Synthetic Assets vs. Tokenized Securities: Which Will Drive the Next $1 Trillion in DeFi?

What really defines the next wave of DeFi is likely not more yield farming or speculative tokens; rather, it’s how real-world value flows onto the blockchain. There are two very powerful, competing narratives. First, synthetic assets, which mirror the price of other assets without owning the asset itself, and second, tokenized securities, which represent on-chain ownership of real-world assets. And with crypto exchange platforms like XBO.com, where you can buy crypto, increasingly supporting more of these products, the question is: Which one of the two will scale to a $1 trillion or more DeFi market?

Understanding the Basics: What Are Synthetic Assets?

Synthetic assets are financial instruments on-chain, deriving their value from an external underlying asset. Think of them as derivatives in traditional finance, in that they give you exposure to stocks, commodities, or other tokens without your having to hold the underlying.

In DeFi, synthetics are often created by over-collateralizing other crypto (e.g., locking up collateral in stablecoins or other tokens) and minting a synthetic version that tracks the price of, say, a stock or commodity.

Advantages:

• Accessibility: Exposure to hard-to-reach assets, such as equities, can be obtained purely on-chain.
• Liquidity & Composability: Since synthetics live entirely in DeFi, they can be used in lending, yield strategies, or trading.
• Leverage and Shorting: Many synthetic protocols support synthetic long/short positions more flexibly.

But synthetics come with risks. Collateral liquidation, oracle risk, and sometimes lower capital efficiency due to high collateral requirements.

Tokenized Securities: Bringing Real-World Assets On-chain

Tokenized securities, more often called Real-World Assets or RWAs, are representations of actual financial instruments(equities, bonds, real estate, Treasuries, etc.) that have been digitized and issued on-chain. These aren’t synthetic bets; they are actual on-chain claims to off-chain value.

Tokenization, according to Three Sigma, transforms real-world ownership into blockchain tokens, opening up access to liquidity, fractional ownership, and more efficient trading.

Additionally, market data support enormous potential. Mordor Intelligence estimates the asset tokenization market could reach US$13.55 trillion by 2030, up from about US$2.08 trillion in 2025.

A size such as that makes tokenized securities a serious contender to drive major capital into DeFi.

Market Trends: How Big Are We Talking?

The global tokenization market was valued at US$3.32 billion in 2024 and is projected to reach US$12.83 billion by 2032.

Meanwhile, more focused reports from Mordor Intelligence show the asset tokenization market, that is, real-world assets, ballooning to US$13.55 trillion by 2030.

Institutional adoption is ramping up. According to a recent on-chain finance report cited by CoinDesk, the RWA tokenization space has scaled beyond experiments, and Standard Chartered has projected it could hit US$30 trillion by 2034.

These numbers go to show that tokenized securities have serious tailwinds.

Where Synthetic Assets Shine and What Holds Them Back?

Strengths of synthetics:

• Pure on-chain exposure: Because synthetics are native to DeFi, they don’t require custodians or off-chain legal wrapping.
• Speed and Composability: Synthetic exposure can be minted, traded, lent out, or used for collateralization by users nearly instantaneously.
• Decentralization: Most synthetic protocols are decentralized, whereby governance, collateral, and risk all happen on-chain.

Challenges:

• High Collateral Requirements: The generation of synthetic assets often requires overcollateralization, tying up expensive capital from users.
• Oracle risk: If price feeds fail, synthetic tokens can misprice or be exploited.
• Regulation: Synthetic assets, while emulating traditional instruments, may fall into regulatory scrutiny, especially in cases where they are widely used to represent equities or bonds.

Tokenized Securities: Promise and Pitfalls

Here’s why tokenized securities could drive massive value:

• Fractionalization: High-value assets, such as real estate or private equity, can be broken down into tiny tokens, therefore opening access to small investors.
• Liquidity: These tokens can trade on secondary markets – or across blockchains – instead of having long holding periods.
• Efficiency: Smart contracts can automate settlement, custody, and compliance, reducing cost and friction.

Some major players in the space, like BlackRock and Securitize (among others), are already issuing tokenized money-market funds and Treasuries.

But there are real constraints:

• Liquidity problems: Most RWA tokens are thinly traded despite the benefits of tokenization.
• Regulatory gatekeeping: Tokenized securities usually come under heavy regulatory regimes.
• Complex custody: Physical assets require off-chain custodians, auditors, and legal frameworks to support the tokens.
• Valuation and transparency: Fair, real-time valuation of tokenized assets, especially those that are illiquid, is not a trivial problem.

Which Will Likely Drive the Next $1 Trillion: Synthetic Assets or Tokenized Securities?

Here’s how both narratives might play out:

Case for Synthetic Assets

• Early DeFi users feel comfortable with synthetics. Many have experience with on-chain derivatives.
• For investors seeking to get exposure to traditional assets from within DeFi, synthetics provide a no-custodian, fully on-chain route.
• That would mean synthetic assets can directly plug into yield farming, lending protocols, and portfolio builders for easier generation of DeFi-native growth.
• If synthetic protocols can scale and decrease collateral inefficiency, they have the potential to contribute hundreds of billions in on-chain capital.

Case for Tokenized Securities

• According to some institutional forecasts, the real-world asset tokenization market could be tens of trillions in size.
• Large stable flows can come from institutional capital such as pension funds, hedge funds, and asset managers, which are already exploring this space.
• Tokenized Treasuries or money-market funds offer yield, safety, and 24/7 liquidity, which makes them attractive collateral in DeFi.

Given the scale alone, it would appear that tokenized securities are better equipped to deliver that $1 trillion or more in on-chain value, provided certain challenges around regulation, liquidity, and compliance are dealt with.

The Bottom Line

What this all boils down to is a question of which model can attract and retain the most capital. Synthetic assets are powerful, fully on-chain, and deeply composable, but they may struggle to scale to the multi-trillion level without becoming more capital efficient.

Conversely, tokenized securities tap into the huge real-world asset base. Projected growth in RWA tokenization, running into trillions, suggests this is more likely the path toward the next big wave in DeFi, especially if it is supported by user infrastructures, for example, regulated exchanges.

At the end of the day, this is not about synthetic versus tokenized; it could be that both are real winners by working in tandem. The next frontier for DeFi might be one in which synthetic exposure and real on-chain ownership coexist, interact, and actually strengthen their mutual reinforcement along the path of reaching that $1 trillion mark.