Many people hear the concept of RWA (Real World Assets on-chain) and their first reaction is:
“Wow, buying government bonds on-chain, buying real estate on-chain, it’s a guaranteed profit, right?”
However, while the risks of RWA are much lower than those of high-volatility DeFi projects, there are still many hidden pitfalls. If not understood clearly, funds can still be lost.
Today's article serves as a wake-up call for everyone wanting to invest in RWA: What are the most common pitfalls in RWA investments, and how to avoid them?
🔥 Common risk one: Off-chain asset fraud or loss of control
The biggest trust point of RWA is: the tokens on-chain really correspond to real-world assets.
If the off-chain assets are fraudulent, ownership is unclear, or misappropriated, even if you hold tokens on-chain, you won’t get a penny back!
📌 Typical cases:
Property RWA projects have not actually completed property registration
Gold custody company absconded with funds, on-chain tokens become worthless
✅ Pitfall avoidance methods:
Check whether the project has disclosed custody institutions and audit reports
Is there independent third-party auditing (e.g., the Big Four, international trust companies)
Prioritize projects with reputable asset sources (e.g., US Treasury bonds, prime real estate)
🔥 Common risk two: On-chain smart contract vulnerabilities
Although the assets are real, RWA projects still need to issue tokens, settle interest, and transfer assets using smart contracts.
If the smart contract design has vulnerabilities, and is attacked by hackers or internal malfeasance, users' funds can still suffer heavy losses.
📌 Typical cases:
Smart contracts without security audits
Backdoor code allows project parties to freeze/transfer user assets at any time
✅ Pitfall avoidance methods:
Only participate in RWA projects audited by professional institutions (OpenZeppelin, Certik, etc.)
Check if the contract is open source and available for community auditing
🔥 Common risk three: Liquidity exhaustion/difficulties in redemption
Some RWA projects are very lively during bull markets, but in bear markets or when project promotion is ineffective, user numbers decrease, leading to:
Tokens are hard to sell
Redemption requests are queued for a long time
Liquidation process is delayed or defaults
📌 Typical cases:
Certain small RWA projects locked up a large amount of user funds, requiring months to redeem
✅ Pitfall avoidance methods:
Prioritize RWA tokens that support on-chain liquidity pools (e.g., Uniswap pools)
Check whether the project provides clear redemption terms and exit mechanisms
🔥 Common risk four: Unclear legal structure, investor rights harmed
Many RWA projects have not established a proper legal structure, leading to disputes:
Investors have no rights to claim the assets
Project parties freeze user tokens across the board
Token holders are not legally recognized as asset rights holders
📌 Typical cases:
Only issued tokens without corresponding SPV or custody contracts for RWA projects
✅ Pitfall avoidance methods:
Check if the project has established an SPV (Special Purpose Vehicle)
Is it clearly stated the legal rights of token holders (e.g., rights to income, redemption rights)
🛡️ Summary: When investing in RWA, you must remember these three golden rules
Rules
Content
1️⃣ Check asset custody
Is there a reliable institution for custody? Is there third-party auditing?
2️⃣ Check contract audits
Is the smart contract open source and audited by professional institutions?
3️⃣ Check exit mechanisms
Can you redeem freely? Is liquidity sufficient?
📌 Always remember: On-chain is just the surface; what truly protects your asset security is the authenticity of the underlying assets + compliance + technical stability.
📣 Next episode preview:
(Summary: Can RWA really become the 'golden entrance' to Web3?)
We will conclude and summarize, telling you the future potential of the RWA sector, and the strategies ordinary people should take right now!
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