RWA Cycle: The Next Growth Engine for Tokenized Assets?

Written by: Yuschukid

Translated by: Block unicorn

In the past few months and weeks, the RWA cycle has become one of the hottest topics in the cryptocurrency space.

Why it matters

The total value of RWAs has increased approximately fivefold over the past 12 months, reaching a record high of $26.7 billion.

Strong upward momentum

Thanks to tokenization platforms like Centrifuge and Securitize, top asset management firms such as BlackRock, Franklin Templeton, and Apollo have tokenized their products and brought them on-chain—primarily to meet the demand from crypto users for diversified investments beyond digital assets.

At this point, the supply side of RWAs seems to be largely addressed, and attention has shifted to the next challenge: finding new buyers who can drive the market’s next phase of growth.

Compelling reasons

The RWA cycle is increasingly seen as one of the most reliable ways to meet this demand. By unlocking leverage from yield sources with low correlation to the crypto market, RWAs offer advantages that traditional finance (TradFi) cannot:

• Rapid, accessible, and programmable leverage on alternative assets, which in traditional markets often require lengthy negotiations and are limited to large institutions.

Behind the scenes

To better understand the infrastructure and use cases of the RWA cycle, we spoke with the following individuals at Blockstories:

• LUKE CHMIEL from Morpho, whose modular lending infrastructure is the foundation for many leveraged RWA strategies.

• Marcin Kazmierczak, co-founder of RedStone, which is developing price oracles, ratings, and liquidation systems tailored for tokenized RWAs.

• Anlin Zhang, senior protocol strategist at Gauntlet, one of the leading risk management firms in crypto, overseeing leveraged RWA strategies involving hundreds of millions of dollars.

• Sonya Kim, co-founder of 3F, a platform enabling investors to create leveraged RWA positions across various assets with a single click.

• David Vatchev, head of RWA tokenization at Fasanara Capital, a leading institutional asset manager managing over $5 billion and operating the tokenized private credit fund mF-ONE.

• Nuno Cortesão, co-founder and CEO of Zharta Finance, a lending infrastructure provider that recently partnered with Securitize to launch on-chain asynchronous liquidation and redemption for tokenized securities.

Here are the key points summarized.

1/ Why is the RWA cycle becoming more popular now?

Two developments over the past year have made it feasible.

First, on-chain interest rates have plummeted. As speculative activity wanes and participants seeking leverage in crypto assets decrease, yields from native crypto lending strategies have fallen—sometimes below traditional money market rates. This has led more stablecoin funds on-chain to seek effective sources of yield.

“As speculation cooled, crypto prices declined, and arbitrage opportunities diminished, many traditional crypto yield sources shrank. This pushed DeFi to look for new income streams, and RWAs are attractive because they introduce real-world yields unrelated to crypto markets, which can be amplified through cycle strategies.”
— Luke Chmiel, Morpho Growth Lead

Second, infrastructure for RWAs is maturing: more tokenized assets now support minting, redemption, and oracle integration—crucial for collateral in lending markets like Morpho and Aave.

Once both elements are in place, yields start to materialize. Stablecoin lending rates hover around 3-4%, while RWA yields—such as from tokenized private credit funds—range between 6-10%. The interest rate spread from cycle strategies becomes positive. For example, a tokenized fund with an 8% yield, when cycled three to four times, can achieve an annual percentage yield (APY) exceeding 14%.

A simple example of RWA cycle economics

2/ Is higher yield the only reason investors are interested in the RWA cycle?

Yield is just part of the story. The bigger breakthrough of the RWA cycle is that it creates a new way to leverage assets that have historically been difficult to finance in traditional markets.

Private credit is a prime example. Funding such instruments typically requires bilateral agreements with banks or specialized lenders, extensive underwriting, and slow, fragmented processes.

Tokenized private credit, however, is entirely different. Once integrated into lending markets, investors can lend and borrow against their tokenized positions programmatically without permission, increasing yields through cycle strategies.

This means that investment strategies once limited to a few institutional investors can now benefit a broader range of participants by bringing the underlying assets on-chain.

“Ethena demonstrates how trading strategies like basis trading, previously exclusive to hedge funds and institutions, can be brought to a global investor base through on-chain solutions. At 3F, we aim to build infrastructure that enables users to cycle various RWAs, bringing similar transformation to leverage arbitrage trading.”
— Sonya Kim, co-founder of 3F

3/ What is the current state of the RWA cycle trading market?

The market size remains relatively small. Based on our conversations, the leveraged RWA volume on major lending platforms like Aave, Morpho, and Kamino is estimated at around $700 million. For context, this is only a small fraction of the approximately $20 billion in outstanding loans across these markets.

