From Tokenization to Market Function: Why Usable Assets Define the Next Phase of RWAs

Summary

The market has largely figured out how to issue real-world assets onchain. Tokenized treasuries, credit funds and structured products are no longer theoretical experiments. They exist, they have real institutional capital behind them, and the legal and technical path to issuance is much clearer than it was two years ago. But an asset that lives onchain and then sits idle is not a capital market. The next phase is about depth, whether these assets can circulate, serve as collateral, and generate liquidity the way financial assets are supposed to. The data says we are early. It also says where the market is heading.

Tokenization Is Solved. Capital Markets Are Not.

The technical barriers that dominated 2022 and 2023 are no longer the main constraint. Issuing a tokenized Treasury bill or credit fund onchain, in a coherent way, has become repeatable. That does not mean tokenization is trivial, but it does mean the hard question has moved elsewhere.

But tokenization is not the same thing as a functioning market. An asset that lives onchain is a digital representation. The question that decides whether this sector produces lasting infrastructure, rather than a more efficient way to issue receipts, is whether these assets can do what financial assets are supposed to do: circulate, collateralize, and generate liquidity. This ability to participate in financial activity is what we refer to as utilization.

What Does Utilization Mean?

Utilization means the asset performs a function beyond simply existing. In practice, a tokenized asset should be able to be supplied as collateral to borrow stablecoins, redeployed into yield-generating positions while keeping the underlying exposure intact, and moved across venues without being unwrapped or redeemed.

Centrifuge’s deRWA model is one example of how the market is beginning to pursue that objective, extending tokenized funds into lending, collateral, and liquidity markets while preserving exposure to the underlying assets.

At its fullest expression, the loop runs continuously: supply a tokenized credit asset as collateral, borrow stablecoins against it, redeploy that liquidity, all without touching the underlying or triggering a redemption. It settles onchain, around the clock, with no call to a prime broker. A Treasury allocation can be pledged without being liquidated. Credit exposure can support borrowing while still earning yield. That is the basic mechanic of a capital market, and it is the difference between capital that compounds and capital that sits.

What Does the Data Show?

This is where the market is under-measuring itself. DefiLlama, the most widely used data aggregator in DeFi, now tracks utilization as a standard metric: the share of a tokenized asset's onchain value that is actually working inside DeFi protocols. The market-wide figure is still low. Against roughly $28 billion of tokenized RWAs onchain, only about $3 billion is active in DeFi. That implies utilization of around 11%. Put differently, by this measure, almost nine out of every ten tokenized dollars are not being used inside DeFi.

The average hides a sharper story, because utilization is bimodal. Assets built for passive institutional holding sit near zero. The largest tokenized money market fund in the world, at roughly $3 billion onchain, registers utilization below 1%. The entire bond and money market category, which generates most of the AUM headlines, runs around 5%. Assets built as lending instruments from the start look like a different market entirely: tokenized private credit runs 30% to 95%, and roughly 39% as a category, close to eight times the rate of tokenized treasuries. The difference is not only the asset class. It is how the product was designed to be used.

The lending venues confirm it. The leading institutional RWA lending market, Aave Horizon, holds $400 to $500 million in deposits, with active borrowing reaching a record near $180 million in early 2026. Curated vault platforms have pulled in more than $400 million in RWA deposits, yet only around $80 million is borrowed against at any given time. The capital is arriving. It is not yet working as hard as it could. One caveat: this metric counts only assets inside tracked DeFi protocols, so funds posted as margin on centralized exchanges fall outside it, and true productive use is somewhat higher than 11%. Not by enough to change the conclusion.

Why Are Most Programs Stuck?

The gap is not really a question of whether assets can be put onchain. That part works. The reasons it persists are economic and operational.

Start with yield. The risk-free rate that makes a tokenized Treasury attractive to a corporate balance sheet is rarely high enough to anchor a DeFi strategy, where allocators can earn more elsewhere and need real spread to justify the added smart-contract and counterparty risk. A 4% fund is a fine place to park cash. It is a thin base to build a leveraged lending market on.

Then there is the liquidity profile. Most tokenized funds do not redeem on demand. Redemption windows run anywhere from T+1 to quarterly depending on the underlying, and a lending protocol cannot treat an asset as live collateral if the holder might wait weeks or months to convert it to cash.

The biggest constraint is liquidation. For an asset to work as collateral at scale, a protocol has to be able to seize and sell it the moment a position goes underwater. For volatile crypto that machinery is mature: deep markets, automated auctions, instant settlement. For RWAs it is not. Secondary market depth is thin, a large forced sale moves the price or stalls, and transfer restrictions often mean the asset cannot be sold to whoever shows up to buy it. Until that infrastructure matures, risk teams keep collateral parameters conservative, and conservative parameters keep utilization low by design.

Compliance sits underneath all of it. Institutional credit assets carry transfer restrictions, KYC requirements and jurisdictional limits that make them hard to circulate through permissionless protocols at all. None of this is a fundamental limit. It is engineering and design work that has been deferred while the AUM line kept going up.

Which Shift Is Worth Watching?

The first phase of tokenization proved that assets could exist onchain. That question is settled. The next phase is about depth.

Depth comes from liquidity, from collateral utility, from assets that can move across venues and participate in several financial relationships at once, rather than sitting inside isolated wrappers waiting to be redeemed. The defining feature of a mature capital market is optionality: the ability to move between holding and deployment without friction. A Treasury allocation should be usable as collateral without exiting the exposure. Credit should support borrowing while continuing to generate yield. Capital should not be trapped by settlement cycles or structural silos.

The composability loop is still early. But it is forming with real capital across venues like Aave Horizon and Morpho, where tokenized assets, including funds issued through Centrifuge, are beginning to participate in lending, collateral, and liquidity markets. Liquidity infrastructure such as Grove Basin is also changing the equation by introducing committed liquidity for tokenized funds, reducing the trade-off between maintaining exposure and accessing capital. Together, these developments offer an early view of what a more integrated onchain capital market could look like.

If that happens, onchain finance stops looking like a parallel market and starts becoming part of how capital markets operate.

That is the shift worth paying attention to.

About the Author

Article authored by Graham Nelson, DeFi Product Lead, Centrifuge