A Brief Discussion on RWA and Defi System: The Financial 3.0 Revolution

Since the global financial crisis, which Wall Street single-handedly created, erupted in 2008, criticism and controversy surrounding the traditional financial system have never ceased. It's no secret that the existing financial system, centered around the traditional banking system, suffers from enduring flaws. From various perspectives, such as composability, capital allocation efficiency, entry barriers, and transparency, traditional finance fails to meet the demands of today. While the internet and blockchain industries are advancing by leaps and bounds, the financial industry is like an old train stuck in the steam engine era, both outdated and stagnant.

Ultimately, the underlying infrastructure of the traditional financial system, represented by banks and the securities and derivatives markets, relies on backward technology and management, which is the primary cause of all these problems. Taking the widely known SWIFT system as an example, since funds transfers need to go through multiple intermediaries (similar to the routing process of Bitcoin's Lightning Network), most cross-border transfers often take 1-5 days or even longer. Although improvements in 2017 reduced the time required for half of transfers to 30 minutes, it still cannot get rid of high fees and dependence on multiple intermediaries; (Image source: leaf=""> https://mirror.xyz/0x061DE2457ABe5d621E89FDFf28EB983468a5A2eD/6uR_uCSEURjGP_Y1yo9P_1E2JtURVmQDVQD1MZvIpYY）

