The total value locked (TVL) in DeFi protocols has dropped by $55 billion in the last month. Although the 31% decline gave early signs of a capital exodus, it was primarily driven by asset price depreciation amidst slowing market conditions. Nevertheless, DeFi investors always look for a mature market and relative stability to protect their asset value and generate yields. To this end, RWA tokenization can help the DeFi ecosystem.
RWA tokenization has grown by 380% over the last three years, reaching around $24 billion by mid-2025. Besides enhancing efficiency and transparency in commodity supply chains, tokenization reduces entry barriers and supplies capital through fractional ownership. With the foundations laid for tokenized RWAs, we'll see fresh liquidity injection into the DeFi markets in 2026, powered by RWAs, making way for a more integrated global financial market.
Tokenization Is Key For Abundant Liquidity
Despite the recent downturn, the RWA tokenization market has a distributed asset value of over $18 billion. While U.S. Treasury debt instruments dominate these markets with over $8.8 billion, commodities contribute just $3 billion. Yet commodities have a huge untapped potential.
Take, for instance, oil. The global oil market is worth over $2.5 trillion annually. However, the blockchain-based oil and gas market was valued at just $984 million in 2024. The only hope is that blockchain-powered oil markets are expected to grow at a CAGR of almost 42% till 2034.
Blockchain-led RWA tokenization serves a critical role in bridging the gap between traditional industries like oil and digital-first tech to unlock liquidity. Javed Fiyaz, co-founder of Index Exchange, a regulated digital exchange for trading tokenized crude oil and energy assets, explained, "tokenization ensures interoperability between mainstream finance and the broader crypto industry.
Such interoperable markets help expand the investment landscape beyond stocks and bonds into hitherto unexplored terrains. Tokenized crude oil transforms oil into a smart, instantly tradeable, and capital-efficient asset with better financing opportunities and seamless commodity management.
Tokenization also enables fractionalized and flexible investments, which makes small-scale retail participation easier in oil markets. Unlike traditional markets, small investors can own a fraction of a tokenized oil reserve, injecting fresh liquidity to create inclusive energy markets."
Such a democratic market structure automatically brings in more liquidity into the RWA tokenization markets. But tokenization alone doesn't ensure liquidity. In a study of 670 tokenized real estate properties, the authors acknowledged the need for hybrid solutions combining centralized and decentralized markets to enhance liquidity.
In other words, it's necessary to deploy tokenized RWAs in public markets so that tokenized assets don't act like their illiquid counterparts. This not only helps RWA-tokenized assets but also ensures crypto markets maintain their liquidity reserves.
Deploying Tokenized Assets In DeFi
Tokenized RWA assets have contributed to the growth of DeFi in 2025. According to Binance Research, DeFi lending protocols rose 72% year-to-date (YTD) from $53 billion to over $127 billion by early September 2025, benefitting from tokenized asset adoption.
Javed said, "As tokenized assets continue integrating into the mainstream financial system, a new generation of onchain financial products will emerge, enabling more efficient, transparent, and accessible capital markets."
However, a 1inch report stated that more than $12 billion in DeFi liquidity (83-95% of DeFi pools) remains idle as they don't earn fees or generate returns. The inefficiency affects retail investors the most, with over 50% liquidity providers losing money to impermanent loss and net deficits surpassing $60 million. With a fresh liquidity influx from tokenized RWAs, the idle liquidity problem in DeFi markets will increase significantly.
Javed added, "Currently, a huge amount of capital is locked in wallets, exchanges, and app balances, blocked in transit payment flows, or in crypto treasuries, reserves, and escrows. Although they could've earned a steady and safe yield, they're stuck in an idle capital trap. As more capital flows from tokenized RWAs, DeFi needs a neutral yield-orchestration layer to generate returns on idle assets.
A yield-orchestration layer can convert static reserves into orchestrated yields across RWAs, regulated stablecoins, and other crypto holdings through auto-compounding remittances, default earnings on token balances, and harvesting onchain DAO capital. Investors thus no longer need to lock their tokens in low or zero-yield accounts or suffer impermanent loss through collateral and escrows."
Combining sustainable yields with RWA tokenization thus provides a huge opportunity for DeFi players, as illiquid assets can be made productive, generating credible returns. By bridging traditional financial commodities like oil with DeFi, it brings a huge reservoir of idle capital into crypto, creating a flywheel of abundant liquidity.
Coinbase Ventures has also shown enthusiasm about the tokenized RWA-led DeFi landscape in 2026. Per Kinji Steimetz of Coinbase, RWA perpetuals DEX infrastructure creates exposure to off-chain assets like oil through perpetual futures contracts. With a rising demand for onchain macro asset exposure, RWA perpetuals bridge crypto with macro markets.
Elaborating on the point, Javed said, "RWA tokenization is no longer a speculative experiment. It's about simultaneously addressing the challenges of global commodity markets and channeling liquidity into digital asset markets.
As traditional assets like oil become more liquid and accessible, they can be collateralized, financed, and traded more efficiently. Monetizing idle assets, such as oil reserves, through tokenization solves one part of the liquidity challenge; deploying them in market-facing protocols completes the investment arc."
It's wrong to expect the entire liquidity to come from asset tokenization alone. Collateralization in lending-borrowing platforms and providing liquidity to trading pools empowers investors to unlock capital efficiency for long-term illiquid holdings. And decentralization often acts as a liquidity catalyst, enhancing capital flows through permissionless, composable DeFi protocols.
Therefore, RWA tokenization serves the dual role of financializing traditional asset classes while leveraging the liquidity to serve commodities and DeFi markets simultaneously. In 2026, more investors will look forward to tokenizing fixed-asset instruments like oil to participate in DeFi markets, hedging their position against sudden inflation and volatility.
