RWA Looping: The Next Growth Engine for Tokenized Assets?

Over the past months and weeks, RWA looping has emerged as one of the most discussed topics in crypto.

Why it matters

Total RWA value grew ~5x in the last 12 months, sitting at an all-time high of $26.7 billion today.

Thanks to tokenization platforms like Centrifuge or Securitize, tier-one asset managers such as BlackRock, Franklin Templeton, and Apollo have been able to tokenize their products and bring them onchain — mainly to address crypto-native demand for diversification beyond crypto assets.

With that, the supply side of RWAs appears largely solved, shifting the focus to the next challenge: finding new buyers who can ignite the next stage of market growth.

A compelling case

RWA looping is increasingly considered one of the most credible paths to fuel that demand. By unlocking leverage to yield sources uncorrelated to crypto markets, it offers something TradFi can't:

Fast, accessible, and programmable leverage on alternative assets, something that typically requires lengthy negotiations and remains reserved for the largest institutions.

Behind the scenes

To better understand the evolving infrastructure and use case landscape around RWA looping, we at @block_stories spoke with:

• @talkintokens from @Morpho, whose modular lending infrastructure serves as the backbone for many leveraged RWA strategies.

• @MarcinRedStone, Co-Founder at @redstone_defi, which is developing price feeds, rating, and liquidation systems tailored to tokenized RWAs.

• Anlin Zhang, Senior Protocol Strategist at @gauntlet_xyz, one of crypto’s leading risk curators, overseeing leveraged RWA strategies with tens of millions of dollars in capital.

• @sonyasunkim, Co-Founder at @3f_xyz, a platform that allows investors to create leveraged RWA positions across a wide range of RWAs in one click.

• David Vatchev, Head of RWA Tokenization at Fasanara Capital, a leading institutional asset manager overseeing more than $5 billion in assets and the tokenized private credit fund mF-ONE.

• Nuno Cortesão, Co-Founder & CEO at @Zharta, a loan infrastructure provider that recently announced, together with Securitize, the first onchain asynchronous redemption unwind for leveraged positions on tokenized securities.

And with that, please find our condensed findings below.

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1/ Why is RWA looping gaining traction now?

Two things changed in the past year that made it viable.

First, onchain rates collapsed. As speculative activity faded and fewer participants sought leverage on crypto assets, the returns available from crypto-native lending strategies dropped, in some cases below traditional money market rates. That left a growing pool of onchain stablecoin capital searching for productive yield.

A lot of the traditional crypto yield sources have compressed as speculation faded, crypto prices came down, and arbitrage opportunities were competed away. That’s pushing DeFi to look for new yield sources, and RWAs are compelling because they introduce real yield that isn’t correlated with crypto markets and can be amplified through looping strategies."

Luke Chmiel, Growth – Morpho

Second, RWA infrastructure matured: more tokenized assets now support the minting, redemption, and oracle integrations needed to function as collateral on lending markets like Morpho and Aave.

Once both pieces are in place, the math starts to work. With stablecoin borrow rates sitting around 3-4% and RWAs like tokenized private credit funds yielding 6-10%, the spread economics for looping become positive. A tokenized fund yielding 8% can produce north of 14% APY when looped three to four times.

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2/ Are (higher) yields the only reason investors are interested in RWA looping?

Yield is only one part of the story. The bigger unlock behind RWA looping is that it creates a new way to use leverage for assets that have historically been difficult to finance in traditional markets.

A good example is private credit. Securing financing for these instruments often requires bilateral agreements with banks or specialized lenders, extensive underwriting, and operational processes that are slow and fragmented.

With tokenized private credit, this looks different. Once integrated into lending markets, investors can permissionlessly and programmatically borrow against their tokenized position and increase returns through looping strategies.

This means that investment strategies once confined to a small group of institutional investors can become accessible to a much broader set of participants by bringing the underlying assets onchain.

"Ethena showed how powerful it can be to take a trading strategy such as the basis trade, which was historically confined to hedge funds and institutions, and make it accessible to a global set of investors by bringing it onchain. At 3F we want to do something similar for leveraged carry trades by building infrastructure that allows users to loop a wide range of yield-generating RWAs."

Sonya Kim, Co-Founder – 3F

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3/ What does the market for RWA looping look like today?

The market is still relatively small. Based on our conversations, leverage against RWAs across the main lending platforms such as Aave, Morpho, and Kamino is estimated to be around $700 million. For context, this would represent only a small share of the roughly $20 billion in outstanding loans across these lending markets.

On the asset side, most activity centers on leveraged strategies involving tokenized U.S. Treasuries and private credit funds from firms such as Apollo Global, FalconX, or Fasanara Capital.

On the demand side, the market remains largely crypto-native.

