The rapidly expanding RWA tokenization market has recently raised concerns about a ‘liquidity paradox’. This phenomenon arises from the process of converting real-world assets like loans, real estate, and commodities into tokens that can be traded quickly. A new report by Tristero Research highlights this issue, emphasizing how the increased speed of trading in these digital assets may actually exacerbate market instability. 2025 data shows a massive growth for RWA tokenization, with the sector reaching an estimated $25 billion compared to just $85 million in 2020. This rapid expansion points towards potential challenges that need to be addressed if we’re to avoid a future financial crisis. The report attributes these issues to factors like oracle failures, weak compliance frameworks, and insufficient collateral rules. These factors contribute to the ‘on-chain subprime crisis,’ potentially destabilizing the entire financial market. 2008 financial meltdown serves as an example of how risky mortgage-backed securities (MBS) and collateralized debt obligations (CDOs) led to a credit crisis. For instance, Tristero points out that tokenization of SME loans on DeFi platforms like Aave and Compound could create similar situations if the real economy experiences a downturn. In such scenarios, the disconnect between actual asset value and the inflated price based on tokenized assets would expose markets to sharp volatility. While this rapid liquidity can attract investors, it creates a dangerous ‘liquidity paradox’ where slow-moving assets are packaged into fast-paced trading environments. The report emphasizes that this dynamic can amplify market shocks, turning them from gradual issues into sudden crashes with devastating consequences.