Analysis of Institutional Capital's Attractiveness: How the Five Major RWA Protocols Meet Diverse Traditional Financial Demands

Over the past six months, the development of institutional-grade asset tokenization is no longer an academic topic. The market size has approached the $20 billion mark, and this is not a speculative bubble but real institutional capital deploying on blockchain infrastructure. From government bonds and private credit to tokenized stocks, these assets are moving onto the chain at an unprecedented pace. What exactly drives this migration’s appeal? The answers from five core protocols—Rayls Labs, Ondo Finance, Centrifuge, Canton Network, and Polymesh—differ because their targeted institutional needs are inherently distinct.

Underestimated Market Growth: The Appeal Behind Growing from $6 Billion to $19.7 Billion

Three years ago, tokenized RWA was almost not a standalone asset class. Today, this market has grown from an initial $6-8 billion at the start of 2024 to $19.7 billion. In comparison, this growth rate is enough to attract the attention of traditional finance.

Market segmentation data is even more intuitive. According to the January 2026 market snapshot provided by rwa.xyz:

Government bonds and money market funds account for 45%-50% of the market, approximately $8-9 billion. These assets mainly attract institutional finance departments seeking low-risk, stable-yield alternatives.

The private credit market, though smaller in base ($2-6 billion), is the fastest-growing segment, holding 20%-30% of the market share. This rapid expansion reflects asset managers’ urgency to deploy high-yield assets on-chain.

Although the public stock market is only over $400 million in size, it shows strong growth, primarily driven by Ondo Finance.

Why Institutions Favor These Protocols: Dissecting the Appeal of Three Major Drivers

Core appeal of yield arbitrage

Tokenized government bond products can offer annualized returns of 4%-6%, supporting 24/7 trading, whereas traditional markets still adhere to T+2 settlement cycles. For finance managers managing billions in idle capital, this appeal is mathematically obvious—just a 1-2% liquidity premium per year on a billion-dollar scale can mean millions of dollars in added value.

Private credit tools are even more directly attractive, offering 8%-12% returns. This level of yield is enough to make asset managers reevaluate their capital allocation strategies.

Gradual improvement of regulatory frameworks

The EU’s Markets in Crypto-Assets Regulation (MiCA) has been enforced in 27 countries, providing legal clarity for cross-border flows. The US SEC’s “Project Crypto” is pushing for a regulatory framework for on-chain securities. No-Action Letters enable traditional settlement infrastructure like DTCC to participate in asset tokenization. These policy evolutions are gradually removing legal doubts about institutional participation.

Maturity of custody and oracle infrastructure

Chronicle Labs has processed over $20 billion in total value locked (TVL), and Halborn has completed institutional-grade security audits for major RWA protocols. The maturity of these infrastructures significantly reduces trust costs for institutions. Fiduciary duty standards are no longer an obstacle but a goal to be achieved.

However, challenges remain. Cross-chain transaction costs are estimated at up to $1.3 billion annually, causing 1%-3% price differences for the same asset traded across different blockchains. This liquidity fragmentation limits arbitrage scale effects and is a major obstacle that systems still need to overcome.

Rayls Labs: The Privacy Appeal Banks Truly Need

Rayls Labs positions itself as a compliance-first bridge connecting banks and decentralized finance. Developed by Brazilian fintech Parfin, and supported by Framework Ventures, ParaFi Capital, Valor Capital, and Alexia Ventures, its core architecture is a public permissioned EVM-compatible Layer 1 blockchain designed specifically for regulators.

Rayls’ appeal lies in its Enygma privacy tech stack. This is not a technical specs race but a targeted solution. Rayls addresses the real needs of banks—not the imagined needs of the DeFi community.

Core functions of the Enygma privacy stack include:

• Zero-knowledge proofs to ensure transaction confidentiality
• Homomorphic encryption supporting computations on encrypted data
• Native operations across public chains and private enterprise networks
• Confidential payments supporting atomic swaps and embedded settlement
• Programmable compliance allowing selective disclosure to designated auditors

Practical applications already exist. The Central Bank of Brazil uses its system for CBDC cross-border settlement pilots; Núclea platform conducts regulated receivables tokenization; multiple undisclosed clients use private workflows for payments and settlement.

