Author: Bankless; Compiled by Yuliya, PANews Is Ethereum, the leading smart contract platform, ready to support trillions of Reliable Work Authorizations (RWAs)? This isn't just a technical question; it concerns the future of its core value: decentralization. In this episode, Bankless invited two distinguished guests, Professor Austin Campbell of NYU's Stern School of Business and Professor Omid Malekan of Columbia University, to engage in a fascinating debate on this topic. Interestingly, both guests are cryptocurrency advocates and longtime friends, yet their perspectives are diametrically opposed: Austin argues that Ethereum's decentralized features, such as immutability and "code is law," are not advantages but rather drawbacks for RWAs, which need to interact with the real-world legal system. He believes Ethereum is architecturally unsuitable for RWAs. Omid firmly believes that it is 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, all we have is another TradFi system. The core of this debate is: should we adapt blockchain to accommodate the rules of the real world, or should we uphold blockchain's neutrality and let the real world adapt to it? PANews has compiled the text of this podcast. When hackers come knocking, is neutrality a feature or a bug? Bankless: Today's debate is titled "Is Ethereum ready for RWAs?" Austin, the debate stems from a post you made on social media, in which you said, "I don't believe Ethereum is ready for prime-time RWA issuance," and cited the Bybit hack as an example. Can you elaborate on what you mean? Austin: When we talk about real-world assets (RWAs), we encounter a core tension: to whom are you ultimately accountable? Take Bitcoin, for example. It's a borderless, sovereign-less, purely programmatic currency, with no physical representation subject to the rules of a single country. This is its value. But RWAs are different. Imagine if we tokenized home ownership, and your grandmother's property deed became an NFT. And then this NFT was stolen by hackers (let's say, North Korean hackers). The US government would never allow them to actually move in. This demonstrates that real-world assets are always subject to legal and sovereign constraints, and there's a tension between the immutable nature of the blockchain and the rules of the real world. If the ledger can't ultimately respond to reality, it will inevitably collapse in the long run. This is why I believe Ethereum's structural characteristics are not well suited for RWAs. Bankless: How does this relate to the Bybit hack you mentioned? Austin: The Bybit incident is significant for two reasons: First, the Ethereum community currently lacks a mature mechanism to handle this near-nation-level attack. What if the attack targeted a stablecoin issuer like Tether instead of Bybit? How would we respond? Second, the key to this attack isn't the specific tokens stolen, but the sophistication of the attack—the hackers directly penetrated Bybit's internal systems. This leads me to a question: if Tether's smart contracts were ever compromised, the consequences would be far more severe than the Bybit incident, as it would ripple through the entire DeFi ecosystem. My core concern is that information security is never perfect. On a long enough timeline, a hack is only a matter of time. The question is how much damage it will cause and how you recover from it. If there's a sophisticated enough attacker in the world who can breach a company's internal security systems, then I really wonder what the solution would be if Tether or USDC's smart contracts were stolen? How could you do that without breaking 95% of the applications deployed on Ethereum? Omid: I think the Bybit hack is actually a great advertisement for Ethereum. Because despite the massive scale and complex origin of the attack, the Ethereum community's response was to "remain neutral," with no human intervention. The only thing blockchains are good at is neutrality and predictability. In terms of simplicity, performance, cost, and bandwidth, they can't match Web2 and traditional finance. But they do one thing well: providing a network that always operates according to pre-set rules, regardless of any legal, moral, or political dictates imposed by outsiders. As for Austin's hypothesis of "Tether's smart contract being hacked," this is indeed a more serious risk, but my question is: given the risk, 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. ETH itself is designed not to respond to federal judges' orders. A judge in the Southern District of New York could issue an order requiring all ETH validators to do something, but the validators could completely ignore it. However, when it comes to stablecoins like Tether, the situation is different. Suppose one day Tether's smart contract is hacked and a US court orders the freezing of related assets, Tether's custodian bank will inevitably comply. Because the legal structures behind these two asset classes are fundamentally different, the network may need the ability to roll back or handle events like the Tether hack, a capability that isn't necessary for ETH itself. Many would argue that Tether could simply abandon the old contract and deploy a new one. However, I would point out that this would destroy nearly every DeFi protocol that integrates Tether, such as Uniswap, Aave, and Compound. Their pools are immutable, and suddenly, a core asset within them becomes worthless. Should we introduce new vulnerabilities for security? Austin: So my view is that Ethereum may need to introduce some mechanism at the network level to address the risks of RWAs. This doesn't necessarily have to be enforced directly by validators, but validators need to enforce the principle of "don't put a time bomb on our chain." There are several possible solutions, such as:
Deploying RWA on a permissioned validator network (such as an Avalanche subnet) allows the validators to collectively intervene in the event of an incident.
