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Tokenize Everything, But Can You Sell It? RWA Liquidity Challenges and the Road Ahead

This paper tackles the ‘liquidity myth’ surrounding RWA tokenization. While technology allows for the fractionalization of assets, the author argues that market

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Abstract

This paper tackles the ‘liquidity myth’ surrounding RWA tokenization. While technology allows for the fractionalization of assets, the author argues that market liquidity is a social and institutional phenomenon, not a purely technical one. By analyzing the order book dynamics and trading volume of existing RWA tokens, the paper identifies that most assets suffer from significant illiquidity despite being on-chain. The study explores the contributing factors, including the lack of market makers, regulatory barriers to entry, and the fragmentation of secondary markets. It proposes potential solutions, such as cross-protocol liquidity bridges and incentives for automated market makers (AMMs) that specialize in RWA. The research concludes that for RWA to reach its full potential, the industry must shift focus from the ‘tokenization’ aspect to the ‘liquidity provision’ aspect, ensuring that tokenized assets can be effectively traded in dynamic markets. Authors: Rischan Mafrur Publication: arXiv preprint Publication date: 2025-01-01

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Key findings

  • On-chain existence does not automatically translate to market liquidity.
  • Secondary market fragmentation impedes price discovery for tokenized assets.
  • Market makers are currently unwilling to commit capital to nascent RWA protocols due to regulatory risk.
  • Liquidity requires coordinated efforts between blockchain protocols and centralized trading venues.

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Citation

Rischan Mafrur (2025). Tokenize Everything, But Can You Sell It? RWA Liquidity Challenges and the Road Ahead. arXiv preprint. https://arxiv.org/abs/2508.11651
Canonical knowledge ID: research:tokenize-everything-but-can-you-sell-it-rwa-liquidity-challenges-and-the-road-ahead