The Web 1.0 Era of RWAs

For nearly two years, I’ve been increasingly drawn to Real World Assets (RWAs), a fascination that began when I was evaluating early-stage companies that were tokenizing luxury goods in 2021/2022. My imagination went in various directions, some of which I outlined previously in this post on Rethinking RWAs. Since entering crypto in 2015, discussions about tokenizing tangible assets—like cars and homes—have been fantasized about, and there have been some small scale experiments but nothing has really taken off that captured the retail or institutional market.

The RWA space started to gain momentum in late 2021 with protocols such as Goldfinch and Maple, which used crypto rails primarily for loans and early forms of private credit. These platforms created efficiencies with capital formation using crypto rails, but have since lost their steam according to rwa.xyz. Today, the enthusiasm around RWAs is at an all-time high, especially highlighted during my time at DAS in NYC, where alongside stablecoin adoption, RWAs dominated conversations.

This new era of RWAs largely focus on private credit, with startups and traditional institutions exploring ways to tokenize this asset class or create efficiencies. According to rwa.xyz Figure and Tradable are the two big players, but there are other blockchains such as Plume and Redbelly building the infrastructure for on-chain private credit and other RWAs. From my perspective, experimentation falls into three main categories today: first, utilizing crypto rails for capital formation; second, tokenizing financial instruments (particularly private credit and emerging private equity); and third, automating capital distributions to LPs via smart contracts for cost reduction and efficiency. Eventually it will encompass all three of these, but for now it seems fragmented on the various issuers approach.

While the new flavor of RWAs present substantial improvements and more interesting use cases, in the current state they remind me strongly of the Web 1.0 era. During this phase of the internet traditional media content—books, magazines, and newspapers—was simply digitized, making consumption easier but not truly transformative. Then, as Chris Dixon points out in his book Read Write Own we evolved from Web 1.0 to Web 2.0. An illustrative example is this ah-ha moment was when Encyclopedia Britannica evolved into Wikipedia, marking the shift from Web 1.0’s read-only model to Web 2.0’s interactive, user-generated read-write model.

Similarly, today's RWAs feel like vanilla tokenization, achieving incremental efficiency by bringing traditional financial products on-chain. The current platforms offering tokenized private echo existing Web 2 platforms like YieldStreet, Fundrise, or Masterworks, which already provide crowdsourced investments but do not use crypto rails. While improved accessibility and liquidity are improvements to the TradFi approach, these products have yet to have their Web 1.0 to Web 2.0 moment. I believe the real unlock will be the ability to integrate these products into DeFi and using “money legos” to create programmable strategies that do not exist off-chain.

Regulatory compliance, particularly around KYC/AML, remains a major barrier, and large financial institutions will demand robust compliance alongside privacy measures, as transparency isn’t always beneficial when counterparties play high-stakes financial poker. I think this will cause some minor roadblocks, but currently either chains or the products themself have some of the regulatory components bolted in. The next step will be compliant DeFi protocols as most buttoned up financial institutions will need to know their transaction counterparts are also compliant.

My gut says it's unlikely the average crypto enthusiast will dive into on-chain private credit—so who becomes the incremental buyer of these assets? It’ll likely be more sophisticated investors and alternative funds who recognize greater benefits from on-chain private investments compared to existing avenues particularly if they can leverage up or achieve efficiencies, bringing more capital onboard as long as the benefits persist.. Whether enhanced liquidity ultimately proves beneficial or problematic remains an open question; Matt Levine might argue it's preferable these markets stay private and opaque, and honestly, I think he might be right for some cases. Still, there's no stopping the trend of tokenization or increased adoption of blockchain rails for these assets. However, substantial innovation—especially around institutional-grade DeFi tools and compliance integration—will be necessary before larger players fully embrace this transition.

I'm optimistic that RWAs will evolve into genuinely crypto-native programmable financial tools, rather than simply replicating traditional methods with minor enhancements. Although this transformation will take time, the substantial attention and investment currently flowing into the RWA space should fuel more innovation. From an investor's perspective, however, it's challenging to determine where value will accrue for retail participants. Bringing private equity on-chain feels more like leveraging blockchain technology rather than a play on a protocol token. It's still unclear to me whether value will ultimately accumulate in early-stage protocols issuing RWAs, the L1s/L2s providing infrastructure, or the publicly traded stocks of companies issuing RWAs and benefiting directly from the efficiencies gained. Nonetheless, I remain very optimistic about the potential ahead.