Or designing smart contracts with built-in "circuit breakers" that, when triggered by a trusted oracle, freeze the relevant contracts, preventing users from withdrawing their assets.
Otherwise, if the Tether contract is attacked and deprecated, nearly all DeFi protocols that rely on USDT will be cascaded down, creating a systemic risk that Ethereum cannot afford.
Bankless: Omid, what do you think of Austin's proposed solutions, such as the "kill switch" or "permissioned validators"?
Omid: Introducing "backdoor" mechanisms into DeFi protocols could pose even greater risks. The Ronin hack is a vivid example of this. A permissioned validator network controlled by a multisig was breached by the North Korean Lazarus group, resulting in hundreds of millions of dollars in losses. This type of social engineering attack is much easier when you know the identity of the validators, their employees, and where their computers are located. While DeFi protocols can consider fail-safe mechanisms to address extreme situations, sacrificing deterministic outcomes for the vast majority of users to protect against black swan events is not worth it. In the long run, protocols with "backdoors" may attract less capital because users worry that the backdoors could be exploited by hackers or weaponized to compromise their transactions. Bankless: Omid, you seem adamantly opposed to allowing Ethereum validators to intervene and revert transactions. Why do you think this is a bad idea? Omid: This mechanism may sound good in theory, but there are huge problems in practice. It would introduce a completely new governance mechanism with potentially unimaginable complexity. The governance of decentralized systems is already highly volatile and prone to failure, and these new mechanisms will hold the fate of entire chains, potentially involving vast sums of money. Who decides when to act? Is it through voting or on-chain or off-chain coordination? Bankless: Austin, perhaps your point is that if a chain is completely immutable, permissionless, and decentralized, it might not be the right place for RWAs. This is more like Bitcoin's approach, which only handles Bitcoin transfers, with everything else off-chain. Ethereum, on the other hand, has a mix of tokens. Perhaps you're simply saying that RWAs don't belong on Ethereum? Austin: The Ethereum ecosystem has some ideological tensions when it comes to handling real-world assets, while Bitcoin is relatively straightforward. For tokenized RWAs, compliance with the real-world legal system isn't a compromise; it's a core feature of the product. For example, if a stablecoin's reserves are US Treasury bonds, the operator must prioritize responding to the requirements of US lawmakers, regulators, and legal officials. Real-world legal systems enforce assets, such as through sanctions or confiscation by the Office of Foreign Assets Control (OFAC). Tokenizing RWAs on a blockchain requires building in multiple redundancies to ensure the chain can respond to relevant legal frameworks. Otherwise, there's a risk that assets will become invalid due to legal process. If this issue isn't addressed, assets could ultimately become unusable due to real-world legal intervention. A neutral "world computer" or a divided "digital United Nations"? Bankless: Omid, you mentioned that Ethereum's neutrality may be its greatest strength. Can you elaborate on why neutrality is the "killer app" for RWAs on a blockchain? Omid: Blockchain neutrality may be key to the coexistence and interaction of global assets. If an asset regulated by the US, one custodial in London, and one controlled by China can coexist on a neutral blockchain, it will offer unique appeal to users around the world. American users might choose a blockchain because it's not controlled by China, while Chinese users might do the same because it's not influenced by the US. Meanwhile, a tokenized gold issuer in London might see a blockchain with significant USD and RMB liquidity as an ideal custodial platform. This neutrality can attract more users and assets because it treats all participants equally and is free from political interference. When real-world legal systems attempt to interfere with on-chain transactions, neutrality will become a core competitive advantage for a blockchain's success, and any blockchain with politicized or censorship-resistant mechanisms may lose its edge. Austin: The hypothetical world of completely permissionless transactions and nation-state interference does not exist. London and the US control how gold tokens and US stablecoins operate, respectively, because freezing reserves and issuing entities allows for control over tokens. Government intervention can undermine a chain's value proposition. For example, if the US bans certain