Real World Asset (RWA) tokenisation has emerged as one of the most talked-about frontiers in the blockchain and web3 space, promising to unlock trillions of dollars of otherwise illiquid value by bringing tangible assets like real estate, bonds, commodities, and even art onto the blockchain. Proponents often tout RWA as the missing link that will finally bring institutional capital into decentralised ecosystems while democratising access to high-value investment opportunities.
A growing chorus of sceptics warns that RWA may not represent a true web3 innovation at all, but rather a repackaging of traditional finance wrapped in digital form, still tethered to centralised institutions, legacy legal frameworks, and regulatory dependencies that contradict the core tenets of decentralisation, trustlessness, and permissionless access.
At the heart of this critique lies a fundamental truth: the token itself is not the asset. Instead, it functions as a digital proxy, a claim or receipt, whose validity depends entirely on off-chain realities that the blockchain cannot enforce. When you tokenise a commercial building in Manhattan or a US Treasury bond, the blockchain records a cryptographic representation of ownership, but the legal title, physical custody, and enforceability of that claim remain firmly outside the ledger.
That disconnection forces RWA systems to rely on third parties, lawyers, custodians, courts, and regulators to verify, manage, and defend the value the token purports to represent. In doing so, RWA reintroduces the very intermediaries that web3 was designed to disintermediate.
One of the most pressing structural flaws is regulatory uncertainty. Unlike purely digital assets such as Bitcoin or Ethereum, which operate in a grey zone but are increasingly recognised as commodities, tokenised RWAs often fall squarely within the definition of securities under existing financial laws. This triggers a cascade of compliance obligations, registration, prospectus disclosures, and investor accreditation checks that vary wildly across jurisdictions.
A token representing a German mortgage-backed security may be treated as a regulated investment product in the EU, an unregistered security in the US, and something entirely different in Singapore or the UAE. The absence of global regulatory harmonisation means that RWA projects must either limit their operations to a narrow geography or bear the immense cost of multi-jurisdictional legal compliance. This not only stifles innovation but also limits participation to well-capitalised institutions, effectively pricing out the average retail investor that web3 claims to empower.
Even if regulatory hurdles were overcome, RWA tokenisation remains vulnerable to counterparty and custodial risk. Most RWA protocols do not hold physical assets directly on-chain. They cannot, because a blockchain cannot store a deed or a warehouse full of gold. Instead, the underlying asset is held by a legal entity, often a Special Purpose Vehicle (SPV), which issues tokens backed by that asset. This arrangement creates a single point of failure. If the SPV is mismanaged, becomes insolvent, or engages in fraudulent activity, token holders may find their digital claims backed by nothing more than empty promises.
Unlike in a truly decentralised system, where code and consensus govern outcomes, RWA token holders must place faith in the honesty and solvency of a centralised custodian. This dependency fundamentally undermines the trustless ethos of web3. When a smart contract cannot guarantee the redemption of a token for its underlying value without invoking human intermediaries, the promise of self-sovereign ownership rings hollow.
Moreover, many RWA implementations contradict the foundational principles of permissionless and open access. Because of regulatory pressures and risk management concerns, most RWA platforms require users to undergo Know Your Customer (KYC) and Anti-Money Laundering (AML) verification before they can buy, sell, or hold tokens. Some even deploy their tokens on permissioned blockchains, where validators are pre-approved institutions rather than open participants.
These design choices may make sense from a compliance standpoint, but they erode the open, borderless, and censorship-resistant nature of public blockchains. Instead of creating a new financial paradigm, such systems replicate the gated, hierarchical structures of traditional finance, merely digitising the gatekeeping rather than dismantling it.
Liquidity, often cited as the chief benefit of tokenisation, also proves more illusory than real in practice. While fractional ownership theoretically enables smaller investors to participate in high-value assets, the secondary markets for RWA tokens remain thin and fragmented. Without deep pools of buyers and sellers, accurate price discovery becomes difficult. This leads to wide bid-ask spreads, susceptibility to manipulation, and the need for professional market makers, who again reintroduce centralised actors into the ecosystem.
More critically, the liquidity of the token is not the same as the liquidity of the underlying asset. A token representing shares in a private commercial building may trade freely on a decentralised exchange, but if the building itself cannot be sold quickly or at fair market value, the token’s price may decouple from reality, creating systemic fragility.
Perhaps the most philosophically damning argument is that enforcement of RWA ownership ultimately depends on traditional legal systems. Smart contracts can automate payments or transfers of tokens, but they cannot compel a physical handover of property or enforce rights against a defaulting counterparty in the real world.
If a dispute arises, say, the custodian refuses to honour redemptions or a third party challenges the legal title, the resolution must occur in a court of law, not on a blockchain. This means that the finality promised by decentralised ledgers is conditional, contingent on off-chain institutions that operate outside the protocol’s control. In such a model, the blockchain becomes little more than a glorified database, recording claims that derive their enforceability from the very centralised systems web3 seeks to replace.
Critics, therefore, argue that RWA tokenisation is not a revolution but a bridge, one that may facilitate the onboarding of institutional capital into crypto ecosystems, but at the cost of ideological purity. Rather than reimagining property rights, ownership, and value transfer from first principles, RWA grafts blockchain technology onto the existing scaffolding of TradFi.
It digitises paperwork but does not eliminate the need for paperwork. It tokenises trust but does not render trust obsolete. In doing so, it risks creating a hybrid system that inherits the inefficiencies of both worlds, the rigidity of legacy finance and the volatility of crypto, without delivering the autonomy or resilience that true decentralisation promises.
This is not to say that RWA has no utility. For certain use cases, such as streamlining syndication in private credit or enabling faster settlement in bond markets, it may offer genuine efficiency gains. But those gains come within the confines of a system that remains fundamentally centralised in its legal and economic underpinnings. As such, RWA should be understood not as the future of web3, but as an on-ramp from the old world to the new, an interim solution that may accelerate adoption but does not embody the transformative potential that defines the web3 vision.
Until the legal, custodial, and enforcement layers can be fully encoded and executed on-chain, a feat that may require not just technological innovation but societal and legal paradigm shifts, RWA will remain a digital shadow of the physical world, not a self-contained sovereign alternative.
Source: https://e27.co/rwa-isnt-decentralised-its-tradfi-wearing-a-blockchain-costume-20260105/
Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.
Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.
An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.
