has a huge advantage over traditional finance that is often underestimated. I think the open access and composability of blockchain may be more important than decentralization. Traditional financial systems, like the Federal Reserve system, have high barriers to entry and involve a lot of corruption and political struggles, resembling a private club. In contrast, blockchain is more like a park, where participation is generally allowed for everyone, and restrictions are only imposed when necessary. This shift in model is a significant advantage of blockchain over traditional finance. Additionally, the composability of blockchain addresses the fragmentation issues of the current financial system, enabling global users to transact in innovative ways.
The uniqueness of DeFi protocols lies not only in their independence but also in their ability to be combined like building blocks to create new financial applications. Although decentralization has some flaws in legal compliance, blockchain breaks down the entry barriers of traditional financial tools, providing unprecedented opportunities for global users.
Omid: Integrating the licensing authority of asset issuers into the consensus layer of the blockchain would undermine the composability of the entire system and increase risks for developers. If validators can vote to determine the issuance eligibility of a stablecoin, it becomes difficult for developers to build a long-term financial ecosystem around that stablecoin, as that eligibility could be revoked at any time.
In contrast, current centralized institutions like DTCC (Depository Trust & Clearing Corporation) have effectively addressed the issue of licensed issuance, but these alliance-based infrastructures may ultimately exploit their advantages to squeeze their members.
The experience of Bitcoin has revealed market preferences: when governments try to stifle it, they ultimately only harm their own people. Eventually, even governments begin to lean towards decentralization. The same goes for stablecoins, as governments ultimately recognize the existence of semi-permissionless dollars through legislation (such as the U.S. Genius Act). All of this indicates that the decentralized philosophy of cryptocurrency offers better solutions, and market preferences have gradually shifted towards neutrality and decentralization.
Closing Statements
Bankless: Both of you agree that decentralization is crucial for value storage and open finance. However, you have differing views on the use case of RWA. Omid, Austin, please make your final statements.
Omid: Any centralized factor in on-chain solutions is like the exhaust port of the Death Star in Star Wars; the Rebel Alliance will ultimately find and exploit these weaknesses, not because they are easy to discover, but because the incentives are strong enough. If a semi-permissioned or consortium chain becomes a reality, these systems will eventually collapse due to their own flaws.
While decentralization may not be the perfect choice, it is the relatively optimal solution among all the options tried, and thus will ultimately become the default option.
Austin: The true value of blockchain technology lies in providing humanity with an "exit option," such as decentralized value storage systems like Bitcoin and Ethereum becoming the baseline for financial behavior, requiring other systems to surpass these baselines to be more attractive.
The core contributions of blockchain are twofold: first, to raise the minimum standards of global financial behavior, which is significant for improving human rights; second, to drive a transformation in collaborative methods, setting higher standards for many things that may become more centralized over time.
The preference differences in various transaction scenarios are significant; for example, there is a higher tolerance for errors when purchasing small items, while handling large financial transactions requires higher speed, control, and error reversal capabilities. Blockchain is triggering a governance revolution, bringing profound impacts to the global financial system.
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