Why Public Blockchains Fall Short for Real-World Assets: An In-Depth Analysis

Institutional Finance Meets Blockchain: The Hurdles and the Emerging Solutions

New York, NY – August 20, 2025 – The recent acceptance of blackrock’s $2.9 billion tokenized U.S. Treasury fund as collateral on leading cryptocurrency exchanges, crypto.com and Deribit, signals a pivotal moment: the entrance of real-world assets into the mainstream cryptocurrency landscape. However, a closer examination reveals underlying complexities and limitations within existing blockchain technology that are hindering full institutional integration.

The Promise and Pitfalls of Tokenized Real-World Assets

Tokenized Real-World Assets (RWAs) – traditional assets like government bonds, stocks, and commodities represented on a blockchain – have seen explosive growth.The market has surged from $100 million in early 2023 to over $7.3 billion by mid-2025,with Ethereum currently dominating,capturing 78 percent of the total value.companies like BlackRock, Citi, Franklin Templeton, and JPMorgan are actively experimenting with this technology, capitalizing on the potential for increased efficiency and liquidity.

Despite the enthusiasm, the structure of funds like BlackRock’s BUIDL reveals critical infrastructure gaps. While operating on the public Ethereum blockchain, Know Your Customer (KYC) verification occurs off-chain through Securitize, and custody is managed by BNY Mellon – reintroducing centralized elements that contradict the decentralized ethos of cryptocurrency.

Furthermore, Ethereum’s “probabilistic settlement” – where transactions aren’t instantly finalized and can theoretically be reversed – poses a significant risk for regulated institutions requiring immediate and irreversible transactions. These compromises, while pragmatic in the short term, raise operational concerns that cannot be ignored.

A Parallel to Cloud computing’s Early Days

The current situation mirrors the early days of cloud computing. Banks and large enterprises initially recognized the potential benefits of cloud technology, but widespread adoption was delayed until the infrastructure matured to meet stringent security, compliance, and control requirements. Public blockchains presently face a comparable challenge: they were initially designed for permissionless innovation, not the high-stakes demands of regulated financial systems.

Feature	Public Blockchains (e.g., Ethereum)	Institutional Requirements
Settlement finality	Probabilistic (potential for reversal)	Instant and Irreversible
Compliance	Limited native KYC/AML features	robust KYC/AML adherence
Fee Structure	Volatile token-based fees (e.g.,ETH)	Stablecoin or fiat-based fees
Operational Control	Limited tools for halting transactions or real-time audits	Fine-grained control and auditability

Did You know? The tokenization of real world assets could unlock trillions of dollars in illiquid markets,making them more accessible to investors.

The Rise of Purpose-Built Blockchain Infrastructure

To overcome these limitations, a new wave of innovation is emerging: purpose-built blockchain infrastructure. This involves appchain frameworks designed from the ground up to meet the stringent requirements of institutional finance. These systems employ a modular architecture, allowing for customized control over execution environments, fee models, and compliance protocols.

Instead of relying on external middleware or centralized off-chain services,these frameworks aim to embed compliance features – like KYC,audit logging,and real-time controls – directly into the blockchain itself.This ensures that identity verification and reporting occur seamlessly as part of the transaction process. Furthermore, they are focused on offering instant finality and support for stablecoin-based fees, providing the reliability and predictability institutions demand.

Pro Tip: When evaluating blockchain solutions for institutional use, prioritize those that prioritize security, compliance, and scalability.

The Future of Blockchain Adoption

With over $17 billion in RWAs already tokenized, the demand for blockchain integration within the financial sector is undeniable.However, institutions will not compromise on foundational standards. The continued growth of tokenization hinges on the advancement of infrastructure specifically designed to meet these needs, rather than relying on temporary fixes or workarounds.

The companies that successfully address these challenges will be instrumental in shaping the future of blockchain adoption. The infrastructure providers that support these institutions will ultimately become the backbone of a transformative financial system.

Looking Ahead: Long-Term Implications

The evolution of blockchain infrastructure for institutional finance is a continuously unfolding story.Further advancements in scalability,interoperability,and regulatory clarity will be crucial for realizing the full potential of tokenized RWAs. Developments in zero-knowledge proofs and other privacy-enhancing technologies could also play a significant role in balancing transparency and confidentiality.

Frequently Asked Questions About Blockchain and institutional Finance

• What are tokenized RWAs? Tokenized RWAs are traditional assets like stocks and bonds represented as digital tokens on a blockchain.
• Why are institutions hesitant to adopt public blockchains? Institutions face challenges related to settlement finality, compliance requirements, and operational control on public blockchains.
• What are appchains? Appchains are application-specific blockchains designed to meet the specific needs of particular industries, like institutional finance.
• How does BlackRock’s BUIDL fund address blockchain limitations? BUIDL relies on off-chain KYC verification and centralized custody, mitigating some blockchain risks but also reducing decentralization.
• What is the current market size of tokenized RWAs? As of mid-2025, the market for tokenized RWAs has surpassed $7.3 billion.
• What role does Ethereum play in the RWA market? Ethereum currently accounts for 78 percent of the total value of tokenized RWAs.
• Is blockchain technology secure enough for institutional finance? While blockchain technology provides a high level of security, additional measures are often needed to meet the stringent requirements of institutional investors.

