Understanding the Risks of Tokenized RWAs

Not All Risks Are Equal

Tokenized real-world assets introduce a new risk profile that combines traditional finance risks with crypto-native ones. Understanding these risks is essential before investing.

Smart Contract Risk

Every tokenized asset is, at its core, software. The token contract controls minting, burning, transfers, and access control.

What can go wrong:

• Bugs in the contract code
• Exploits by malicious actors
• Upgradeable contracts that can be modified
• Admin key compromises

Mitigations:

• Audited contracts from reputable firms
• Time-locked admin functions
• Multi-sig controls
• Bug bounty programs

Most major issuers (BlackRock/Securitize, Ondo, Franklin Templeton) use audited, battle-tested contract patterns. But risk is never zero.

Counterparty Risk

When you hold a tokenized treasury, you don't directly own the T-bill. You own a claim on an entity that holds T-bills for you.

You're trusting:

• The issuer to actually buy and hold the assets
• The custodian to safeguard those assets
• The legal structure to protect your claim in bankruptcy
• The redemption process to actually work

Questions to ask:

• Who is the issuer and what's their track record?
• Who is the custodian? Are they regulated?
• What happens if the issuer goes bankrupt?
• Can you redeem directly, or only through specific channels?

Regulatory Risk

The regulatory landscape for tokenized securities is still forming. What's legal today might be treated differently tomorrow.

Current uncertainty:

• SEC classification of various tokens
• Cross-border compliance requirements
• Tax treatment in different jurisdictions
• Licensing requirements for issuers

Geographic considerations:

• US has the strictest requirements (most products exclude US retail)
• Europe is moving toward clarity with MiCA
• Some products use offshore structures (BVI, Bermuda)

Practical impact:

• Products may become unavailable in your jurisdiction
• You may face unexpected tax obligations
• Issuers may be forced to wind down offerings

Liquidity Risk

Not all tokenized assets are equally liquid. "On-chain" doesn't automatically mean "easily tradeable."

Liquidity varies by:

• Product design (some only allow direct redemption)
• Secondary market depth (is there actually a DEX pool?)
• Whitelist requirements (can only approved addresses trade?)
• Minimum holding periods

Best practices:

• Understand redemption timelines before investing
• Check if secondary markets exist
• Don't assume 24/7 tradability means instant liquidity

Operational Risk

There's a lot of infrastructure between you and the underlying asset.

Points of failure:

• Oracle feeds for pricing
• Bridge contracts for cross-chain
• Issuer operational systems
• Custodian infrastructure

Any of these can experience outages, errors, or attacks.

Jurisdiction-Specific Risks

Where you live affects your legal protections.

If you're in the US:

• Most products are only available to accredited investors
• Some products explicitly exclude US persons entirely
• You may have limited legal recourse for offshore products

If you're outside the US:

• Your local regulator may not recognize the product
• Legal recourse might be in a foreign jurisdiction
• Currency and capital controls may apply

How to Think About Risk

Compare to alternatives

A tokenized treasury has risks that a direct T-bill purchase doesn't have. But it also offers benefits (24/7 access, programmability, fractional ownership). Is the tradeoff worth it for your use case?

Size appropriately

Don't put your life savings in a single tokenized product. Diversify across issuers and keep some exposure to traditional rails.

Due diligence matters

Read the docs. Understand the legal structure. Know who the custodian is. This isn't a "buy and forget" asset class yet.

The Bottom Line

Tokenized RWAs are promising, but they're not risk-free. The infrastructure is new, the regulations are evolving, and you're adding blockchain risk on top of traditional asset risk.

The best operators minimize these risks through audits, regulated custodians, transparent structures, and conservative practices. But risk can never be eliminated entirely.

Invest accordingly.