Bankless: Which blockchain will win in the RWA field?

Author: Jack Inabinet, Source: Bankless, Translation: Shaw Golden Finance

Liquidity is crucial in the cryptocurrency space.

No matter how you analyze this industry, this principle applies. Liquidity affects everything, from token prices to Ethereum staking patterns.

Last week, the US clearing core institution—the Depository Trust & Clearing Corporation (DTCC)—was authorized to provide compliant tokenization services under federal regulations. Since then, the tokenization of real-world assets (RWA) at an institutional scale has garnered increasing attention. Now, the cryptocurrency industry faces an unknown: how will these RWAs be distributed on-chain?

Today, we will examine DTCC’s own tokenization requirements and discuss the role of liquidity in determining the dominance of cryptocurrencies, aiming to better understand which blockchains are most likely to succeed in the RWA tokenization field.

DTCC’s Requirements

In a “no-action” request letter submitted to the U.S. Securities and Exchange Commission (SEC), DTCC outlined the technical requirements for key components of the tokenization system, including the underlying blockchain and token tracking support software.

This letter forms the basis of the SEC’s “no-action” exemption and explicitly stipulates that any system used to perform critical functions of tokenization services must comply with DTCC’s internal “Tier 2” system requirements.

In addition, the standard requires key system components to have the following capabilities: “Able to operate in primary and backup locations, with a maximum recovery time objective of 4 hours, data loss during downtime limited to 2 minutes, and annual cross-region disaster recovery and restart testing.”

While DTCC has chosen to remain technologically neutral—meaning it will not mandate specific blockchains or tokenization protocols for each type of RWA tokenization—qualified solution combinations must support compliance controls and achieve Tier 2 system ratings.

Liquidity Dominance

In 2024, DTCC processed $38 trillion in securities transactions. It is the world’s largest financial processing institution by trading volume, and its custodial assets surpassed $100 trillion this summer. If asked what the most critical link in the global financial system is, “DTCC” is undoubtedly a reliable answer.

Assuming that higher liquidity in the tokenization market will inevitably lead to victory, DTCC’s nearly unlimited existing asset supply will give it a lasting advantage, ensuring it maintains a dominant position in the tokenized securities market forever.

Which Blockchain Will Win?

Just as DTCC is destined to become a dominant tokenization service provider due to its massive scale, liquidity dynamics also determine that a single blockchain and a single tokenization service will inevitably become the default choice supported by DTCC’s tokenized products.

Which blockchain will ultimately win in the RWA space remains to be seen, but given DTCC’s technical requirements, some candidates may have already been eliminated directly.

• Solana network has downtime exceeding four hours, which does not meet DTCC’s normal operation time requirements; Solana has experienced multiple disqualifying outages, the most recent last year.
• XRP is another blockchain supporting smart contracts, highly regarded for its covert banking integration features, with a unique advantage of supporting institutional-grade financial operations. However, it has also experienced service interruptions; the last outage was in February.
• Although L2 networks are widely regarded as the future scalability direction for Ethereum, they may not meet DTCC’s tokenization requirements. Current designs use a single sequencer, which is prone to failure. Additionally, whether they meet DTCC’s requirement to operate simultaneously in primary and backup locations is also questionable.
• While some Bitcoin users related to Ordinals may support launching tokenized assets on Bitcoin, the ecosystem lacks the necessary smart contract functionality to support complex financial applications and the transfer restrictions required by DTCC.

In this environment, Ethereum is very likely to become the default option.

Ethereum has been running continuously for over ten years, making it one of the few blockchains that unquestionably can meet DTCC’s normal operation time requirements.

Even so, DTCC also requires its critical systems to undergo “annual cross-region disaster recovery and restart testing.” So how can Ethereum, designed to never go down, perform any kind of failure recovery testing? Would high transaction fees during peak times, driven by market demand, constitute an unbearable failure?

Circle’s Arc might be another solution. Its permissioned authority proof validators are decentralized enough to run from multiple locations, yet centralized enough to facilitate testing.

Another contender is Canton, a public blockchain created by Digital Assets, claiming to be the only network capable of providing configurable privacy and institutional-grade compliance. Canton supports over $6 trillion in on-chain real-world assets and processes $280 billion in daily transactions through its network of 500 validation nodes.

However, this does not prevent the adoption of another approach—using proprietary database technology that can run in multiple locations. There appears to be no obstacle to DTCC supporting a government-funded permissioned ledger similar to Fedwire.

Conclusion

The tokenization market is a winner-takes-all game.

Whether DTCC ultimately chooses an existing general-purpose blockchain like Ethereum, a dedicated RWA solution like Circle’s Arc, or a yet-to-be-released Fedwire-style government ledger, the future characterized by multi-chain fragmentation seems unlikely.

Cryptocurrency’s clear takeaway here: liquidity is everything. Any chain capable of supporting DTCC’s tokenization process will gain far greater influence than others.