Liquidity & Redemption Risk

Liquidity risk is not a question of whether an asset has value. It is a question of whether that value can be realized on the timescale users expect, particularly under stress. Even high-quality real-world assets can experience short-term liquidity constraints, wider bid–ask spreads, or issuer-level redemption queues when markets are volatile. These dynamics are not theoretical; they are observable features of every financial market, including the most liquid ones. The difference lies in degree.

Short-duration U.S. Treasury instruments and gold sit at the very top of the global liquidity hierarchy. The U.S. Treasury market exceeds $25 trillion in outstanding securities, with $6–7 trillion in Treasury bills alone, and regularly clears hundreds of billions of dollars in daily trading volume. Even during periods of acute stress, Treasuries remain continuously priced and executable at scale. Gold exhibits similar characteristics at a global level, with estimated above-ground supply valued in the trillions of dollars and daily spot and derivatives turnover often exceeding $150–200 billion across venues. These are assets with deep, global secondary markets that persist through cycles.

However, even assets of this caliber are not immune to temporary dislocations. Bid–ask spreads can widen, settlement can slow, and redemptions can queue at the margin. The critical design error in many on-chain systems is not acknowledging this reality and instead assuming all assets behave identically under pressure.

If assets with fundamentally different liquidity profiles are mixed indiscriminately, redemption stress does not remain localized. It propagates. Slow assets impose their timelines on fast ones, market confidence deteriorates, and systems that appear solvent on paper can experience instability simply due to mismatched expectations.

This is why liquidity segmentation is non-negotiable in the design of rwaUSD. rwaUSD is explicitly designed as the primary liquidity class, backed only by assets that can realistically support DeFi-style redemption assumptions. Eligibility is intentionally limited to instruments such as short-duration Treasuries and highly liquid tokenized gold, assets with continuous pricing, deep global markets, and the ability to absorb large flows without structural breakdown.

Assets that require scheduled redemptions, periodic NAV calculations, or bespoke settlement processes are deliberately excluded from rwaUSD. Those assets are routed into separate, isolated liquidity classes, such as rwaUSDi, where redemption timelines and risk can be managed without imposing constraints on the broader system.

This separation ensures that fast assets remain fast, slow assets remain contained, and DeFi protocols integrating rwaUSD can rely on predictable behavior even during periods of stress. Liquidity is preserved where it exists, rather than averaged down across heterogeneous assets. In practice, this mirrors how traditional finance has always managed liquidity. Money-market funds are not blended with private credit vehicles. Overnight funding markets are not pooled with long-duration project finance. Each exists in a structure aligned with its underlying liquidity reality. rwaUSD applies the same principle on-chain. Liquidity is not assumed; it is engineered, segmented, and protected.