The current RWA plan is still in its early stages and cannot layout the future based on the current technological path

Author: Beichen, The Jarring Whistle

The previous article, "The Financial History, Legal System, and Technological Cycle: The Trillion Narrative of RWA Cannot Stand Scrutiny," received a good response. Many friends read this article on different platforms and then contacted me in various ways to exchange views on RWA and the future of the industry.

Regarding RWA, there are both consensus and disagreements, but in any case, "The Jarring Whistle" has sounded a sharp whistle (rather than a monotonous repeat that offends no one), attracting equally sharp responses, and our viewpoints have been continuously refined through discussion.

This article is a整理 and reflection formed through exchanges (or debates) with two of these friends.

About Securitization and Tokenization

One friend comes from the traditional finance industry and has worked on derivatives design, pricing, and trading on Wall Street for many years, making him an expert deeply knowledgeable about derivatives (including securitization).

We have known each other for over two years, and he often criticizes my superficial understanding of finance, which is painful because he is often right. This time we chatted for about forty minutes; he is a non-interest-related party regarding RWA but raised objections to my concept of "securitization" in the article and has a completely different judgment on RWA.

In the end, I fully accepted his clarification of the concept of "securitization," but I held reservations about his judgment on the future direction of RWA.

His correction regarding "securitization" is that the "securitization" discussed in that article is a narrow concept and is not suitable for discussion under the scale of "securitization in financial history," because true securitization actually appeared in the Netherlands in the 16th century, namely stocks and bonds. These are securitizations, but everyone directly refers to them as stocks, bonds, options, etc.

Later, non-standard assets began to be securitized, which is the securitization I discussed in the article. For example, MBS (Mortgage-Backed Securities) for real estate mortgage loans, ABS (Asset-Backed Securities) for various receivables outside of real estate, and CDO (Collateralized Debt Obligations) for guaranteed debt instruments.

So the securitization I discussed refers to the new financial instruments that emerged later, which is a narrow definition of securitization. Now I will revise my statement—the trillion-dollar market of RWA being touted today is mostly the ABS market, and when they boast, it seems they forget that ABS exists.

This friend not only supplemented the definition of "securitization" but also expressed expectations for "tokenization."

He believes that securitization can only achieve trading, while tokenization means that other functions can also be added, which has a lot of imaginative space.

He feels that my criticism of RWA (mainly STO, Security Token Offerings) is too harsh. Although the current tokens are largely just cryptocurrencies, there is still potential for them to evolve into tokens with stronger descriptive capabilities in the future, rather than just currency.

I completely agree with his views on the future of tokenization. In fact, I cited Solv Protocol in that article precisely because they proposed ERC-3525, inventing SFT (Semi-Fungible Tokens) that lie between FT and NFT (to add, FT and NFT are just mappings of asset forms that already exist in reality). By the way, another friend sent me their EIP-7797 proposal.

So our only point of divergence lies in our judgments about the future.

I believe that most RWA projects currently have no chance because their inherent genes are not crypto-native enough, and the subsequent environment is not optimistic. Therefore, I hope for RWA projects that are still very weak and are building application layer protocols with crypto-native logic.

He believes we should set aside the debate of which came first, the chicken or the egg, and just start doing it. Now that someone is willing to create an RWA exchange, suitable assets for RWA will naturally emerge later. We cannot deny the future value of RWA exchanges just because there are currently no suitable assets.

The reason I hold my viewpoint is that I feel the impact of RWA exchanges on the crypto market is even less than that of spot ETFs (although currently, they also have no impact). At least during a bull market, there will indeed be hot money flowing into the crypto industry through ETFs, but the money invested in RWA comes from traditional finance entering the real world, which has nothing to do with the crypto industry; the only ones making money are the exchanges themselves.

Many projects promoting RWA even want crypto money to enter the real world, and the entire logic is completely reversed (how big is the crypto market?!).

About Policy and Technology

Another friend is Bruce, the CEO of Beilai Capital & 42teach. He wrote an article "Refuting 'The Trillion Narrative Bubble of RWA'." Although we have opposing viewpoints, we initially met in a small group set up by mutual acquaintances, and we agreed to hold a formal debate in a space. This article is merely a "Refutation of 'Refuting The Trillion Narrative Bubble of RWA.'"

Chicken and Egg

Our first point of divergence is the same as the previous friend's, which is the debate of which came first, the chicken or the egg. They all support "first the exchange, then the assets," while I hold reservations.

Bruce suggests in the article that we should let cars hit the road first and then iterate to achieve mass production. In his view, my cooling of RWA is akin to a conservative who mocks the newly invented car as inferior to a donkey cart.

But in fact, I am not mocking the automotive industry for having no future; I am pointing out that we cannot treat the newly invented car as the future.

