Sergey Nazarov predicts that the total value locked (TVL) in Real World Assets (RWAs) could surpass that in crypto by 2027. The Chainlink CEO attributes this expected capital inflow to increasing interest from the traditional finance (TradFi) sector.

Tokenized RWAs have become one of crypto’s most significant trends in 2024, drawing substantial attention from major Wall Street firms.

Tokenized RWAs to Make TradFi DeFi’s Biggest User

Sergey Nazarov predicts that traditional finance (TradFi) will generate significant interest in decentralized finance (DeFi) protocols, positioning TradFi as DeFi’s largest user. This integration, according to the Chainlink CEO, could lead to clearer, more streamlined, and value-driven regulations.

“Real-world assets have already surpassed the total value locked in DeFi, and it’s still just a small percentage of what can be tokenized. I believe real-world assets will surpass the total value of cryptocurrencies in the next one to three years. Our industry will be defined by both the real-world asset blockchain format and the cryptocurrency format, fundamentally changing how people perceive our space and what it delivers,” Nazarov states.

Nazarov also believes that RWAs will drive the adoption of Central Bank Digital Currencies (CBDC), boosting on-chain purchasing power. This shift would attract more value into DeFi protocols and tokenized RWA systems.

Read more: Real World Asset (RWA) Backed Tokens Explained

He further anticipates the emergence of more blockchains, driven by lower costs and ease of development. These chains would be seamlessly interconnected, with Chainlink’s Cross-Chain Interoperability Protocol (CCIP) playing a key role in simplifying app development. Nazarov envisions this interconnectedness facilitating compliance, enabling a larger share of value to flow through regulated transactions.

Additionally, Nazarov predicts that governments will increasingly embrace blockchains, with the trend starting in Asia, followed by the Middle East — regions actively modernizing their infrastructure.

“I foresee a corridor of blockchain-based activity between the Middle East and Asia, involving real-world assets, commodities, and various other transactions across these regions. Both areas are actively reinventing their infrastructure and seeking trust-minimized ways to transact with each other. These developments might not be obvious to everyone right now, but I believe they are very likely to happen,” the Chainlink CEO adds.

Real World Assets Attract Institutional Interest

Tokenized RWAs have taken the industry by storm, progressively attracting institutional interest from major players like BlackRock, Grayscale, and Franklin Templeton. The sector’s market cap recently surpassed $10 billion, showing the progress RWAs have made in connecting traditional finance (TradFi) with DeFi.

Research from OurNetwork highlights that the private credit market is valued at $8.1 billion, while tokenized treasuries stand at $1.9 billion. Other tokenized asset classes remain under $1 billion.

“The private credit market currently stands at $8.1 billion while that of tokenized treasuries is $1.9 billion. The remaining tokenized asset classes fall under $1 billion,” research from OurNetwork highlighted.

Read more: What is Tokenization on Blockchain?

Tokenized Treasury Market Capitalization. Source: RWA.xyz

As shown in the chart, BlackRock’s BUIDL fund has emerged as a leader in the RWA sector. The fund continues to see rising dividend yields, indicating growing interest from institutional investors. DeFi protocols like Ondo have started incorporating BUIDL into derivative products, broadening its use case.

In addition to BlackRock, Franklin Templeton has positioned itself as a key player by deploying its Nasdaq-listed Onchain US Government Money Fund (FOBXX) on Arbitrum and Avalanche. Grayscale also operates a tokenized RWA fund on Avalanche while managing a diverse portfolio of crypto investment trusts.

Similarly, Goldman Sachs is exploring tokenized treasuries, and State Street is collaborating with Swiss crypto firm Taurus on an RWA tokenization project.

However, despite growing interest, tokenized real-world assets face challenges around token legitimacy. Legal recognition in courts and smart contract security remain significant hurdles that could slow the adoption of tokenized RWAs in both traditional and decentralized finance sectors.