What are your thoughts on the future of tokenized real-world assets? How will these evolving technologies impact the financial landscape in the years to come?

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What are teh primary scalability limitations of public blockchains that hinder their use for Real World Asset (RWA) tokenization?

The Promise of Tokenization & RWA

The concept of Real World Asset (RWA) tokenization – representing ownership of tangible assets like real estate, commodities, or even intellectual property on a blockchain – has generated significant buzz. Proponents envision a future of increased liquidity, fractional ownership, and democratized access to investment opportunities. Though, while the underlying idea is compelling, deploying RWAs on public blockchains faces substantial hurdles. This article dives deep into why public blockchains frequently enough fall short when it comes to effectively and securely managing real-world assets.

Scalability Limitations & Transaction Costs

Public blockchains like Ethereum, while pioneering, struggle with scalability.

Throughput: public blockchains typically have limited transactions per second (TPS). Handling the volume of transactions required for widespread RWA trading – think thousands of property transfers daily – quickly becomes a bottleneck.

Gas fees: high gas fees (transaction costs) on networks like Ethereum can make even simple RWA transactions prohibitively expensive, negating the benefits of fractionalization and accessibility. Imagine paying $50 to transfer a $100 share of a property – it’s simply not viable.

Layer-2 Solutions: While Layer-2 scaling solutions (like rollups) offer improvements, they introduce complexity and often don’t fully address the core scalability issues for high-frequency RWA trading.

Privacy Concerns & Data Sensitivity

RWAs inherently involve sensitive data. Public blockchains, by design, are clear and immutable. This creates a conflict:

Public Ledger: Every transaction is visible to anyone,potentially revealing ownership details,transaction amounts,and other confidential data. This is unacceptable for many asset classes, particularly in regulated industries.

KYC/AML Compliance: Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations require verifying the identity of participants. Maintaining privacy while adhering to these regulations on a public blockchain is a significant challenge.

Data Protection Regulations: Regulations like GDPR (General Data Protection Regulation) impose strict rules on handling personal data. Storing sensitive RWA-related information on a public, immutable ledger can violate these regulations. privacy-enhancing technologies (PETs) are being explored, but aren’t yet mature enough for widespread adoption.

Legal & Regulatory Uncertainty

The legal landscape surrounding RWA tokenization is still evolving.

Securities Laws: Many tokenized RWAs may be classified as securities, triggering complex regulatory requirements. Navigating these regulations across different jurisdictions is a major undertaking.

Jurisdictional Issues: Determining the governing law for a tokenized asset can be difficult,especially when ownership is distributed globally.

Enforceability: Enforcing legal rights related to a tokenized asset can be challenging, particularly if the underlying asset is located in a different jurisdiction then the blockchain’s legal framework. The lack of clear legal precedent creates uncertainty and risk.

Smart Contract Audits: thorough smart contract audits are crucial, but even audited contracts aren’t immune to vulnerabilities. Exploits can lead to significant financial losses and legal repercussions.

Oracle Dependence & Real-World Data Integration

Connecting the blockchain to the real world requires oracles – third-party services that provide external data.This introduces vulnerabilities:

Oracle manipulation: If an oracle is compromised or provides inaccurate data, the entire system can be affected. For example, a faulty price feed could lead to incorrect valuations of tokenized commodities.

Centralization Risk: Reliance on a limited number of oracles creates a centralization risk, undermining the decentralized nature of the blockchain.

Data Integrity: Ensuring the accuracy and reliability of real-world data fed into the blockchain is critical. This requires robust data validation mechanisms and trusted data sources. Decentralized oracle networks (DONs) aim to mitigate these risks, but are still developing.

Interoperability Challenges

The blockchain ecosystem is fragmented.

cross-Chain Compatibility: RWAs tokenized on one blockchain may not be easily transferable to another,limiting liquidity and interoperability.

Standardization: lack of standardized protocols for RWA tokenization hinders seamless integration and exchange between different platforms.

Siloed liquidity: Different RWA platforms operate in isolation, creating fragmented liquidity pools and reducing overall market efficiency.

the Rise of Permissioned & Hybrid Blockchains

Given these limitations,permissioned blockchains and hybrid blockchain solutions are gaining traction for RWA applications.

Permissioned Blockchains: These blockchains require participants to be authorized, offering greater control over data access and privacy. They often provide higher throughput and lower transaction costs. Examples include Corda and Hyperledger Fabric.

Hybrid Blockchains: These combine the benefits of both public and permissioned blockchains, allowing for selective clarity and control. They can leverage the security of a public blockchain while maintaining privacy for sensitive data.

* Private Stablecoins: Utilizing private stablecoins pegged to fiat currencies on permissioned chains can streamline transactions and reduce regulatory complexity.

Case Study: Real Estate Tokenization & Challenges

Several projects have attempted to tokenize