Pricing Efficiency and Liquidity Dynamics in Real-World Asset (RWA) Tokenization: A DeFi Market Microstructure Perspective

Abstract

The tokenization of Real-World Assets (RWAs) via Decentralized Finance (DeFi) protocols promises fractional ownership and continuous liquidity for traditionally illiquid asset classes, yet the market microstructure governing on-chain RWA pricing efficiency and pool liquidity remains under-theorised and empirically unresolved. This paper develops a quantitative market-microstructure framework to evaluate pricing errors, slippage dynamics and liquidity-pool efficiency in RWA tokenization relative to traditional Real Estate Investment Trusts (REITs). We combine an oracle-adjusted Constant Product Automated Market Maker (CPAMM) with a GARCH(1,1)-X specification and calibrate the model to published on-chain statistics from RealT, Ondo Finance and Centrifuge, benchmarked against the Vanguard Real Estate ETF (VNQ). Simulation-based evidence indicates that (i) RWA tokenization lowers the implied cost of capital by 115-140 basis points; (ii) asset-level idiosyncratic volatility induces nonlinear slippage in constant-product pools during stress regimes; and (iii) oracle latency dominates the persistence of pricing deviation (PEₜ). We propose an oracle-conditioned hybrid liquidity architecture that significantly mitigates pricing deviation and enhances market efficiency.