Risks associated with RWA Tokenization and their mitigation methods

From legal complications to cyber-security threats and the challenges of self-custodying digital assets, the market for real-world assets tokenized on blockchain faces risks that can directly affect investor outcomes in this emerging sector.

It’s crucial that companies tokenizing RWAs adopt a set of qualities and mitigation strategies to deliver financial products and services that truly meet expectations.

Likewise, both retail and institutional investors should understand the following risks to spot positive or negative signals before making decisions in the tokenized RWA market.

Table of Contents

Legal and off-chain traceability

Despite recent advances around the legality of using cryptocurrencies in certain jurisdictions and specific cases, there is still no consolidated legal framework for RWA tokenization.

In Europe, MiCA is still rolling out the related technical obligations. Data formats, taxonomies, reporting templates, and adoption timelines required to validate RWA tokens are not yet 100% defined.

Possible issues in this scenario:

RWA tokenization projects that “half-comply” without realizing it
Incomplete traceability of who owns what and when ownership changed
Operational risk from labeling and metadata errors

Bureaucratic and procedural layers remain essential for a token to be fully valid. It’s not enough to “just mint it.” You need a verifiable physical chain of custody, visible records and insurance, and documentation that ties the real-world asset to its digital twin.

There’s also a lack of legal uniformity. If an RWA looks like a traditional security in Europe, it may fall under MiFID or other regimes. The line between a “MiCA crypto-asset” and a “financial instrument” isn’t identical across countries.

On the U.S. side, according to SEC Commissioner Mark T. Uyeda, there isn’t a complete, predictable framework. There is progress, but it comes case by case through authorizations that are narrow, temporary, and conditional.

Technological vulnerability

Companies that tokenize RWAs are not immune to potential attacks on their smart contracts aimed at stealing funds or carrying out cyber sabotage.

We’ve already seen protocol hacks and exploitations such as the Bybit theft in February 2025, where bad actors made off with a large amount of tokens worth many millions.

Even so, there are prevention methods, and the more robust companies are hardening their protocols to protect assets on-chain.

An important prevention method is security auditing by firms specialized in blockchain. These teams can run attack simulations or perform meticulous code reviews of the smart contracts used by RWA tokenization companies.

Speculative secondary market

Prices on secondary markets can become highly volatile. With thin liquidity, a couple of buys or sells can move the chart sharply.

Crypto market risk sentiment (fear or euphoria) ends up affecting RWAs even when the real asset hasn’t changed. This leads to misalignment with real value. A token may trade at 130 when the asset is worth 100, or at 70 without fundamental reason.

Without reliable valuation mechanisms and an updated NAV, price stops being a signal and turns into dangerous noise for inexperienced investors.

Many RWA markets are still small and shallow. With low volume:

a small trade moves price too much
a large order triggers harsh candles
counterparties are scarce and spreads widen

There’s also potential fragmentation. The same RWA can price differently on a CEX, on a DEX, or on another blockchain. Price gaps appear due to latency, pool rules, or a lack of cross-platform arbitrage.

Keep in mind the upside: when properly managed, secondary markets in RWA tokenization can attract more liquidity and make financing processes more efficient.

Composability and poorly managed leverage

Tokenized RWAs plug into the entire DeFi ecosystem like LEGO bricks. That makes it easy to leverage across protocols to optimize outcomes.

Common crypto leverage use cases:

DeFi lending on protocols like Jupiter on Solana
Looping strategies across multiple vaults

However, this carries chain-wide failure risks and unexpected liquidations, especially if platforms are poorly designed or if loose strategies are used.

Say you deposit an RWA as collateral, take a loan, buy more of the same RWA, and repeat. If the price dips a bit or protocol rates rise, interest eats you alive and you get liquidated.

On the other hand, if a key protocol fails or pauses withdrawals, others end up short of cash and forced sales follow. A bank run in A hits B and C even if your real-world asset is fine.

How RECC mitigates RWA tokenization risks?

RECC is the bridge between DeFi and real estate with competitive yields. The way to deliver on this is with a system that effectively mitigates RWA tokenization risks.

This system is the RECC ETF (RETF), which operates like a real-estate operations fund powered by the efficiency of the Solana blockchain.

Legal and off-chain traceability

RECC does not tokenize deeds or “shares” of properties. The RETF is a token that represents fund participation to access the returns it generates.

In essence, the entire real-estate cycle happens off-chain, and the fund’s “ledger” lives on-chain. This avoids clashes with public registries and keeps traceability where it matters: deposits, allocations, and redemptions are recorded by the ETF program.

Technological vulnerability

RECC’s Solana smart contracts were audited by Halborn. Critical flows (contribute → claim), mint validations, claim rules, and program-ID checks in the Raydium CLMM integration were hardened.

We also improved Token-2022 and metadata hygiene for safer composability. These steps reduced the attack surface for logic bugs and exploits.

Speculative secondary market

The RETF uses a conservative calculation of Net Asset Value (NAV) and Price Per Share (PPS).

NAV reflects the real amount of funds deposited in the RETF vault, including fundraising positions in specific real-estate operations (e.g., a development in San Diego, USA). PPS = NAV / shares.

The secondary-market price can move, but the NAV reference is public and only increases when there is realized performance or properties mature.

Composability and leverage

Two management fronts where this risk can affect fund returns:

Tokens the RETF uses for its internal operations
Tokens held by investors representing their participation

Internally, ETF allocations and redemptions are executed from program custody. These in- and out-flows follow preset rules that avoid rehypothecation.

In addition, interactions with other platforms go through whitelisted adapters via CPI. This reduces the risk of opaque routes.

For investor-side management, those who receive the RETF token will interact with DeFi under strategic partnerships with reputable, security-focused Solana teams.

Liquidity and runs

A further risk is lack of liquidity, crucial for the RETF.

To mitigate it, the fund operates with two buckets: a liquid bucket (instant withdrawals up to a floor) and a locked bucket (capital in fundraising). If outflows spike, the team tops up the liquid bucket with cash from matured properties. Withdrawals above a preset limit go to Pending with an SLA ≤ 48h, preventing forced sales.

Conclusion

While RWA tokenization risks can’t be eliminated, they can be mitigated with structured systems. RECC’s RETF delivers exactly that: governed routes, value anchored to real cash flows, and orderly exits. The true value isn’t tokenization alone, but the governance that makes it trustworthy and efficient.