RWA: A bridge for traditional asset management to enter the encryption business.

Author: Zhang Feng

The wave of asset digitization is reshaping the global financial landscape with unprecedented force. Traditional investment institutions stand at a historical turning point, facing both enormous opportunities and unprecedented challenges. The rise of blockchain technology and cryptocurrencies has not only given birth to a brand new asset class but has also profoundly changed the paradigms of asset issuance, trading, and management.

In this grand narrative, the tokenization of Real World Assets (RWA) is emerging as the most robust and strategically valuable bridge for traditional asset management institutions to venture into the crypto business. It is both a rational response to the inherent volatility of crypto assets and a key hub for the integration of traditional finance and decentralized finance (DeFi), marking the entry of financial innovation into a new stage with greater depth and breadth.

1. Irreversible Trend: Traditional Asset Management Tapping into Digital Assets

The global financial system is undergoing a profound digital migration. Native crypto assets such as Bitcoin and Ethereum have developed over more than a decade, with their total market value once surpassing one trillion dollars, demonstrating that the value storage paradigm of digital scarcity has gained considerable market recognition. More importantly, the trust machine built by the underlying blockchain technology—ensuring the finality of transaction settlements and asset ownership through code rather than intermediaries—is impacting the operational model of traditional finance with unprecedented efficiency, transparency, and programmability.

In the face of this trend, traditional investment institutions can no longer remain aloof. Clients, especially the new generation of high-net-worth investors and family offices, have an increasingly strong demand for allocation to digital assets. The entry of giants like BlackRock, Fidelity, and Invesco is no longer a marginal exploration but a strategic core related to future competitiveness. They clearly recognize that rejecting the wave of digitization is akin to rejecting the use of email in the internet era, and they will ultimately be abandoned by the times.

However, for the "giants" accustomed to traditional asset classes such as hedge funds, stocks, bonds, and private equity, navigating into the new waters of the crypto world, which is both full of opportunities and fraught with hidden dangers, is no easy task. The challenges they face are multidimensional:

First, there is regulatory uncertainty: globally, the regulatory framework for crypto-assets remains fragmented and constantly evolving. Institutional investors have very high compliance requirements, and ambiguous regulatory boundaries bring significant compliance risks and potential legal liabilities.

Second, there are technical barriers and custody risks: Private key management, smart contract vulnerabilities, exchange hacking incidents, etc., are new risk dimensions that the traditional asset management field has never faced before. Building a secure technology stack and custody system independently is costly, while relying on third-party service providers brings new counterparty risks.

Third, market volatility and valuation dilemmas: The prices of native crypto assets are highly volatile, lacking stable valuation models associated with traditional assets, which creates an inherent conflict with the objectives of many institutional investment strategies that pursue stable risk-adjusted returns.

Fourth, there are cultural cognition differences: the native culture of encryption, such as decentralization, community governance, and code as law, significantly differs from the centralized, top-down authoritative management model of traditional finance, requiring a long process of adaptation and understanding.

It is these challenges that lead traditional institutions to prefer more "familiar" or "safer" paths when first venturing into the cryptocurrency field.

II. Exploration and Limitations of Existing Paths: From ETF to Collaborative Construction

Currently, traditional investment institutions are diversifying their approaches to investing in digital assets, with each method reflecting its different risk preferences and levels of participation.

(1) Cryptocurrency Asset ETF (Exchange-Traded Fund)

This is the most direct and low-threshold method. By investing in Bitcoin or Ethereum spot ETFs listed in the United States, Europe, and other places, investors do not need to directly hold cryptocurrencies and do not have to worry about private key management issues. Instead, they gain exposure to risks within the familiar traditional securities accounts and regulatory framework. The tremendous success of BlackRock's iShares Bitcoin Trust (IBIT) is a prime example. However, ETFs are a passive and indirect investment tool, and institutions cannot deeply participate in the governance of the crypto ecosystem, staking rewards, and other deeper value captures, resembling more of a "bystander" rather than a "participant."

(2) Collaborate with native crypto investment institutions to jointly establish asset management companies.

Some traditional financial giants choose to form joint ventures with experienced crypto venture capital funds, hedge funds, or market makers. For example, a traditional bank may collaborate with a crypto trading company to jointly launch digital asset custody and trading services. The advantage of this approach lies in complementary strengths: traditional institutions bring branding, clients, and compliance experience, while crypto institutions contribute technical expertise and industry insights. However, the limitation is that the collaboration may be restricted to specific projects or services, the traditional institution's capacity building remains slow, and they still need to bear the operational and reputational risks of their partners.

(3) Testing mainstream crypto assets

Some more aggressive institutions choose to directly purchase and hold mainstream assets such as Bitcoin and Ethereum as part of their financial reserves or to provide related products for clients. This approach is the most straightforward, but it also takes on all the aforementioned risks of technology, custody, and volatility. For most risk-averse traditional asset management institutions, this is not a preferred solution for large-scale promotion.

(4) Other Paths

Others include investing in cryptocurrency mining companies, blockchain infrastructure stocks, or participating through indirect tools such as Grayscale Trust (GBTC, etc.). These methods also face issues such as tracking errors, high premiums/discounts, or reliance on specific business operational risks.

Looking at the above paths, although they have opened the door for traditional institutions to enter the crypto world, most remain at the level of obtaining price risk exposure and have not fully realized the enormous potential of blockchain technology to transform the assets themselves, nor have they completely addressed traditional institutions' inherent needs for stability, compliance, and anchoring to physical assets. It is against this background that the RWA track, with its unique value proposition, has welcomed a historic opportunity.

