Tokenization, especially of real-world assets (RWAs), has become a major focus in finance, fintech, IT, and government in 2025. Stated simply, RWA tokenization means creating blockchain versions of traditional financial or physical assets.
According to Animoca, the recent scale of this trend is striking. The tokenized RWA market already surged by 70% this year, reaching a record $26.5 billion; 90% of which is concentrated in private credit and U.S. Treasuries. The market is projected to reach $16 trillion by 2030 according to Skynet’s RWA Security Report. This growth reflects the desire to unlock the hundreds of trillions of dollars of illiquid assets sitting in registries and institutional balance sheets around the world.
Take the example of real estate as an asset. Ownership is registered in title deeds which are usually kept in national or provincial land registries. These systems are often fragmented, slow, and localized. With more than $300 trillion in global real estate value, much of it is still illiquid. Tokenizing property into smaller units could let these assets be used for more than just mortgage collateral, making them tradable in secondary markets or as investment vehicles. The same idea applies to precious metals (over $10 trillion held by private investors), private equity, commodities, and even global debt (which recently reach $324 trillion, according to the Institute of International Finance). Tokenization could help make these assets more flexible and accessible.
But with this promise comes substantial risk. As trillions of dollars’ worth of assets inch toward blockchain rails, governments, institutions, and societies must tread with extreme caution. These risks fall broadly into regulatory/legal, technological, operational, market, and governance risk.
1. Regulatory and Legal Risks
The most fundamental question is: does a token truly confer ownership of the underlying asset?
In most jurisdictions, the answer remains ambiguous. The common workaround today is to wrap the physical asset inside a special purpose company (SPC) or limited liability company. Token holders then hold claims on the SPC; not on the asset itself. This creates a dependency on traditional legal systems and widens the gap between on-chain representation and real-world rights.
Consider real estate crowd-investment platforms. A functioning ecosystem requires:
- Investors buying fractional tokens.
- Developers issuing projects.
- Appraisers validating valuations.
- Insurers underwriting risks.
- Property managers maintaining assets.
- Registries anchoring ownership.
- Custodians holding deeds.
- Exchanges enabling liquidity.
- Banks and payment providers handling fiat on-ramps.
- Regulators ensuring compliance with KYC, AML, securities, crowdfunding, tax, and consumer protection rules.
Even within a single jurisdiction, aligning all these regulatory layers is daunting. Across borders, the task of aligning regulatory conditions can become inextricable. Tokenized assets risk being legally unenforceable, undermining investor confidence and systemic trust.
2. Technological and Security Risks
Private, permissioned blockchains are often touted as institutional-grade solutions. Yet building and maintaining them securely at billion or trillion-dollar scale is non-trivial.
- Case study: HSBC, Bank of America, Euroclear, and others have tokenized over $10 billion of RWAs on R3 Corda. To access liquidity, however, these assets are bridged to public blockchains like Solana. This illustrates both the potential and the fragility of private systems: they provide control but suffer from limited scalability and interoperability.
- Public chains such as Ethereum, by contrast, are secured by oround 17,000 execution nodes and over 1 million active validators, making them far more resilient. BlackRock’s “BUIDL” fund which is a tokenized money market instrument was launched on Ethereum and later expanded to Polygon, Avalanche, and Arbitrum. BlackRock is now preparing to tokenize trillions in ETFs, leaning on Ethereum’s security and standards.
The trade-off is stark: private chains offer control but face isolation and governance risk; public chains offer security and liquidity but raise regulatory and compliance hurdles, including privacy, use of native crypto (which is still banned in many countries), and uncertain jurisdictional treatment.
3. Operational Risks
Technologists often claim “anything can be tokenized.” Reality is more complicated.
Each asset class has unique lifecycle and maintenance needs:
- Commodities require monitoring of storage and logistics.
- Real estate requires valuations, inspections, insurance, facility management, and tenant management.
- Art, metals, and collectibles require physical custody and secure storage.
Synchronizing these real-world events with on-chain records is complex. Failures in valuation, custody, or asset servicing create direct financial losses. Custody models must answer whether investors self-custody their tokens or rely on banks and specialized custodians (e.g., Fidelity, Zodia). Either way, custody must cover both the digital token and the physical asset — a dual responsibility fraught with practical risk.
At scale, the operational burden of bridging the physical and digital worlds could overwhelm tokenization projects unless meticulously designed.
4. Market and Liquidity Risks
Tokenization promises liquidity, but secondary markets for RWAs remain thin. Without deep liquidity pools, token holders may struggle to exit positions. Fire-sale dynamics are a real risk if valuations falter or oracles fail.
Furthermore, the choice of settlement asset (e.g., stablecoins, tokenized deposits, or CBDCs) matters: relying on volatile or unregulated stablecoins injects systemic risk into otherwise safe assets.
5. Governance and Conduct Risks
Who controls the blockchain? Who can pause, upgrade, or blacklist tokens? Without transparent governance, token holders may unknowingly cede critical rights to administrators. Disclosure lapses — such as misrepresenting tokenized securities that lack voting or dividend rights — can mislead investors and invite regulatory backlash.
Takeaway
Tokenization of real-world assets offers unprecedented opportunities: unlocking liquidity, fractionalizing ownership, and bridging global markets. Yet the risks are profound. Legal enforceability remains uncertain. Private blockchains risk isolation; public blockchains invite regulatory exposure. Operational synchronization between physical and digital worlds is a constant challenge. Market depth is not guaranteed. Governance failures can erode trust overnight.
For tokenization to scale to the projected $16 trillion by 2030, governments, financial institutions, and technology providers must design frameworks that align law with code, integrate compliance into infrastructure, and ensure operational resilience. Without this, the dream of turning the world’s illiquid assets into liquid, tradeable tokens could collapse under its own complexity.
