Author: @ballsyalchemist
Translator: Ding Dang
Original Title: When Big Money Starts Getting Serious, the Liquidity Issues of RWA Become Apparent
Liquidity is the prerequisite for an asset to gain confidence. When the market has sufficient depth, large amounts of capital can be smoothly absorbed, whales can freely build positions, and assets can be used as reliable collateral. This is because lenders know that they can exit at any time if needed. However, if the asset itself lacks liquidity, the situation is the opposite. Shallow liquidity struggles to attract users, and insufficient users further compress trading depth, eventually forming a self-reinforcing "liquidity depletion cycle."
Tokenization was initially highly anticipated: it was seen as a key tool to enhance capital liquidity, unleash the financial utility of DeFi, and bridge on-chain and off-chain assets. Ideally, traditional financial markets worth trillions of dollars would be brought on-chain, allowing anyone to trade freely, use assets as collateral for loans, and combine and innovate in ways that are difficult to achieve in the traditional financial system through DeFi.
However, the reality is that beneath the surface prosperity, most tokenized assets operate in extremely fragile, illiquid markets that cannot support meaningful capital scales. The "liquidity" that is a prerequisite for financial composability and practical utility has not been truly realized. These issues are not noticeable in small transactions, but once capital attempts to move at scale, the hidden costs and risks quickly emerge.
The Current Reality of Liquidity
The first hidden cost of tokenized assets is reflected in slippage.
Taking tokenized gold as an example, the chart below compares the expected slippage of major centralized exchanges and traditional gold markets at different trade sizes, and the difference is clear.
PAXG / XAUT Perpetual vs. Spot vs. CME Deliverable Gold Futures: Trade Size and Slippage
As trade size increases, the slippage for PAXG and XAUT perpetual contracts rises rapidly and exponentially. At a nominal trade size of about $4 million, slippage approaches 150 basis points. In contrast, CME's slippage curve is almost flush with the horizontal axis, barely noticeable.
At the spot market level, the liquidity constraints of PAXG and XAUT are even more apparent. Even when selecting the most liquid spot trading venues for each, the effective depth provided by their order books on either the buy or sell side is less than $3 million. This liquidity ceiling is directly reflected in the curve "cutting off" prematurely at smaller trade sizes.
The right side separately shows CME's slippage curve; its nearly flat shape intuitively reflects the depth advantage of traditional markets. Even for trade sizes far exceeding $4 million, the expected slippage remains highly stable. A $20 million gold futures trade has a price impact of even less than 3 basis points. In terms of magnitude, CME's liquidity depth is far beyond that of any comparable product in the crypto market.
This difference has direct consequences. In deep traditional markets, even large trades have almost negligible price impact; in the shallow markets of tokenized assets, the same operation immediately incurs significant costs, and the difficulty of closing positions increases rapidly with size. The daily average trading volume comparison below clearly shows this gap, and this issue is not unique to the gold market but applies to other assets as well.
CME Gold Futures vs. PAXG / XAUT Perpetual and Spot: Daily Trading Volume Comparison
The above discussion mainly focuses on CEXs. So, if we switch to AMM DEXs, does the situation improve? The answer is恰恰相反, it only gets worse.
For example, in a February 2025 XAUT transaction, a user spent 2,912 USDT but only obtained XAUT worth about $1,731 at the real gold price at the time, effectively paying a whopping 68% premium for this trade.
In another transaction, a user exchanged PAXG worth about $1.107 million (at the then gold price) for 1.093 million USDT, with a slippage of about 1.3%. Although the slippage is not as extreme as the former, it is still unacceptably high when price impact in traditional markets is typically measured in single-digit basis points.
Furthermore, over the past six months or so, the average slippage for XAUT and PAXG trades on Uniswap has consistently remained in the 25–35 basis point range, and even exceeded 50 basis points during certain periods.
Average Absolute Slippage for XAUT and PAXG on Uniswap V3
This article chooses gold as the primary analysis object because it is currently the largest non-dollar, non-credit tokenized asset on-chain. But the same problems also appear in the tokenized stock market.
NVDAx / TSLAx / SPYx vs. Nasdaq NVDA / TSLA / SPY: Trade Size and Slippage
TSLAx and NVDAx are among the top tokenized stocks by market cap. On Jupiter, a $1 million TSLAx trade has a slippage of about 5%; while NVDAx's slippage is as high as 80%, almost rendering it untradeable. In contrast, in traditional markets, a trade of the same size in Tesla or Nvidia stock has a price impact of only 18 basis points and 14 basis points respectively (this doesn't even include off-exchange liquidity like dark pools).