On January 8, 2026, Rayls announced completion of a security audit by Halborn. This certification is critical for banks evaluating production deployment—it’s not just a technical endorsement but a milestone in legal and risk management.

More importantly, the AmFi alliance plans to achieve $1 billion in tokenized assets on Rayls by June 2027. As Brazil’s largest private credit tokenization platform, AmFi brings immediate transaction volume to Rayls and has set a concrete 18-month milestone. This represents one of the largest single institutional commitments in blockchain to date.

Rayls’ challenge lies in market validation. Without public TVL data or announced client deployments outside pilots, the $1 billion target from AmFi remains a key test.

Ondo Finance: Retail-Scale Liquidity Appeal

Ondo Finance has achieved the fastest product expansion from institutional to retail markets. Starting with a protocol focused on government bonds, it has become the largest platform for tokenized public stocks.

As of January 2026, Ondo’s data is impressive: TVL reached $1.93 billion, with tokenized stocks exceeding $400 million, accounting for 53% of the market. On Solana, USDY holdings are about $176 million. Its appeal lies in a seamless user experience—combining institutional-grade security of government bonds with DeFi’s convenience, which the market needs.

On January 8, 2026, Ondo launched 98 new tokenized assets at once, covering stocks and ETFs in AI, electric vehicles, and thematic investments. This is not small-scale testing but rapid advancement.

Its multi-chain deployment strategy demonstrates a clear market segmentation approach: Ethereum for DeFi liquidity and institutional legitimacy; BNB Chain for exchange-native users; Solana for large-scale consumer use, with sub-second finality. Ondo plans to launch tokenized US stocks and ETFs on Solana in Q1 2026, representing its most aggressive attempt to build retail-friendly infrastructure.

Notably, despite token prices falling, TVL remains at $1.93 billion, which is the most important signal—protocol growth is prioritized over speculation. This growth is mainly driven by institutional government bonds and DeFi protocols’ demand for idle stablecoin yields. The TVL growth during Q4 2025 market consolidation reflects genuine demand, not chasing market hype.

However, Ondo faces challenges. While tokens can be transferred at any time, pricing still depends on exchange trading hours, potentially causing arbitrage gaps during US night trading. Additionally, strict KYC and certification requirements under securities law limit “permissionless” promotion.

Centrifuge: The Stability Appeal for Asset Management

Centrifuge has become the infrastructure standard for institutional private credit tokenization. By December 2025, its TVL soared to $1.3-$1.45 billion, driven by actual deployment of institutional capital.

Its appeal stems from concrete deployment cases. Janus Henderson, with $373 billion in assets under management, partnered with Centrifuge to launch a fully on-chain AAA-rated secured loan security (CLO) fund—Anemoy AAACLO. This fund uses the same investment team managing Janus Henderson’s $21.4 billion AAACLO ETF, directly migrating institutional asset management expertise onto the chain. In July 2025, Janus Henderson announced plans to expand on Avalanche with an additional $250 million investment.

Sky Ecosystem’s institutional credit protocol Grove commits $1 billion in funding, with an initial capital of $50 million. The founding team comes from Deloitte, Citigroup, Block Tower Capital, and Hildene Capital Management, lending credibility to its institutional focus.

On January 8, 2026, Centrifuge announced a partnership with Chronicle Labs, introducing an institutional verification mechanism for on-chain assets. Chronicle’s asset proof framework provides encrypted verified holdings data, supporting transparent NAV calculation, custody verification, and compliance reporting. This is the first institutional-level oracle solution—delivering verifiable data without sacrificing on-chain efficiency.

Centrifuge’s operating model differs fundamentally from competitors. It does not simply wrap off-chain products on-chain but tokenizes credit strategies at issuance. Issuers design transparent workflows and manage funds; institutional investors allocate stablecoins; funds flow to borrowers after credit approval; repayments are proportionally distributed to token holders via smart contracts. The annualized yield of AAA assets ranges from 3.3% to 4.6%, fully transparent.

Its multi-chain V3 architecture supports networks like Ethereum, Base, Arbitrum, Celo, and Avalanche. The key is that Centrifuge has demonstrated that on-chain credit can support deployment of tens of billions of dollars. The partnership with Janus Henderson alone provides capacity in the billions.