Most activity involves tokenized U.S. Treasuries and private credit funds from firms like Apollo Global, FalconX, or Fasanara Capital.

Demand is still primarily driven by native crypto applications.

“The current demand for on-chain RWAs mainly comes from three sources. First, DeFi-native hedge funds, which use leverage cycles to improve capital efficiency. Second, funds and DAOs from L1 foundations seeking diversified yields. Third, emerging yield-stablecoins that use RWAs as reserve assets to increase diversification and real-world yield backing.”
— David Vatchev, Head of RWA Tokenization at Fasanara Capital

4/ What still hinders the RWA cycle?

The core limitation is the mismatch between DeFi’s speed and the actual settlement times of RWAs. While crypto-native lending markets assume collateral can be priced, liquidated, and sold within seconds, most RWAs do not operate this way. T+1 settlement for Treasuries, 90-day lockups or quarterly redemptions for private credit funds, and the fact that most RWA tokens cannot be freely traded by liquidators all create delays.

“A major bottleneck in the RWA cycle is that DeFi is built on atomic transactions: either execution within a single block or rollback. But redemption cycles, settlement windows, and issuer-side processes for tokenized securities span days or weeks. These are inherently asynchronous, time-based operations that most DeFi infrastructure isn’t designed for.”
— Nuno Cortesão, co-founder and CEO of Zharta

Currently, asset managers are working to address this by adjusting RWA designs.

“Integrating real-world credit into on-chain systems requires aligning asset cash flows with DeFi’s liquidity expectations. Practically, this means short-term, diversified exposures combined with liquidity features like arbitrage or extended redemption periods. These measures help bridge the gap between RWAs and on-chain lending markets.”
— David Vatchev, Fasanara Capital

Despite these efforts, other challenges remain. Most DeFi lending relies on floating interest rates. Since cycle strategies depend on the spread between asset yields and borrowing costs, sharp rate increases can compress or eliminate this spread, making yields unpredictable and some strategies unfeasible. This is why many protocols are exploring fixed-rate lending infrastructure.

Additionally, broader frameworks for integrating RWAs into DeFi are still evolving. Lending markets, risk management firms, and infrastructure providers are just beginning to develop models and tools capable of handling large-scale RWA cycles.

“Protocols accepting RWAs as collateral often price risk based on NAV data without fully understanding the underlying credit quality, redemption restrictions, or concentration risks of the collateral pool.”
— Marcin Kazmierczak, co-founder of RedStone

Ultimately, no single protocol can solve all these issues alone. Achieving large-scale RWA cycling requires coordination among various infrastructure providers.

“To make RWA cycles work effectively, you need a complete tech stack: lending markets where assets can be used as collateral, custodians or risk managers capable of proper underwriting, reliable price oracles, bridge financing from third-party liquidity providers to build leverage positions, and liquidation infrastructure capable of handling these assets. Without mature, interoperable components, the market cannot truly scale.”
— Sonya Kim, co-founder of 3F

5/ If these challenges are addressed, how will the RWA cycle market evolve?

On the demand side, RWA cycling can expand institutional participation by enabling investors to increase their exposure to assets they already hold more efficiently.

“We are actively engaging with asset issuers and institutional allocators interested in our leveraged RWA strategies. Issuers want to expand the utility and composability of their tokens on efficient DeFi platforms, while allocators seek to enhance their existing positions in underlying RWAs.”
— Anlin Zhang, senior protocol strategist at Gauntlet

On the supply side, the range of recyclable assets is expected to grow, but not uniformly. Duration risk remains a key constraint: assets that can scale quickly will be those with short durations and reliable liquidation pathways, rather than the highest yields.

“Assets that can thrive are those with short durations and established liquidation and secondary market ecosystems. This makes tokenized money market funds and short-term government bonds natural pioneers, as they already feature T+1 settlement, daily liquidity, and deep market maker relationships.”
— Marcin Kazmierczak, co-founder of RedStone

Summary points

As crypto-native yields compress, the RWA cycle is gaining market recognition. With arbitrage opportunities shrinking and speculative demand waning, DeFi capital is shifting toward tokenized RWAs to seek non-correlated yields amplified through leverage.

The market is still early but has already reached a significant scale. Estimated leveraged RWA volume on leading DeFi lending platforms like Aave, Morpho, and Kamino is around $700 million, mainly driven by crypto-native participants such as DeFi hedge funds and DAOs.

Infrastructure remains the main bottleneck. DeFi lending assumes instant pricing, liquidation, and settlement, but RWAs have slower redemption cycles, requiring new oracle systems, risk frameworks, and liquidation mechanisms.

If infrastructure challenges are overcome, the market could expand rapidly. Tokenized Treasuries and money market funds are likely to be among the first to adopt, given their quick settlement and reliable liquidation pathways.