“We see three main sources of demand around onchain RWAs today. The first is DeFi-native hedge funds, where the use case is leveraged looping and enhanced capital efficiency. The second is treasury management by L1 foundations and DAOs seeking diversified yield. The third emerging driver is yield-bearing stablecoins using RWAs as reserve assets to add diversified, real-world sources of yield backing.”

David Vatchev, Head of RWA Tokenization – Fasanara Capital

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4/ What’s still holding RWA looping back?

The core limitation is a mismatch between DeFi’s speed and the settlement reality of RWAs. While crypto-native lending markets assume that collateral can be priced, liquidated, and sold within seconds, most RWAs do not behave that way. Treasuries settle T+1. Private credit funds can have 90-day lock-ups or quarterly redemption windows. And most RWA tokens cannot be freely traded by arbitrary liquidators.

"A major bottleneck for RWA looping is that DeFi is built around atomicity: transactions execute in a single block or they revert. Tokenized securities carry real-world redemption cycles, settlement windows, and issuer-level processing that span days or weeks. These are fundamentally asynchronous, time-based operations, and most DeFi infrastructure wasn't designed for them."

Nuno Cortesão, Co-Founder & CEO – Zharta

Today, asset managers are tackling this issue by adapting their RWA design.

“A core design principle in bringing real-world credit onchain is aligning asset cash flows with the liquidity expectations of DeFi markets. In practice this means short-duration, diversified exposures combined with structural liquidity features such as liquidity sleeves or enhanced redemption cycles. These help bridge the mismatch between RWAs and onchain lending markets.”

David Vatchev, Head of RWA Tokenization – Fasanara Capital

Still, other challenges remain. Most of DeFi lending markets today rely on variable interest rates. Because looping strategies depend on the spread between the yield on the underlying asset and the cost of borrowing, any spike in borrow rates can compress or eliminate that margin entirely, making returns harder to predict and certain strategies unviable. This is also why a growing number of lending protocols are beginning to explore fixed-rate lending infrastructure.

Beyond that, the broader framework for integrating RWAs into DeFi is still evolving. Lending markets, risk curators, and infrastructure providers are only beginning to develop the models and tooling needed to handle RWAs looping at scale.

“Protocols accepting RWA collateral are often pricing risk based on NAV feeds without properly understanding the underlying credit quality, redemption constraints, or concentration risk of the collateral pool.”

Marcin Kaźmierczak, Co-Founder – RedStone

Ultimately, no single protocol can solve all these problems on its own. Making RWA looping viable at scale requires coordination across many different infrastructure providers.

"To make RWA looping work you need a full stack around the asset: lending markets where the asset can be used as collateral, curators or risk managers who can properly underwrite the asset, reliable price oracles, bridge financing from third party liquidity providers to build the leverage position in one go, and liquidation infrastructure that can actually handle these assets. Without those pieces maturing and working together, the market can’t really scale."

Sonya Kim, Co-Founder – 3F

5/ If these challenges are solved, how could the RWA looping market evolve?

On the demand side, RWA looping could broaden participation from institutional investors by allowing them to increase exposure to assets they already hold in a more capital-efficient way.

"We are in active conversations with both asset issuers and institutional capital allocators who are interested in our levered RWA strategies. The first profile is looking to expand the composability and utility of their tokens on efficient DeFi rails, while the second is interested in enhanced exposure to existing positions they may hold in the underlying RWAs."

Anlin Zhang, Senior Protocol Strategist – Gauntlet

On the supply side, the range of loopable assets is expected to widen, but not evenly. Duration risk is the defining constraint: the assets that scale first will be those that can settle quickly and have credible liquidation paths, not necessarily those with the highest yields.

"The assets that will thrive are those combining short-duration with an established ecosystem of liquidators and secondary market partners. That makes tokenized money market funds and short-duration treasury products the natural first movers, as T+1 settlement, daily liquidity, and deep market maker relationships already exist."

Marcin Kaźmierczak, Co-Founder – RedStone

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KEY TAKEAWAYS

• RWA looping is gaining traction as crypto-native yield compresses. With fewer arbitrage opportunities and less speculative demand, DeFi capital is turning to tokenized RWAs for uncorrelated yield that can be amplified through leverage.

• The market remains early but is beginning to form. There's an estimated $700 million in RWA-backed leverage exists across DeFi’s leading lending platforms such as Aave, Morpho and Kamino, with demand primarily driven by crypto-native players like DeFi hedge funds and DAO treasuries.

• Infrastructure remains the main bottleneck. DeFi lending systems assume instant pricing, liquidation, and settlement, while RWAs operate on slower redemption cycles that require new oracle systems, risk frameworks, and liquidation mechanisms.

• If the infrastructure challenges get solved, the market could scale quickly. Then, tokenized treasuries and money market funds are likely to lead early adoption. They settle fast and have credible liquidation paths.

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This piece was initially published in the @block_stories Crypto Briefing, our weekly newsletter covering key events in the onchain economy.