The challenge lies in yield competitiveness. A target annualized return of 3.8% appears less attractive compared to higher-risk, higher-return opportunities in DeFi history. How to attract DeFi-native liquidity providers beyond Sky ecosystem allocations will be Centrifuge’s next focus.

Canton Network and Polymesh: The Compliance Appeal of Traditional Finance

Canton Network represents the response of institutional-grade blockchains to DeFi’s permissionless ethos. Supported by top Wall Street firms like DTCC, BlackRock, Goldman Sachs, and Citadel Securities, Canton is a privacy-preserving public network aiming to handle the $3.7 quadrillion annual settlement flow processed by DTCC in 2024.

Canton’s appeal lies in targeted problem-solving. The December 2025 DTCC partnership announcement indicates this is not just a pilot but a core commitment to US securities settlement infrastructure. With SEC No-Action Letter approval, DTCC-custodied US Treasuries can be native tokenized on Canton, with plans for an MVP in the first half of 2026. DTCC and Euroclear serve as co-chairs of the Canton Foundation, leading governance and participation.

Initially focusing on government bonds, which have the lowest credit risk, high liquidity, and clear regulation, the platform may expand to corporate bonds, stocks, and structured products after MVP.

Canton’s privacy architecture is based on smart contract-level implementation using Daml (Digital Asset Modeling Language). Contracts specify which participants can see which data; regulators can access full audit logs; counterparties can view transaction details; competitors and the public cannot see any transaction info; state updates propagate atomically across the network. This design precisely meets the needs of institutions accustomed to Bloomberg terminals and dark pools—offering blockchain efficiency while avoiding exposing proprietary trading activities to public ledgers.

On January 8, 2026, Temple Digital Group launched a private trading platform that further clarifies Canton’s institutional value proposition. It offers sub-second matching speed via a non-custodial architecture. Currently supporting crypto and stablecoin trading, plans include tokenized stocks and commodities in 2026. Partners include Franklin Templeton managing $828 million in money market funds and JPMorgan Chase enabling payment settlement via JPMCoin.

Canton’s 300+ participating institutions demonstrate its appeal, but much of the current volume may be more pilot-like rather than actual production. Development speed is another constraint: the MVP scheduled for H1 2026 reflects multi-quarter planning.

In contrast, Polymesh stands out through protocol-level compliance rather than complex smart contracts. Designed specifically for regulated securities, Polymesh performs compliance verification at the consensus layer without custom code. Its core features include protocol-level identity verification, embedded transfer rules, and atomic settlement, with finality within 6 seconds.

Polymesh’s production-level integrations are already validated: Republic supported private securities issuance in August 2025; AlphaPoint connects over 150 trading venues across 35 countries. These integrations demonstrate the feasibility of its approach.

The core appeal of Polymesh is simplicity. No need for custom smart contract audits; protocols automatically adapt to regulatory changes; non-compliant transfers cannot be executed. This is especially attractive to securities token issuers burdened by ERC-1400 complexity.

However, Polymesh currently operates as an independent chain, isolating it from DeFi liquidity. To address this, a bridge to Ethereum is planned for Q2 2026. Whether it can be delivered on time remains to be seen.

Market Differentiation Appeal: Why There Is No Single Winner

These five protocols do not compete directly because they address entirely different problems.

Differences in privacy solutions:

• Canton based on Daml smart contracts, focusing on Wall Street counterparties
• Rayls using zero-knowledge proofs, providing bank-level mathematical privacy
• Polymesh via protocol-level identity verification, offering a one-stop compliance solution

Different expansion strategies:

• Ondo manages $1.93 billion across three chains, prioritizing liquidity speed over depth
• Centrifuge focuses on the $1.3-$1.45 billion institutional credit market, prioritizing depth over speed

Clear segmentation of target markets:

• Rayls targets banks and CBDC needs
• Ondo targets retail and DeFi markets
• Centrifuge targets asset managers
• Canton targets Wall Street infrastructure migration
• Polymesh targets securities tokenization simplification

From the initial $8.5 billion in early 2024 to $19.7 billion now, the market size shows demand has surpassed speculation. Core institutional players’ needs vary: finance managers seek yield and operational efficiency; asset managers aim to reduce distribution costs and expand investor bases; banks seek compliant infrastructure. Therefore, their choice is not “the best blockchain” but the infrastructure that best solves their specific compliance, operational, and competitive needs.