The history of the automobile often traces back to Benz in 1885, but the French made a steam-powered tricycle in 1769. If people at that time had considered this tricycle as the classic model for the future automotive industry, it would have been a huge mistake.

Returning from cars to RWA, I am very optimistic about the future of RWA; I just do not believe that the winners belong to those currently working on RWA. The reason is that, as mentioned earlier, most RWA projects currently have inherent genes that are not crypto-native enough, and the subsequent environment is not optimistic (mainly involving adjustments to the entire legal system), so I am still more optimistic about those RWA projects that are building application layer protocols with crypto-native logic, even though they are still very weak.

Web3 and Hong Kong

The second point of divergence is the level of policy support. Bruce believes that Hong Kong needs Web3, not Web3 needing Hong Kong.

From a god's-eye perspective, this is indeed the case, but you need to understand their logic from the perspective of specific actors to make correct deductions.

I have fully mentioned (but not elaborated) the difficulty of supporting RWA in the previous article, the reason being that legislation is already very difficult, let alone legislation concerning the financial system, which is far more complex than the traffic laws for donkey carts or cars.

My viewpoint can be summarized in one sentence: if the Hong Kong government has the courage to reconstruct the legal system in the financial sector, then please first reactivate the basic foundation as an Asian financial center. In fact, in terms of liquidity, Hong Kong stocks have already become a swamp; this matter is far more urgent than the still new concept of RWA.

The Adequacy of Technology

The third point of divergence lies in the judgment of the technology cycle.

Bruce believes that for the current STO/RWA, Ethereum + Layer 2 is basically sufficient to achieve tokenization, while I believe that the existing underlying infrastructure is far from enough.

Painfully, the current Layer 2 is a cheap version of Ethereum; it does not have a technological paradigm upgrade, although ZK, cross-chain, and other directions are indeed continuously improving.

Moreover, even if we are doing RWA on the existing underlying infrastructure, there should be innovations at the protocol layer to support customized tokens. FT and NFT are merely simulating asset forms that already exist in reality.

Most discussions about RWA today are like people in the 90s discussing the newly emerged handheld computers; they were indeed cool, but they and the various applications developed based on them had long disappeared, and it wasn't until the appearance of the paradigm-shifting iPhone in 2007 that the future truly began.

So my viewpoint can be summed up: either focus on developing protocols based on the existing operating system, or focus on iterating a new operating system.

Conclusion

The divergences I have with the above two friends seem very obvious, but if we look at the consensus, we will find that these divergences are merely trivial—we are all very optimistic about the future of crypto.

Although AI is currently in the spotlight and has broken through the technological threshold, I still firmly believe in crypto. In fact, many friends in the industry have expressed concerns about the future this year, citing the lack of significant technological iteration, coupled with risks from the policy and financial sides, which may lead this industry to fade away like many historical technological fads.

But I still believe that there is nothing wrong with the direction of Web3/Metaverse/DWeb; its arrival is only a matter of time. It is just uncertain who will dominate the technological path, so crypto still has the opportunity to seize it!

However, the extremely optimistic Bruce has already immersed himself in the revolutionary scene, while the cautiously optimistic me watches them become unnecessary cannon fodder and continues to seek more suitable paths.

Of course, there are other friends' exchanges and feedback, which I will not share one by one in this article.

It has been over three months since "The Jarring Whistle" published its first article, "About Whistle, Who Are We?" The most feedback we have received is that our voice is indeed different. We have even been mistakenly identified as a short-selling institution from traditional finance, as we have issued too many critical voices…

All of this indicates that we have achieved our phased goal—"Whistle starts from self-media, using a quarter to let the industry hear our voice." Whistle will continue to send clear, even jarring voices to the market and will publish more constructive content, such as the implementation paths for ZK and cross-chain.

We firmly believe that the secondary market is currently bottoming out (but has not yet hit bottom) and that the primary market is brewing a new narrative at a critical moment. We welcome friends from different fields to engage in discussions, whether in agreement or rebuttal.

As the philosophy of "The Jarring Whistle" since its establishment states:

Every bull market has a new narrative, and beneath the narrative are the evolutions of various factors such as technology, market, and policy. In the rapidly iterating crypto industry, those who can gain insights into the underlying logic and trends of these factors are often researchers and project parties who have been deeply engaged in niche tracks for years (rather than those who have just come into contact with these new concepts). They play different roles in the industry, and their long-term tracking, research, and practice have formed their unique insights, but their true voices cannot be heard by the market, drowned out in the noise.

I believe that these viewpoints from different perspectives will come closer to the truth through collision. For example, the two friends mentioned in this article have gained their experience and insights through immersion, which are highly valuable references.