In contrast, public chains such as Ethereum, Tron, and Solana, leveraging the superiority of decentralized distributed networks in their underlying architecture, have implemented a set of decentralized protocols that can quickly verify and synchronize data in a short period of time. This has fundamentally changed the cumbersome and inefficient asset verification and settlement methods used in traditional cross-border transfers, and while disintermediating intermediaries, it can now achieve second-level transfers, which is a world of difference from SWIFT. Inefficiency isn't SWIFT's only problem. The European Union and the United States have repeatedly used SWIFT as a "financial nuclear weapon," using their control over SWIFT to wield it with impunity to attack their enemies. Putting aside Iran, which was sanctioned by SWIFT twice in 2012 and 2018, during the Russo-Ukrainian war in 2022 alone, the EU and the United States pressured SWIFT member banks, using the ban to deprive Russia of its ability to conduct international transfers through SWIFT, severely restricting the latter's trade activities and capital transfers. In response, Russia even completely changed its attitude toward cryptocurrencies, passing a bill to legalize cryptocurrencies such as Bitcoin in response to financial sanctions from Europe and the United States. SWIFT is just the tip of the iceberg of the traditional financial system. The diverse range of transactions within traditional finance is plagued by issues such as bloated processes, inefficient capital utilization, and high barriers to entry. First, the vast majority of traditional financial transactions rely on specialized clearinghouses for settlement. Many follow T+1 or T+2 settlement cycles, locking up funds for 24-48 hours before settlement, severely hindering capital flows. However, in 24/7, highly volatile markets, immediate liquidity is crucial, and settlement delays are a critical issue. In addition to settlement delays, access to traditional financial markets is highly exclusive. Many financial products require investors to meet financial and legal thresholds, creating a system that is only accessible to high-net-worth individuals and institutional investors. Large institutions can also conduct over-the-counter transactions, bypassing major exchanges and gaining access to better liquidity, leaving these opportunities largely unavailable to the general public. An example of this is the International Swaps and Derivatives Association (ISDA) agreement. Today, the ISDA agreement covers the global derivatives market, which exceeds $500 trillion. It provides a set of standardized rules regarding counterparty risk, collateralization, and settlement, ensuring that financial institutions can trade derivatives under legal protection. However, the agreement's procedures require extensive legal and bureaucratic procedures, making participation limited to specialized financial institutions. Furthermore, the ISDA agreement includes numerous manual processes, resulting in a processing speed comparable to a tortoise. In the DeFi ecosystem, however, smart contracts, based on predefined logic, can complete transactions in seconds, practically the difference between a rocket and a snail. Although many institutions have introduced automated processing into traditional financial workflows, they still cannot match the efficiency of DeFi platforms. Furthermore, the fragmentation of liquidity between institutions is also a major issue. Large amounts of funds are held in isolated pools within various institutions, resulting in a highly fragmented state. This fragmentation confines capital, liquidity, and risk to local markets, impacting the optimal allocation of resources and making it difficult to achieve highly efficient liquidity utilization and transfer. A 2018 OECD (International Federation of Accountants and Business) survey estimated that liquidity fragmentation causes approximately US$780 billion in annual losses to the global economy. The World Economic Forum predicts that liquidity fragmentation could cost the global economy between US$0.6 trillion and US$5.7 trillion (approximately 5% of global GDP) in a single year, double the output losses caused by the COVID-19 pandemic, depending on the degree of fragmentation. The root cause of liquidity fragmentation lies in the severe lack of transparency regarding the asset status of different institutions and banks, resulting in extremely high trust costs. This significantly hinders the sharing of liquidity across institutions. Furthermore, regulatory differences across regions, geopolitical factors, and diverse market structures collectively hinder the efficient mobilization of liquidity, resulting in an inefficient global financial system. While liquidity fragmentation has long plagued the DeFi ecosystem, the highly transparent distribution of on-chain assets allows anyone to cost-effectively assess the liquidity status of different platforms and pools. This facilitates real-time interaction between DeFi projects and can address the issue of capital fragmentation more smoothly than traditional finance. The recent rise of Intent (user intent) and global liquidity protocols has essentially achieved efficient access to fragmented liquidity. Intent-based projects can pre-compute data to assess the distribution of assets across different public chains and liquidity pools, estimate slippage and fees across different pools, and ultimately split large transactions into multiple smaller ones across multiple pools for an optimal trading experience. While this approach doesn't fundamentally change the fragmented distribution of liquidity, it simulates the effect of globally unified liquidity on the user side by optimizing the transaction completion path. The INJ public chain is currently developing a liquidity availability framework and supporting components that will fundamentally address the issue of liquidity fragmentation by establishing a unified liquidity pool and transaction matching engine for all on-chain financial platforms. From a model perspective, this centralized liquidity model, which then distributes instant liquidity to different dApps through a specific algorithm, is highly innovative, innovating how liquidity is utilized directly at the underlying blockchain layer. All of this is built on data transparency and rapid transaction settlement. Efficient liquidity utilization is only one benefit of data transparency; the greater benefit lies in providing security for market participants and the entire financial system. In contrast, the deeply opaque traditional financial system is riddled with problems. The collapse of Lehman Brothers in 2008 highlighted the systemic risks inherent in such an opaque financial system. As a major brokerage firm, Lehman Brothers frequently rehypothecated client collateral to quickly raise funds, leaving its balance sheet leveraged at 16 times, a volatile tinderbox that could easily explode. Neither counterparties nor regulators were aware of these details, ultimately triggering a chain reaction. To mitigate the financial tsunami triggered by the subprime mortgage crisis, the global financial system maintained low interest rates for over a decade. The negative impact of this prolonged period on global economies remains evident today. Despite stricter banking regulations since 2008, prime brokerage operations remain structurally opaque, with collateral flows, margin exposure, and leverage ratios still managed internally by financial institutions rather than being transparent and auditable. The collapse of Silicon Valley Bank in 2023 amply demonstrates the inability of an opaque banking system to avoid moral hazard. While the current DeFi ecosystem cannot completely eliminate the possibility of malicious activity by financial platforms, robust on-chain data monitoring has significantly reduced the potential for malicious activity by project owners. However, despite offering lower barriers to entry, decentralized intermediaries, and data transparency compared to the traditional financial system, along with enabling instant settlement and efficient liquidity utilization, the DeFi ecosystem in the past has not demonstrated the positive externalities it should. This stems from the fact that DeFi is largely disconnected from real-world economic activity, remaining confined to its own closed-off world, unable to deeply interact with the traditional financial system. For a long time before 2024, many people were skeptical of DeFi's true value, believing it was merely a self-serving