Unresolved Barriers to Appeal

Liquidity fragmentation across chains: Cross-chain transaction costs are estimated at $1.3-$1.5 billion annually. High bridging costs cause 1%-3% price gaps for the same asset traded on different chains. This directly damages appeal—no matter how advanced the tokenization infrastructure, if liquidity is dispersed across incompatible chains, efficiency gains are lost. If this persists until 2030, annual costs could exceed $75 billion.

Privacy vs. transparency dilemma: Institutions need confidentiality, while regulators require auditability. In multi-party scenarios (issuers, investors, rating agencies, supervisors, auditors), each party needs different levels of visibility. No perfect solution exists yet.

Regulatory fragmentation: EU’s MiCA provides a unified framework in 27 countries; the US requires case-by-case No-Action Letters, taking months; cross-border flows face jurisdictional conflicts.

Oracle risks: Tokenized assets depend on off-chain data. If data providers are attacked, on-chain assets may reflect false realities. Chronicle’s asset proof architecture offers solutions, but risks remain.

2026 Appeal Test: Four Major Catalysts

Ondo’s Solana launch (Q1 2026): Test whether retail issuance can create sustainable liquidity. Success indicators: over 100,000 holders, proving real demand.

Canton’s DTCC MVP (H1 2026): Validate blockchain’s feasibility in US government bond settlement. Success could transfer trillions of dollars onto blockchain infrastructure.

US CLARITY Act passage: Provide clear regulatory framework, enabling hesitant institutional investors to deploy capital.

Centrifuge’s Grove deployment: $1 billion allocation to be completed in 2026, testing actual capital operation of credit tokens. Smooth execution without credit events would greatly boost asset managers’ confidence.

Market Forecast: Path to Trillion-Scale

2030 target estimate: Tokenized asset scale reaches $2-4 trillion, requiring 50-100x growth from $19.7 billion. Assumes regulatory stability, cross-chain interoperability, and no major institutional failures.

Industry growth projections:

• Private credit from $2-6 billion to $150-200 billion, fastest growth but small base
• Tokenized government bonds, if money market funds migrate on-chain, potential exceeds $5 trillion
• Real estate could reach $3-4 trillion, depending on blockchain adoption in property registration

Billion-dollar milestones (expected around 2027-2028):

• Institutional credit: $30-$40 billion
• Government bonds: $30-$40 billion
• Tokenized stocks: $20-$30 billion
• Real estate and commodities: $10-$20 billion This requires a 5x increase from current levels. Despite aggressive targets, considering the institutional momentum in Q4 2025 and upcoming regulatory clarity, these goals are not out of reach.

Why These Five Protocols Matter

The institutional RWA landscape in early 2026 reveals an unexpected trend: no single winner because there is no single market. This is precisely the direction infrastructure should develop—each protocol solving different problems rather than falling into homogeneity.

From the initial $8.5 billion in early 2024 to $19.7 billion now, demand has exceeded speculation. We are in an era prioritizing execution over architecture, results over blueprints. Traditional finance is moving toward long-term on-chain migration. These five protocols provide the necessary infrastructure for institutional capital: privacy layers, compliance frameworks, and settlement infrastructure. Their success will determine the future path of tokenization—whether as efficiency improvements within existing structures or as a new system replacing traditional financial intermediaries.

The next 18 months will be critical. Ondo’s Solana retail expansion test; Canton’s DTCC MVP for institutional settlement; Centrifuge’s Grove deployment for real capital testing; Rayls’ $1 billion AmFi target for privacy infrastructure adoption.

The infrastructure choices made by institutions in 2026 will shape the industry landscape for the next decade. It’s not about which protocol ultimately “wins,” but how these five demonstrate their unique appeal to institutional capital—whether through privacy, liquidity, depth, compliance, or simplicity. The era of trillion-dollar asset migration has begun.