transactions and confiscates the associated funds, the tokens on the chain will become invalid if the blockchain doesn't reflect this reality. Decentralization is an advantage when trust is lacking and neutrality is required, but it becomes a flaw when the underlying assets themselves are not decentralized. Forcing the concept of "decentralization" into a system without interacting with reality is like inserting a grenade ready to explode. Bankless: Austin, the solution you just described—having tokens declare their jurisdiction of responsibility upon deployment—sounds very similar to the Swift system already in place in traditional finance. Austin: You could say that, but I believe blockchain has a significant advantage over traditional finance that's often underestimated. I believe blockchain's open access and composability are perhaps even more important than decentralization. Traditional financial systems, such as the Federal Reserve System, have high barriers to entry and are fraught with corruption, political infighting, and other issues, resembling a private club. Blockchain, on the other hand, is more like a public park, allowing everyone to participate by default and restricting behavior only when necessary. This paradigm shift is a significant advantage of blockchain over traditional finance. Furthermore, blockchain's composability addresses the fragmentation of the current financial system, enabling users around the world 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. While decentralization has some shortcomings in terms of legal compliance, blockchain has broken down the barriers to entry for traditional financial instruments, providing unprecedented opportunities for users around the world. Omid: Integrating the permissioning rights of asset issuers into the blockchain's consensus layer undermines the composability of the entire system and increases developer risk. If validators can vote to determine the eligibility of a stablecoin to issue, it will be difficult for developers to build a long-term financial ecosystem around it, as this eligibility could be revoked at any time. In contrast, current centralized institutions like the Depository Trust & Clearing Corporation (DTCC) have effectively addressed the permissioned issuance issue, but these consortium-based infrastructures could ultimately exploit their advantages to exploit their members. Bitcoin's experience has revealed market preferences: when governments attempt to stifle it, they ultimately only harm their own people. Ultimately, even governments are beginning to favor decentralization. This is also true for stablecoins, with governments ultimately recognizing the existence of the semi-permissionless dollar through legislation (such as the US Genius Act). All of this demonstrates that the decentralized nature of cryptocurrency offers a better solution, and market preferences are gradually shifting toward neutrality and decentralization. Final Statements: Bankless: You both agree that decentralization is crucial for store of value and open finance. However, your views diverge on the RWA use case. Omid, Austin, please make your final remarks. Omid: The centralizing elements of any on-chain solution are like the exhaust vents on the Death Star in Star Wars: eventually, the resistance will find and exploit these weaknesses, not because they are easy to find, but because the incentives are strong enough. If the future of semi-permissioned or consortium chains becomes a reality, these systems will ultimately collapse due to their own flaws. Decentralization may not be the perfect option, but it is the relatively optimal solution among all those tried, and therefore will ultimately become the default. Austin: The true value of blockchain technology lies in providing humanity with an "exit option." For example, decentralized value storage systems like Bitcoin and Ethereum have become the baseline for financial behavior, requiring other systems to exceed these baselines to be more attractive. Blockchain's core contributions are twofold: first, it raises the minimum standards for global financial behavior, which is of great significance for improving human rights; second, it promotes changes in the way we cooperate, setting higher standards for many things that may become more centralized over time. Preferences vary significantly across different transaction scenarios. For example, when purchasing small amounts of goods, there is a higher tolerance for errors, while when processing large financial transactions, greater speed, control, and error reversal capabilities are required. Blockchain is triggering a governance revolution with profound implications for the global financial system.
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