Putting real-world assets on the blockchain allows for 'leveraged loops' that regular markets just can't handle.
By turning things like government bonds into digital tokens, investors can instantly use them as collateral to borrow money, buy more tokens, and repeat the cycle infinitely. This creates a dangerous 'time-mismatch' where the digital leverage moves at light speed while the actual underlying asset takes days or weeks to settle.
Leveraged Looping in Digital Real-World Asset Markets
SSRN · 6393060
The tokenization of real-world assets (RWAs) has emerged as one of the most consequential developments at the intersection of traditional finance and decentralized finance (DeFi). By representing ownership or economic rights in instruments such as government bonds, private credit, and real estate through blockchain-based tokens, tokenization has enabled traditional assets to be integrated into decentralized lending platforms. As these markets have matured, participants have developed increasingl