Tokenized Treasuries Rise, but Liquidity Lags Behind Innovation

The global tokenized real-world asset (RWA) market has seen significant growth, reaching $26.44 billion as of August 20, 2025, with a 4.21% increase over the past 30 days [1]. This growth reflects the transition of crypto investments from speculative hype to more tangible, real-world applications. A key component of this evolution is the tokenization of U.S. Treasuries, with several institutions issuing tokenized versions of these assets. For example, BlackRock’s tokenized USD Institutional Digital Liquidity Fund (BUIDL) has a market cap of $2.398 billion, while Ondo’s Short-Term U.S. Government Bond Fund (OUSG) stands at $700 million [1].

This shift is driven by the increasing use of blockchain technology to tokenize a variety of assets, including government securities, commodities, and equities. Ethereum remains the leading blockchain platform for RWA tokenization, accounting for 53.68% of the market share with $7.499 billion in total value locked (TVL). ZKsync Era and Aptos follow with 17.10% and 5.21% of the market share, respectively [1]. These platforms facilitate the issuance and trading of tokenized assets, enabling 24/7 accessibility and programmable settlements.

However, the liquidity of tokenized RWAs remains a critical challenge. Despite the technical advancements, many tokenized instruments, especially those representing traditionally illiquid assets such as real estate and private credit, exhibit low trading volumes and limited secondary market activity [2]. A study analyzing data from RWA.xyz and Etherscan reveals that most tokenized U.S. Treasuries are transacted during mint and redemption events with little ongoing trading. In contrast, commodity-backed tokens like Paxos Gold (PAXG) and Tether Gold (XAUT) show higher liquidity, with PAXG alone recording $665.869 million in monthly transfer volume [1].

The structural barriers to liquidity include fragmented marketplaces, regulatory restrictions, and valuation uncertainty. Many RWA tokens are issued as restricted securities, limiting access to accredited or KYC-verified investors. This restricts the number of active participants, reducing turnover and increasing time-to-trade [2]. Additionally, the lack of market makers in the tokenized RWA space means that bid-ask spreads are often wider, and price discovery is less efficient. For instance, tokenized equities, real estate, and fine art remain in early stages of adoption, with limited liquidity and fragmented secondary markets [1].

To address these challenges, various pathways are being explored, including hybrid market structures, incentives for liquidity providers, and improved transparency through standardized valuation metrics. Hybrid models that combine regulated, centralized platforms for primary issuance with decentralized protocols for secondary trading could help unlock liquidity, especially in illiquid sectors like tokenized real estate and alternative assets [2]. Protocols could also implement structured incentives to attract liquidity providers, particularly for whitelisted assets that suffer from limited secondary market traction.

Regulatory modernization and broader access are also essential for improving liquidity in RWA markets. Expanding access through innovations like the EU Pilot Regime and leveraging blockchain-native compliance tools can broaden the eligible investor base. This is particularly impactful in markets like tokenized treasuries, which already attract institutional interest but lack widespread retail access [2].

Moreover, collateralization and lending protocols offer alternative ways to access liquidity without selling assets. MakerDAO, for instance, has begun accepting tokenized U.S. Treasury instruments as collateral for borrowing DAI. This form of indirect liquidity is especially important for long-duration or low-turnover assets [2]. Institutional-grade custody solutions and emerging regulated token exchanges are also expected to play a crucial role in fostering secure, scalable, and compliant trading venues.

In conclusion, while the technical infrastructure for tokenization is advancing rapidly, the surrounding legal, regulatory, and trust-based systems are not yet mature enough to consistently support liquid secondary markets for RWAs. The future of tokenized finance remains promising if liquidity challenges are addressed directly through regulatory modernization, technological solutions, and financial engineering. By ensuring optionality in exit and reducing the liquidity discount, the RWA ecosystem can transition from issuance-centric to transaction-centric design, unlocking the full potential of tokenized real-world assets.

Source:

[1] RWA.xyz | Analytics on Tokenized Real-World Assets (https://app.rwa.xyz/)

[2] Tokenize Everything, But Can You Sell It? RWA Liquidity Constraints (https://arxiv.org/html/2508.11651v1)