A growing number of mid-market firms are using tokenised real-world assets (RWAs) as on-chain collateral to access working capital, bypassing traditional bank intermediation. This practice, sometimes called the tokenised collateral loop, allows companies to pledge assets such as invoices, real estate or commodities in tokenised form to decentralised finance (DeFi) protocols or specialised lending platforms. The result is faster settlement, lower counterparty risk and access to liquidity that might otherwise be tied up in illiquid assets.
This article examines how the loop works, why it is gaining traction among mid-market firms, who is affected and what may happen next. It is based on publicly available protocol documentation, industry reports and editorial analysis. No proprietary data or unverified claims are included.
How the Tokenised Collateral Loop Works
The tokenised collateral loop involves three steps. First, a firm converts a real-world asset into a digital token on a blockchain. This token represents ownership or a claim on the underlying asset, such as an unpaid invoice, a warehouse of goods or a property title. Second, the firm deposits the token as collateral into a smart contract on a lending protocol. Third, the protocol issues a loan in stablecoins or other digital assets, typically at a loan-to-value (LTV) ratio of 50-70 per cent, depending on the asset type and protocol risk parameters.
The borrower can then use the stablecoins for working capital needs, such as paying suppliers, covering payroll or funding new inventory. When the loan is repaid with interest, the collateral is returned. If the borrower defaults, the protocol liquidates the tokenised asset, often through a decentralised auction or by transferring it to a pool of liquidity providers.
Key protocols enabling this loop include MakerDAO (now Sky), which accepts tokenised real estate and trade finance assets; Centrifuge, which tokenises invoices and other receivables; and Goldfinch, which focuses on real-world credit. These platforms use oracles to price the underlying assets and maintain over-collateralisation to manage volatility.
Why It Matters for Mid-Market Firms
Mid-market firms, typically defined as those with revenues between £10 million and £500 million, often face a working capital gap. Traditional bank lending can be slow, requiring weeks of due diligence, and may be unavailable for certain asset classes such as invoices from smaller counterparties or inventory in volatile markets. The tokenised collateral loop offers an alternative that can settle in minutes rather than weeks, with transparent terms encoded in smart contracts.
For example, a logistics company with £2 million in outstanding invoices from creditworthy clients could tokenise those invoices on a platform like Centrifuge, deposit them as collateral and receive a stablecoin loan within hours. The firm avoids the administrative burden of factoring or bank loan applications and gains liquidity that can be deployed immediately.
This matters because working capital is the lifeblood of mid-market operations. According to a 2023 report by the International Finance Corporation, the global trade finance gap exceeds £1.5 trillion, with mid-market firms disproportionately affected. Tokenised collateral loops do not solve the entire gap, but they offer a scalable, programmable alternative that reduces reliance on traditional intermediaries.
Commercial Impact: Who Benefits and Who Loses
The primary beneficiaries are mid-market firms that hold illiquid real-world assets and need faster, cheaper access to capital. They benefit from reduced friction, lower costs (protocol fees typically range from 5-15 per cent annualised, compared to 10-25 per cent for alternative lenders) and greater transparency.
Lending protocols and their liquidity providers also benefit. They earn yield from loan interest and liquidation fees, often higher than traditional fixed-income products. For institutional investors, tokenised RWA lending offers a new asset class with real-world backing and on-chain auditability.
Traditional banks and factoring companies face competitive pressure. If the tokenised collateral loop scales, banks could lose fee income from trade finance, invoice factoring and secured lending. However, some banks are exploring partnerships with protocols or building their own tokenisation platforms, suggesting adaptation rather than displacement.
Other affected parties include legal and compliance firms, which must adapt to new regulatory frameworks for tokenised assets, and insurance providers, which may need to develop products covering smart contract risk and asset custody.
Risks and Unknowns
The tokenised collateral loop carries several risks. Smart contract vulnerabilities could lead to loss of collateral or loan funds. Oracle manipulation or pricing errors could trigger unwarranted liquidations. Regulatory uncertainty remains significant: securities laws, anti-money laundering requirements and tax treatment of tokenised assets vary by jurisdiction and are still evolving.
Asset valuation is another challenge. Unlike cryptocurrencies, real-world assets are not continuously traded on liquid markets. Determining a fair price for a tokenised invoice or a piece of commercial real estate requires trusted oracles and periodic appraisals, introducing centralisation risk.
Liquidity risk also exists. If a protocol faces a wave of defaults or a market downturn, it may struggle to liquidate tokenised assets quickly, potentially causing losses for lenders. The 2022 collapse of several crypto lending platforms, though not directly related to RWAs, illustrates the systemic risks of over-leveraged collateral loops.
Finally, adoption is still nascent. Total value locked (TVL) in RWA-focused lending protocols was estimated at roughly £3-5 billion as of early 2025, a fraction of the broader DeFi market. Mid-market firms may be hesitant to adopt due to complexity, regulatory fears or lack of institutional-grade custody solutions.
FY Outlook
The tokenised collateral loop is likely to grow, driven by demand for efficient working capital and the maturation of DeFi infrastructure. We expect several developments over the next 12-24 months:
- Regulatory clarity: The UK's Financial Conduct Authority and the EU's Markets in Crypto-Assets (MiCA) regulation are expected to provide clearer frameworks for tokenised assets, reducing legal uncertainty for mid-market firms.
- Institutional entry: Major banks and asset managers are likely to launch or partner with RWA tokenisation platforms, bringing greater liquidity and credibility.
- Standardisation: Industry bodies such as the Global Blockchain Business Council are working on standards for asset tokenisation, which could lower integration costs.
- Risk management: New insurance products and decentralised dispute resolution mechanisms may emerge to address smart contract and valuation risks.
However, growth will not be linear. A major hack or regulatory crackdown could set back adoption. The loop's success depends on maintaining trust in the underlying technology and the accuracy of asset pricing.
Conclusion
The tokenised collateral loop represents a genuine innovation in working capital finance for mid-market firms. By converting illiquid real-world assets into programmable, on-chain collateral, it offers faster, cheaper and more transparent access to liquidity. The commercial impact is already visible in niche sectors such as trade finance and invoice factoring, and broader adoption is plausible as regulatory and infrastructure gaps close.
For founders, operators and investors, the key takeaway is that tokenised RWAs are not a speculative sideshow but a practical tool for improving balance sheet efficiency. The risks are real but manageable with proper due diligence and diversification. The loop is not a panacea for the global working capital gap, but it is a meaningful step toward a more efficient, less intermediated financial system.