pastime within the blockchain community, with no further use beyond speculation. However, this isn't a problem with DeFi projects themselves. The fundamental reason lies in the inability of traditional financial assets to circulate on a large scale on the blockchain in a suitable manner. The RWA concept, which has exploded in popularity since 2024, has heralded the integration of DeFi and traditional finance, effectively tying the two together. So, what exactly is RWA? What are its types? RWA, short for Real World Assets, refers to tokenized real-world assets such as bonds, stocks, and crude oil. By establishing ownership links between on-chain tokens and off-chain real assets, RWA leverages blockchain to achieve a more efficient and transparent transaction experience. In theory, any asset can be RWA-ized: real estate, patents, data, and all physical and virtual assets can be circulated on the blockchain. This represents a rapidly expanding trillion-dollar market. According to the Boston Consulting Group (BCG), the market size of RWA assets is expected to reach $16 trillion by 2030. Even more dramatically, BlackRock CEO Larry Fink stated that BlackRock aims to tokenize approximately $110 trillion in stocks and bonds, identifying Ethereum as the preferred platform for stablecoins and DeFi applications. Fink predicts that RWA funds will eventually become as common as exchange-traded funds (ETFs). There is no doubt that a financial revolution is underway, upending the existing global financial landscape. This means that many illiquid assets can be highly monetized through RWAs, ushering in the era of Finance 3.0, a period following internet finance. Some may ask, just how significant is all this? To answer this question, we can examine the three major processes in the historical evolution of asset financialization: capitalization, securitization, and monetization. Capitalization is the process of increasing the value of assets. For example, land and houses can be converted into capital and interest-bearing assets through leasing. This is the capitalization of land and houses. Similarly, cash itself does not directly generate interest, but it can be converted into an interest-bearing asset through lending. This is the capitalization of cash. The capitalization of assets is the foundation of commercial banks and credit markets, and this process launched the earliest financial industry. The invention of a series of financial instruments such as bonds, annuities, and stocks symbolizes the securitization of assets. There's no essential difference between capitalization and securitization, but there are differences in asset form and liquidity. For example, the IOU you receive after lending money to someone is non-standardized and difficult to trade or circulate. However, if it's converted into a bond, it becomes a standardized asset with high liquidity and can be freely traded on the market. Compared to capitalization, securitization is characterized by its share structure, standardization, and high liquidity. In the past, the most successful securities were stocks, bonds, funds, insurance, REITs, and so on. Their emergence spawned the prosperity of investment banking and capital markets. Beyond securitization, the ultimate form of assets is monetization, a more liquid form of asset financialization than securitization. The simplest example is the difference between U.S. Treasury bonds and the U.S. dollar. Once assets are highly monetized, they become assets comparable to mainstream currencies, offering advantages over simple securitization. The emergence of RWAs signals the monetization of all physical and virtual assets worldwide. If assets like intellectual property, which previously lacked sufficient economic value, can be made accessible through low-cost, instant settlement, and widespread access, this will directly rewrite the history of the global economy and resolve many challenges. Of course, those familiar with the financial industry might argue that many assets were already capable of monetization before the emergence of RWAs. However, the problem is that assets in the traditional financial system cannot be highly monetized due to high intermediary costs, insufficient liquidity, high barriers to entry, and low transparency. For example, in real life, monetizing the utility assets of higher education institutions is extremely difficult. Many American universities, such as Ohio State University, have monetized their assets by selling or outsourcing their utility systems (such as water and electricity systems) to alleviate budget pressures. Typically, they sell their utility systems to third-party consortiums, but this process involves complex contract negotiations, valuation disputes, and audits, with transaction cycles often lasting years and extremely high intermediary fees. Even if monetization is ultimately achieved, liquidity is limited, making it difficult to attract full participation from retail investors or high-net-worth individuals. Trading counterparties are limited to institutions, severely limiting the full realization of asset value. The DeFi-based RWA market, with its low barriers to entry and broad public participation, can help achieve high-level monetization of physical assets, a significant development. Wall Street, with its perceptive nature, naturally understands the value of DeFi and the RWA system. ARK Invest founder Cathie Wood once called DeFi "the future of finance," believing it would disrupt traditional banks and brokerages, providing lower-cost, more efficient financial services. JPMorgan CEO Jamie Dimon also noted that certain aspects of DeFi could merge with traditional finance to become the backbone of the future financial system. BlackRock CEO Larry Fink has repeatedly publicly supported Bitcoin and RWAs, stating, "Every stock, every bond, every fund, every asset can be tokenized." In his 2025 annual chairman's letter to investors, he emphasized that this shift could revolutionize the investment landscape. Wall Street's rhetoric isn't just about talking; its actions are also quite effective. According to data from rwa.xyz, the market size of non-stablecoin RWA assets has more than doubled in the past year, now exceeding $26 billion. BlackRock's BUIDL, a tokenized U.S. Treasury bond and cash equivalent fund, grew to $2.3 billion in less than a year and a half, becoming the leading U.S. Treasury RWA fund. Franklin Templeton's BENJI, a tokenized money market fund, also grew to $700 million. The entry of these institutions not only provided liquidity to the RWA sector but also boosted market confidence, further fueling its explosive growth. Of course, Wall Street's massive exit was the result of a series of factors. First, unlike most on-chain assets, the rise of RWAs isn't driven by pure speculation, but rather by the market's rigid demand for stable returns. RWAs, which combine real-world value and superior liquidity, are destined to be favored. Following the approval of Bitcoin and Ethereum ETFs, market interest in RWAs has intensified, quickly becoming a new trend. Second, shifts in US regulatory policy have paved the way for the rise of cryptocurrencies and RWAs. The Loomis-Gillibrand Act of July 2024 clearly defined jurisdiction over crypto assets, ending years of regulatory chaos and creating a favorable environment for establishing a legal framework related to RWAs. Since then, with the rise of Trump and the fall of former SEC Chairman Gary Gensler, the SEC has ceased its investigations and lawsuits against Immutable, Coinbase, and Kraken, radically improving the regulatory environment related to DeFi and RWAs. Overall, this combination of government support, regulatory clarity, and legislative action has eliminated uncertainty in the crypto market and created an ideal environment for the integration and development of blockchain and real-world assets. After eliminating the risks at the regulatory level, different categories of RWA assets have sprung up like mushrooms after rain. Tokenized real estate, bonds, and commodity-related assets have all been active on the chain.As of August 26, 2025, there have been 271 institutions issuing RWA assets. Sorted by market size, the sub-track sizes of various RWA products are as follows:

•Private credit ($15.6 billion)

•U.S. Treasuries ($7.4 billion)

•Commodities ($1.8 billion)

left;">•Institutional-grade alternative investment funds ($1 billion)

•Equities ($350 million)

• Non-U.S. government bonds ($310 million)

• Actively managed funds ($51 million)

• Other ($16 million)