These costs are easily overlooked in small trades but become unavoidable once trade sizes increase. Insufficient liquidity directly translates into actual losses.
Why is the Tokenized Market More Dangerous?
The problems brought by insufficient liquidity are not limited to transaction costs; they can directly破坏 the market structure itself.
When market liquidity is thin, the price discovery mechanism becomes fragile, order book noise increases significantly, and oracle data sources are affected by this noise. In highly interconnected systems, even极小规模的交易 can trigger巨大的连锁反应.
In mid-October 2025, PAXG on the Binance spot market experienced two明显的"anomalous" events within a week. On October 10th, the price dropped 10.6%; on October 16th, it surged 9.7%. Both fluctuations quickly returned to their original levels, almost certainly not caused by fundamental changes but rather a direct manifestation of order book fragility.
Because the tokenized asset ecosystem is highly interconnected, this instability is not confined to a single exchange. Binance spot holds the highest weight in Hyperliquid's oracle construction, so during these two anomalous fluctuations, $6.84 million in long positions and $2.37 million in short positions were liquidated on Hyperliquid, with the liquidation规模甚至超过了 Binance itself.
This result is concerning. It shows that a single illiquid market is enough to amplify and propagate volatility across multiple trading venues. In extreme cases, this structure could even increase the risk of oracle manipulation. Even traders who never participated in the original spot market may passively suffer losses due to liquidations, price distortions, and widening spreads.
Ultimately, all these issues stem from the same fact: the primary market lacks real, scalable liquidity.
PAXG Liquidation Chart on Coinglass
Insufficient Liquidity is a Structural Problem
The lack of liquidity for tokenized assets is a structural problem.
Liquidity does not automatically appear just because an asset is tokenized. It relies on the continuous supply from market makers, who themselves are subject to strict capital constraints. They allocate capital to markets where inventory can be turned over efficiently, risks can be continuously hedged, and positions can be exited with minimal time and cost friction.
Most tokenized assets恰恰 fail to meet these key requirements.
First, for market makers to provide liquidity, they must first complete asset minting. But in reality, minting itself comes with explicit costs. Issuers typically charge minting and redemption fees ranging from 10–50 basis points;同时, the minting process often involves operational coordination, KYC checks, and settlement through custodians or brokers, rather than direct on-chain execution. Market makers need to advance funds and wait for several hours or even days to actually obtain the tokenized asset.
Second, even after inventory is generated, it cannot be redeemed instantly. The redemption周期 for most tokenized assets is measured in "hours or days," not seconds. Common redemption rules are T+1 to T+5, accompanied by daily or weekly quota limits. For larger positions, a complete exit often takes several days or even longer.
From a market maker's perspective, such inventory is largely equivalent to "low-liquidity assets" that cannot be quickly recovered and redeployed.
To maintain market depth, market makers must hold inventory over a longer周期, continuously bear price volatility risk and hedge, while waiting for redemption to complete. During this time, the same capital could have been deployed to other crypto markets—where little inventory is needed, hedging is continuous, and positions can be closed at any time. Precisely because of this, the opportunity cost is particularly high in the crypto market.
Faced with this trade-off, rational liquidity providers naturally choose to allocate capital to other markets.
The existing market structure is also insufficient to solve this problem. AMMs transfer inventory risk to liquidity providers but do not eliminate redemption constraints; while order book-based trading venues fragment market makers' liquidity across multiple exchanges, further weakening overall depth.
The final result is持续不足的流动性, forming a vicious cycle. Insufficient liquidity discourages participation, and lack of participation in turn further削弱 liquidity. The entire tokenized asset ecosystem is thus trapped in this cycle.
A New Market Structure
Insufficient liquidity is a structural obstacle restricting the scaled development of tokenized assets.
Shallow market depth cannot support practically meaningful position sizes, and the fragile market structure amplifies and transmits local volatility to different protocols and trading venues. Assets that cannot be exited smoothly under predictable conditions自然也难以 serve as credible collateral. Under the current mainstream tokenization model, liquidity is chronically constrained, and capital efficiency remains low.
For tokenized assets to truly become usable at scale, the market structure itself must change.
What if the price discovery and liquidity supply of assets could be directly mapped from off-chain markets, rather than being rediscovered and cold-started on-chain? What if users could acquire tokenized assets at any trade size without forcing market makers to hold low-liquidity inventory long-term? What if the redemption mechanism were fast enough, with clear paths and no restrictions?
Asset tokenization has not failed due to the technical path of "putting assets on-chain."
Where it has truly failed is that the market structure supporting these assets was never truly established.
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