3. RWA: Building a bridge between stability and innovation

RWA, or Real World Asset tokenization, refers to the process of converting assets with real value in the traditional financial world, such as bonds, real estate, private equity, commodities, and artworks, into on-chain digital tokens through blockchain technology. It is not about creating a purely virtual economy, but rather aims to "translate" trillion-level traditional assets onto more efficient blockchain networks for operation. For traditional asset management institutions, participating in RWA asset issuance and trading is an effective way to seize digital asset opportunities and conduct refined risk management, serving as an ideal "bridge."

First, RWA provides a "familiar yet unfamiliar market" entry ticket for traditional asset management.

The core competency of asset management institutions lies in their ability to price, analyze, and manage risks associated with underlying assets (such as credit risk, real estate cash flows, and bond yields). RWA does not change the economic substance of these assets; the value of a commercial property is still determined by its location and rental income, and the value of a corporate loan is still determined by the company's credit status. What is "familiar" is the assets themselves, and institutions can continue to use the analytical frameworks and risk control models they have accumulated over decades. What is "strange" is the new technological stack that carries and trades these assets—blockchain has introduced features such as near real-time settlement, 24/7 trading, atomic swaps, and programmability. This greatly reduces the learning and adaptation costs for institutions, allowing them to focus on their strengths in asset management and risk pricing, rather than starting from scratch to understand the cultural phenomenon of Memecoins.

Secondly, RWA is the perfect intersection of traditional income sources and DeFi yield farming.

In a global low-interest rate environment, yield searching in traditional markets has become exceptionally difficult. While the DeFi world can generate higher yields through mechanisms such as liquidity mining, its sources of yield are often unanchored inflation incentives, lacking support from the real economy, making it highly vulnerable. RWA cleverly bridges this gap. It can bring traditional income-generating assets such as U.S. Treasury bonds and high-rated corporate bonds, which produce stable cash flows, onto the blockchain.

DeFi participants can purchase these tokenized assets or use them as collateral for lending, thereby obtaining stable returns backed by real-world assets and exceeding traditional banks. For issuers (traditional asset management institutions), this means they can access a global, always-open, yield-hungry new pool of funds, significantly enhancing financing efficiency and liquidity.

Furthermore, RWA can build a better risk management matrix.

Traditional asset management institutions can achieve unprecedented granularity and flexibility in risk hedging by tokenizing assets in part of their investment portfolios. For example, different rights of a real estate property (such as equity, debt, and rental income rights) can be tokenized and sold to investors with different risk preferences. Institutions themselves can also easily trade positions in these tokenized assets, dynamically adjusting their risk exposure. The transparency and immutability of blockchain make the cash flow direction, collateral status, and other information regarding the underlying assets clear to relevant parties, reducing information asymmetry and lowering credit and operational risks.

Finally, RWA has opened up vast space for incremental innovation.

Traditional asset management business models are often constrained by high intermediary fees, cumbersome settlement processes, and limited investor access standards.

RWA can be fractionalized: high-value assets (such as famous paintings and luxury homes) can be divided into smaller tokenized shares, lowering the investment threshold and opening up a new wealth management market.

Automated Compliance: Incorporate investor access criteria (KYC/AML), trading restrictions, and other regulations into smart contracts (such as token transfer blacklists) to achieve automated execution of compliance processes, significantly reducing operational costs.

New financial products: tokenized RWA can be combined to create structured products that are impossible or extremely complex to achieve in traditional fields, meeting personalized investment needs.

Globally, from the exploration of bond tokenization by investment banks like Goldman Sachs and JPMorgan, to the tokenization fund of real estate investment trusts (REITs) launched by Singapore's DBS Digital Exchange (DDEx), and countless startup projects dedicated to putting assets such as carbon credits, private equity shares, invoices, etc., on-chain, the practice of RWA is in full swing. It proves that the greatest utility of blockchain technology may not lie in creating a parallel utopia, but rather in a profound efficiency revolution of the existing financial system.

IV. Looking to the Future: The Bridge Will Eventually Lead to a New Continent

Despite the broad prospects, the development of RWA still faces many challenges. Legal confirmation of rights is key—are on-chain tokens recognized by the judicial system as true proof of asset ownership? The regulatory framework needs to be improved—there must be clear rules for the issuance, trading, and custody of security tokens. The oracle problem is critical—how can off-chain asset data be reliably uploaded to the chain? These issues require traditional financial institutions, technology companies, and regulatory bodies to work together to build a secure and trustworthy RWA ecosystem.

However, the trend has become clear. RWA is not a fleeting hotspot, but a profound paradigm shift in the history of financial evolution. For traditional asset management institutions, it is no longer a question of "whether to participate," but rather a strategic imperative of "how to actively participate and maintain a lead."

Initially, RWA was a bridge that allowed traditional asset management institutions to cautiously and safely step into the new world of cryptocurrency on familiar foundations. However, as exploration deepens, when trillions of dollars in assets flow on-chain, when programmable finance becomes the norm, and when global liquidity pools are fully connected, it will grow into a broader, more efficient, and more inclusive new financial territory.

In the future, the boundaries between traditional and crypto will become blurred until they disappear, and asset digitization will become as natural as air infrastructure. The pioneers who first step onto the RWA bridge will have the opportunity to participate in defining and shaping the financial rules of the next era. The time window is opening, and the moment to act is now.