Could RWAs be hiding the next financial crisis?

Tracy Jin of MEXC exchange warned that real-world assets (RWA) hide risks that could repeat the 2008 subprime mortgage crisis.

From just $1 billion in 2021, the total value has exceeded $23 billion in 2025. Real-world assets (RWA) have become one of the fastest growing sectors in the cryptocurrency space. These assets include gold, real estate, securities, treasury bonds, art, etc.

The goal of RWA is to make such assets more accessible to ordinary traders and to increase transparency. However, while accessibility has improved, transparency is clearly lacking, and many RWAs are issued on private blockchains.

This creates a real risk that institutions will package high-risk assets into RWAs, exposing holders to significant losses, Tracy Jin, chief operating officer of the MEXC exchange, said in an interview with crypto.news.

She warned that the lack of transparency in RWA projects could trigger a financial crisis similar to the 2008 financial crisis, threatening the cryptocurrency sector and even the broader financial markets.

What kind of RWA project looks safe but ultimately proves to be a financial risk?

In the early days of RWA, some DeFi protocols (such as those built on Centrifuge) allowed issuers to tokenize portfolios of accounts receivable (such as unpaid invoices from small and medium-sized enterprises). These tokenized assets are then used as collateral to borrow stablecoins on platforms like Tinlake or MakerDAO.

These early DeFi lending protocols have already seen clear risks: these protocols issue on-chain credit backed by opaque off-chain assets, such as a portfolio of “future receivables” from small business loans.

On-chain, everything looks perfect. Investors see tokens representing a claim on a diversified pool of loans that generates a steady and high yield. The smart contracts work flawlessly and interest payments are distributed on time.

The hidden danger is the quality of the real-world credit. The on-chain tokens cannot reveal

When a recession hits and these real-world businesses go out of business, the “receivables” backing the tokens evaporate.

Everyone suddenly discovers that this “safe” high-yield asset is actually backed by a bunch of defaulted debt, and the value of the token collapses to zero.

This exact situation where the on-chain data is flawless and masks the rotten foundations off-chain is a case study of how a seemingly safe RWA can become financially risky overnight.

How can ordinary investors distinguish between “toxic” RWAs and legitimate RWAs?

A "toxic" RWA is one where a flawed off-chain asset (opaque, overvalued, or with unenforceable legal claims) is hidden behind a high-tech token.

Its hallmark is that its on-chain data looks perfect, but completely masks the corruption of the real-world asset. To distinguish them, investors must go beyond the token itself and conduct traditional due diligence.

As an investor, the first step is to verify the issuer and custodian and find out who these real-world entities are. Legitimate RWAs will only be managed by well-known, regulated companies with a public reputation. If investors cannot find information about the team or custodian, as a risk consideration, it is best to avoid the project.

Second, investors must demand real evidence and legal qualifications from the project. Legitimate projects will be backed by regular, independent audits from reputable accounting firms, not just a simple on-chain dashboard.

Legal qualifications must be clear: Does owning a token give you direct, enforceable ownership of the asset? If the path to redeeming the asset in a crisis is unclear, then the token is likely toxic.

Finally, the liquidity of the underlying asset in the real world must be assessed. Tokenizing an illiquid item does not magically create a deep market for it. If the issuer, audit report, legal claims, and underlying market are not all completely clear, ordinary investors should be extremely cautious about such RWAs.

Is it the asset itself that is risky? Or is the danger more about who is doing the RWA and how?

Market risks for assets like real estate or fine wine are well known and have been for centuries. The truly magnified danger comes almost entirely from the tokenization process itself, which involves the “who” behind it and the “how” they do it.

The most important risks are operational and legal. An unscrupulous issuer could take advantage of opaque valuations, tokenize a property at an inflated price, and then sell shares to investors, causing them to suffer paper losses.

The physical asset or its legal deed may be deposited with an incompetent or fraudulent custodian, and the asset may be lost, sold or seized, rendering the token worthless.

In addition, vulnerabilities in the smart contract code may also lead to the complete loss of the digital asset. Even with regulation, it is difficult to enforce ownership in different jurisdictions.

Therefore, the quality, regulation and technical capabilities of the issuer and its partners are more critical risk factors than the volatility of the underlying asset market.

Why do institutions use private blockchains to issue RWA?

Institutions use private chains for only one reason: Control.

For heavily regulated banks, Ethereum’s open access and censorship-resistant nature is a flaw, not a strength.

Because their entire business model is built on adhering to strict KYC/AML (Know Your Customer/Anti-Money Laundering) compliance requirements and maintaining client confidentiality.

Private blockchains allow institutions to build a walled garden. They can control exactly who is allowed to join the network, ensuring that every counterparty is known and vetted. This allows transaction details to be private, and the power to modify or reverse transactions in the event of an error or pursuant to a court order.

While this approach leverages blockchain technology to improve back-office efficiency and settlement speed, it fundamentally undermines the core spirit of decentralization and public transparency.

The ledger is only “transparent” to a select, permissioned group of participants. This is an efficiency strategy that recreates the closed model of traditional finance rather than a leap towards a more open and fairer system.

Are large financial players deliberately moving bad assets onto the chain? Is this due to a lack of regulation?

At this stage, I think it is more due to a combination of systemic lack of regulation and speculative experimentation rather than a deliberate dumping of “toxic assets” by major players. Top institutions in particular will act more cautiously because their reputations are at risk.

The more direct risk comes from lower-tier financial institutions or unregulated entities that see tokenization as a means of “regulatory arbitrage.”

They may package high-risk assets (such as subprime loans) and sell them to global cryptocurrency retail investors who lack deep due diligence tools. This is not a deliberate dump of known worthless assets, but chasing demand by misleading risk.

The core problem is the mispricing of risk. In the market drive for high returns, the true risk characteristics of RWA may be obscured.

Investors may buy B-rated loan tokens that pay high annualized yields (APYs) without realizing the potential risks. This is more about systemic risks caused by hype and lack of standards meeting new technologies, rather than intentional malicious behavior by large banks.

How to prevent RWA from becoming the subprime crisis in the crypto space?

To prevent systemic crises, we need a regulatory framework that builds trust and transparency without stifling innovation.

This requires a focus on the quality and integrity of off-chain assets and their legal structure, not just on-chain tokens. The goal is to enforce the painful lessons learned in traditional finance in this new space.

The first pillar must be mandatory third-party verification. Regulators should require public-facing RWA projects to undergo regular independent audits by qualified firms.

These audits must verify the existence, quality, valuation of the underlying assets, and any legal claims against them. A simple “proof of reserves” dashboard is not enough; we need “audited proof of reserves”.

Second, we need a standardized legal framework to govern ownership and redemption processes.

Regulation must ensure that holding tokens constitutes a direct, enforceable legal claim to the underlying assets. The framework must include clear, standardized processes for how investors can redeem their tokens and what happens in the event of default or liquidation. There should be no ambiguity about the rights of token holders.

Finally, a “qualified issuer” and “qualified custodian” regime is critical.

Not just anyone can put an asset on-chain and sell it to the public. Regulators should establish a licensing system for issuers and custodians, ensuring that they meet minimum capital requirements, have a sound governance structure, and are subject to ongoing supervision. This will prevent a race to the bottom and lay the necessary trust foundation for RWAs to scale safely.