The RWA wave hit, but global securities regulators pressed risk warning buttons on “on-chain finance”

The Zhitong Finance App learned that the International Organization of Securities Commissions (IOSCO), a securities regulator covering the world, said in a report released on Tuesday that crypto tokens linked to mainstream financial assets around the world, such as stocks and bonds, may bring new major risks to investors, and that the global financial industry still has huge differences over the advantages and disadvantages of “tokenization.”

IOSCO's latest statement can be described as throwing cold water on the global RWA wave. The agency emphasized that the cutting-edge on-chain financial concept of putting traditional assets such as stocks, bonds, funds, and private credit on the blockchain track not only has many regulatory risks, but has not won the collective favor of large Wall Street institutional investors.

RWA Big Wave and On-Chain Finance

The so-called “tokenization” (“tokenization”) is based on RWA (Real-World Assets, Real Asset On-Chain) — traditional finance/any physical asset chain with measurable value such as treasury bonds, loans, fund shares, real estate assets, accounts receivable, carbon credit, etc. It refers to any quantifiable value originally existing in the traditional financial system or real economy, and is mapped as a digital asset token that can be programmed and transferred on the blockchain.

Since this year, stablecoins have successfully verified on-chain payment paths and “on-chain finance” logic (on-chain finance is also known as a subset of the RWA wave). “State of Crypto 2025” statistics show that monthly stablecoin settlement volume has reached 1.25 trillion US dollars, more than double that of a year ago, and even traditional banking giants are planning to issue their own stablecoins one after another.

Most studies describe the RWA concept as “representing ownership of tangible or off-chain assets through tokens issued through smart contracts on the blockchain,” and the World Economic Forum notes that tokenization allows these assets to obtain unified shared ledgers, real-time settlement, and programmable attributes, thereby reducing delivery risk and improving efficiency. For traditional banking giants, following stablecoins, the broad wave of RWA tokenization can not only broaden revenue sources, but also further explore blockchain efficiency dividends under a compliance framework.

Therefore, “tokenizing” means the entire process of mapping real-world assets such as stocks or bonds as blockchain-based tokens — there has been renewed interest among cryptocurrency fans this year, and emerging tokenized products are being sold to the public through small and medium-sized internet brokerage platforms.

IOSCO said that most of the risks associated with tokenization fall within the scope of existing regulatory frameworks, but new regulatory risks stemming from underlying blockchain technology and vulnerabilities or loopholes in the transaction process may also arise.

Tuang Lee Lim, chairman of iOSCO's board-level fintech task force, said in a recent interview: “Although the degree of adoption is still very limited, tokenization has great potential to reshape the issuance, trading, and specific private financial customized service methods.”

IOSCO added in a report that the different structuring methods for tokenized assets may make investors uncertain whether they own the underlying asset or only the cryptocurrency asset, while the issuer of a third-party tokenized asset poses significant risks related to counterparties, which echoes some of the core concerns raised by EU securities regulators in September.

IOSCO stated in the report: “Tokenization may also experience potential spillover effects due to increased correlation with the highly volatile cryptocurrency asset trading market.”

Some of the world's mainstream financial institutions, including NASDAQ, are actively promoting the tokenization of real-world assets, but other important financial market participants on Wall Street have raised some concerns.

Efficiency gains are “uneven”

Since this year, major financial institutions in the US have been actively experimenting with cutting-edge tokenized versions of assets issued in the form of blockchain.

IOSCO stated in this regard that the global business community's interest in tokenization is indeed on the rise, but actual adoption is still very limited.

Institutional investors supporting tokenized assets generally say that using a blockchain transaction model (also known as “on-chain finance”) can reduce transaction costs, speed up settlement, facilitate 24-hour uninterrupted transactions, and even attract younger investors.

Although the world's billions of dollars have been invested in blockchain+ finance (so-called “on-chain finance”, also known as a subset of the RWA wave) projects that claim to reshape the financial market, cutting-edge on-chain financial concepts that place traditional assets such as stocks, bonds, funds, and private credit on the blockchain track have yet to win the collective favor of large institutional investors on Wall Street.

IOSCO said that large Wall Street asset management institutions contacted by the regulator generally stated that “actual efficiency improvements are uneven,” mainly because market participants still need to use traditional financial market infrastructure on a large scale during the transaction process rather than replacing it with blockchain. IOSCO said, “Issuers of tokenized assets often don't publicly disclose actual quantifiable efficiency improvements (if any).”

IOSCO said that as of now, traditional institutional investors still believe that RWA has very limited utility. The current financial system itself is becoming faster and more efficient — reducing the need for aggressive settlement and transaction changes, while concerns about legal clarity, operational and operational risks, and ecological fragmentation persist.