RWA Cycle: The Next Growth Engine for Tokenized Assets?

How can AI DeFi infrastructure adapt to RWA asynchronous settlement needs?

Author: Yuschukid

Article translation: Block unicorn

In recent months and weeks, RWA cycles have become one of the hottest topics in the cryptocurrency space.

Why is it important?

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 managers such as BlackRock, Franklin Templeton, and Apollo have been able to tokenize their products and bring them on-chain—primarily to meet the demand from crypto users for diversified investments outside of crypto 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 to drive the market’s next growth phase.

Convincing reasons

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

Fast, accessible, and programmable leverage on alternative assets, which in traditional markets often requires lengthy negotiations and is limited to large institutions.

Behind the scenes

To better understand the infrastructure and use cases of RWA cycles, 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 with hundreds of millions of dollars in capital.

• Sonya Kim, co-founder of 3F, a platform that allows investors to create leveraged RWA positions covering various RWAs 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 leveraged positions.

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 on-chain stablecoin funds to seek effective yield sources.

“As the speculative frenzy subsides, crypto prices decline, and arbitrage opportunities diminish, many traditional crypto yield sources have shrunk. This pushes DeFi to look for new sources of yield, and RWAs are attractive because they introduce real-world returns unrelated to crypto markets and can be amplified through cycle strategies.”
— Luke Chmiel, Morpho Growth Lead

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

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

Simple example of RWA cycle economics

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

Yield is just part of the story. The bigger breakthrough of RWA cycle mechanisms is that they create 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 fundamentally different. Once integrated into lending markets, investors can permissionlessly lend against their tokenized positions via programmatic means and increase 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 limited to hedge funds and institutions, can be brought on-chain to benefit global investors. At 3F, we aim to build infrastructure that enables users to cycle various RWAs, bringing similar transformations to leveraged 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 centers on tokenized U.S. Treasuries and private credit strategies involving firms like Apollo Global, FalconX, or Fasanara Capital.

Demand is still primarily driven by native crypto applications.

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

4/ What still hampers RWA cycles?

The core limitation is the mismatch between DeFi’s speed and the actual settlement times of RWAs. While crypto-native lending assumes 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 any liquidator all contribute to delays.

“One major bottleneck in RWA cycles 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, and most DeFi infrastructure isn’t designed for this.”
— Nuno Cortesão, CEO of Zharta

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

“The core principle of bringing real-world credit on-chain is 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

Nonetheless, other challenges remain. Most DeFi lending markets rely on floating interest rates. Since cycle strategies depend on the spread between asset yields and borrowing costs, any spike in interest rates can compress or eliminate this spread, making yields unpredictable and some strategies unfeasible. This is why many lending protocols are exploring fixed-rate lending infrastructure.

Additionally, integrating RWAs into DeFi frameworks is 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. For large-scale RWA cycles to be feasible, coordination among various infrastructure providers is essential.

“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 robust liquidation infrastructure. If these components are immature or don’t work together, the market can’t 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 cycles can expand institutional participation by enabling investors to increase their exposure to existing assets more efficiently.

“We’re 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 reusable assets is expected to grow, but not uniformly. Duration risk remains a key constraint: assets that can scale quickly will be those with short settlement times and reliable liquidation pathways, rather than those offering 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, RedStone co-founder

Summary points

• As native crypto yields compress, RWA cycles are gaining market traction. 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 a measurable size. Estimated at around $700 million in leveraged RWA on leading DeFi platforms like Aave, Morpho, and Kamino, with demand mainly from DeFi hedge funds and DAO treasuries.

• 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 due to their quick settlement and reliable liquidation pathways.

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This information is for general guidance and informational purposes only and should not be considered investment, business, legal, or tax advice under any circumstances. We do not take responsibility for personal decisions made based on this content, and strongly recommend conducting your own research before taking any action. While every effort has been made to ensure the accuracy and currency of the information provided, omissions or errors may occur.