By Alex Lola
Chief Executive Officer of ATME | Tokenization and Digital Assets Expert
At ATME , we believe in the promise of tokenized real-world assets (RWAs)—not just for the access and yield they offer, but for the way they can reshape modern finance. But with innovation comes responsibility. Tokenizing RWAs isn’t just about putting yield-bearing instruments on-chain. It’s also about exposure: to risk, to third parties, and to real-world complications that don’t always fit neatly into a smart contract.
So before we talk about returns, let’s ask a more important question: what happens when things don’t go as planned?
Because sometimes, they don’t.
The profit/risk ratio: why it’s not just about yield
Let’s be honest, everyone notices the yields first. That 8%, 10%, maybe even more in some corners of the RWA space. However, returns don’t mean much without understanding what you’re giving up to get them.
And this is where it gets nuanced. Because unlike purely digital assets, RWAs inherit the complexity of the offline world. You’re not just dealing with smart contract risks. You’re dealing with business risk, legal risk, enforcement risk, and in some cases, even geopolitical risk.
So, the question becomes: is the profit worth the risk? There’s no static answer – it depends on the asset, the issuer, the market, and the timing. Sometimes it’s worth it, but it pays to explore deeper.
Here’s what to watch out for—and how to manage it.
1. Issuer risk
This is the big one. Does the asset actually exist? Is it properly represented? And can the issuer fulfill their obligations? And importantly, is the underlying asset secured or protected in the event of issuer failure? If the foundation lacks integrity or safeguards, the entire structure is exposed to significant risk.
What should investors do?
- Make sure the tokenization platform performs full due diligence on both the issuer and the underlying asset. It doesn’t have to be public, but it must be real.
- KYC and AML protocols aren’t just regulatory checkboxes—they help keep bad actors out of the system.
- Look for proper legal structuring. In some cases, issuers wrap RWAs in a legally separate entity to ring-fence the asset from the issuer’s broader business. That way, if the issuer fails, the asset stays protected.
2. Liquidity risk
With many RWAs, getting in is easy—getting out isn’t. For smaller issuances (typically under $10–20 million), real secondary market activity is rare. The investor base is thin, and interest is limited, making meaningful liquidity structurally difficult. Tokenization does bring significant value to private equity or private credit, making those assets more liquid than they have traditionally been, but they will not be as liquid as public markets. The real advantage lies in how easily ownership rights can be transferred—something that in traditional private equity structures is slow and complex, but in tokenized form can be done much faster while remaining fully compliant.
What should investors look for?
- Is a secondary market legally enabled and technically live?
- Are there optional buybacks, redemption mechanisms, or transfer rights?
- Is any form of market-making in place—even informal support?
A credible liquidity strategy doesn’t guarantee daily trading. But it shows someone has thought through your exit, even under illiquid conditions.
3. Legal and jurisdictional risk
When things go sideways, where do you stand legally? That depends on how the asset is structured and where it lives.
What to examine in legal structures
- Understand what jurisdiction the token and the issuer fall under.
- Look for platforms regulated by competent regulators —FCA (UK), SFC (Hong Kong), SEC (U.S.), CBB (Bahrain), ADGM, VARA and others (UAE)etc.
- Clear regulation means stronger investor protection, enforceable rights, and less guesswork when you need answers.
4. Token and asset custody risk
You may hold the token—but who really controls it? And who is safeguarding the actual asset behind it?
What investors should look out for
For token custody: Know who holds the private keys. If it’s the platform, check that it’s licensed and regulated. If you choose self-custody, understand the tradeoff: more control, but more responsibility. Lost keys, weak security, or wallet mismanagement can lead to permanent loss.
For underlying asset custody: Verify that the real-world asset is held by a qualified custodian. It should be segregated—not pooled—and ideally insured. Custody isn’t a footnote—it’s your last line of defense. Pick a setup that fits your technical skill and risk tolerance.
5. Cybersecurity risk
These assets live on-chain—and that makes them vulnerable. Public blockchains expose tokens to several cybersecurity threats. Smart contracts are open-source and visible to everyone, making them susceptible to code exploits and logic bugs. Attackers can manipulate oracles, exploit cross-chain bridges, or target users through phishing. The public nature of the ledger also compromises transaction privacy. Of course, private blockchains come with their own limitations, such as reduced flexibility and potentially lower liquidity, so the trade-off between security and flexibility should be weighed against your goals and risk appetite.
What I would recommend investors do
Prioritize platforms that use private permissioned blockchains to prioritize security. That means:
- Restricted access and role-based controls
- Continuous infrastructure monitoring
- Dedicated security operations (SOC) teams
- Regular penetration testing and vulnerability patching
The best platforms talk openly about their security setup. If they don’t, that’s a red flag.
Risk is an inherent part of any investment. With tokenized assets, the smart move isn’t to avoid the risk—it’s to understand it and manage it. Ask the right questions. Demand transparency. And invest where the structure matches the promise.
And if everything breaks?
What can an investor do if the issuer misses a payment, goes silent, or exits the market altogether?
The answer varies a lot by structure. In rare but unfortunate scenarios, a poorly structured offering could leave investors with limited enforceability. This underscores the importance of upfront diligence. Some RWA projects do address this early. They outline what triggers a default, what enforcement options exist, who represents tokenholders in that process, and what timeline to expect.
This is where clear disclosures play a critical role. They allow investors to understand what triggers a default, what rights they hold, and how those rights can be exercised. Reading through each line pays dividends in the long run.
If you invest through a regulated tokenization platform like ATME, you often have stronger support. Such platforms typically bring the legal, operational, and technical expertise to act quickly—whether that means managing liquidation, restructuring, or other steps to protect investors’ interests when things go wrong.
Final thoughts
There’s no universal rulebook for evaluating RWAs, and that’s okay. As one of the most promising developments in finance, RWA tokenization brings new access, new flexibility, and yes, new risks.
But risk isn’t a reason to avoid participation. It’s a reason to be informed.
The best protection is preparedness. Evaluate the risk-benefit tradeoff independently based on the considerations outlined above and rely on your well-informed judgement. That means knowing how the asset is structured, how it’s governed, and what mechanisms support it. When these are in place, RWAs generate returns and build investor confidence.
And ultimately, that’s what matters. Not just earning yield, but trust that what you earn is backed by real and enforceable economic value.