Market Making and Liquidity Provision in RWA Secondary Markets

A market maker is a participant who continuously quotes both a buy price and a sell price for an asset, profiting from the small gap between them while giving other participants someone to trade against at almost any moment. Public stock exchanges have deep networks of market makers, which is a large part of why you can usually buy or sell a listed stock in seconds at a price close to the last trade. Most RWA secondary markets do not have this function, or have it only in a limited form, which is a structural reason — separate from the smart contract technology — that tokenized assets are often described as illiquid even though they are technically transferable. This article explains what market making does generically and why its absence matters for RWA.

What a Market Maker Actually Does

A market maker's core job is standing ready to trade. At any given moment, a market maker posts a bid (the price it will buy at) and an ask (the price it will sell at), and it updates both continuously as conditions change. The gap between the bid and the ask — the spread — is the market maker's compensation for taking on the risk of holding inventory and being wrong about where the price should be.

This function matters because most other participants in a market are not always present at the same time. A seller who wants to sell right now might not find a buyer who wants to buy right now. A market maker closes that timing gap by being willing to take the other side itself, then later unwind that position when a natural buyer or seller shows up. In deep public markets, many market makers compete for this role, which narrows spreads and deepens the order book — the total volume of buy and sell orders sitting at or near the current price.

Market making requires a few conditions to work well: enough trading volume to make the activity profitable, a liquid and legally simple way to hold and offload inventory, and enough participants and information flow that the market maker can price the asset with reasonable confidence. Public equities generally have all three. Most RWA products do not, at least not yet.

Why RWA Secondary Markets Mostly Lack Market Making

A market maker will not commit capital to quote an asset it cannot price confidently, offload quickly if needed, or trade in volume large enough to justify the operational cost. Several structural features of RWA products work against those conditions.

• Restricted buyer pools. Many RWA tokens can only be held or received by wallets that have passed KYC and eligibility checks tied to a specific issuer or platform. A market maker cannot quote freely to "the market" if the market is a small, whitelisted group of eligible holders.
• No continuous price discovery. Public stocks trade constantly, so a market maker always has a recent reference price. Private credit, pre-IPO equity, and many fund-type RWA positions do not trade continuously; their value is estimated periodically rather than observed in real time, which makes it harder for a market maker to quote a bid and ask with confidence.
• Low and unpredictable volume. Market making is a volume business — the spread earned per trade is small, so profitability depends on trading often. Thin, irregular RWA order flow makes the economics of dedicated market making difficult to justify for most products today.
• Fragmented venues. Instead of one central order book, RWA trading is spread across platform-internal windows, a handful of regulated venues, and OTC deals. A market maker would need to operate across several fragmented pools to have meaningful reach, which raises cost and complexity. See secondary markets for tokenized assets for a fuller map of where RWA actually trades today.

None of this is a permanent state. As regulated venues for tokenized securities mature and volumes grow, dedicated market making could develop the way it has in other asset classes over time. But it describes the market structure most RWA products sit inside right now, and it is a different problem from the blockchain technology itself, which can transfer a token in minutes regardless of whether anyone is on the other side of a trade.

What Thin or Absent Market Making Means for Exit Prices

Without a market maker standing ready on both sides, a seller in an RWA secondary market depends on finding a natural buyer at roughly the same time. When that buyer is not immediately available, a few things typically happen instead of a quick, fairly priced trade.

The practical result is what shows up as an "early-exit discount" in thin RWA markets: a holder who wants to sell before a product's natural exit point (maturity, redemption window, or fund distribution) may only find bids meaningfully below the last stated value, simply because there is no market maker absorbing that timing mismatch. This is a liquidity-structure problem, not necessarily a sign the underlying asset has lost value.

What to Check Instead of Assuming Secondary Liquidity

Because dedicated market making is largely absent from RWA secondary markets today, the more reliable way to evaluate liquidity is to check the product's own defined mechanisms rather than assume an open market will exist when you want to sell.

1. Does the product have a stated redemption mechanism, and on what schedule — see redemption mechanics: open-end vs closed-end for how that differs by fund structure.
2. Is there a named secondary venue at all, or only a general claim that the token is "transferable"?
3. If a secondary venue exists, is there any evidence of actual trading activity, or is the venue new and untested?
4. What is the product's stated term, and are you prepared to hold to that term if no secondary exit materializes?
5. How does the product's illiquidity get compensated, if at all — see the illiquidity premium for how time and liquidity constraints are generally supposed to factor into pricing.

The realistic default for most RWA products today is to treat the stated term and redemption mechanism as the primary exit path, and any secondary sale as an uncertain fallback rather than a guaranteed liquidity option. You can review the term, exit, and risk information for specific products on BiFu's RWA page.

FAQ

Why can't I always sell an RWA token quickly even though it's on a blockchain?

Because being technically transferable on a blockchain is different from having an active market to sell into. Selling requires a venue, an eligible buyer, and enough order depth, and most RWA products lack dedicated market makers who would otherwise stand ready to trade continuously on both sides.

What is the difference between a market maker and a regular buyer or seller?

A regular buyer or seller trades occasionally, based on their own need to acquire or dispose of an asset, while a market maker continuously quotes both a buy and sell price as an ongoing activity, profiting from the spread and providing liquidity to other participants regardless of its own investment view.

Will RWA secondary markets eventually have more market making?

It is reasonable to expect market making to develop as regulated venues, trading volumes, and buyer pools for tokenized assets grow, since that is the general pattern in other markets that started illiquid. There is no fixed timeline for this, and today's RWA secondary markets should be evaluated based on current liquidity conditions, not a future state.

Does low secondary market liquidity mean an RWA product is a bad investment?

Not by itself. Limited secondary liquidity is a structural feature of many RWA products today, not necessarily a sign of poor asset quality, but it does mean capital committed to an illiquid product should generally be held to the product's stated term rather than assumed to be exitable on demand.

This content is for educational purposes only and does not constitute financial, investment, legal, tax, or trading advice. RWA products involve risk, including possible loss of principal. Always review product documents and risk disclosures before participating.

Related Reading

• New to this? Start with secondary markets for tokenized assets: why venues matter.
• In the same area: redemption mechanics: open-end vs closed-end RWA funds and credit spread widening and private credit RWA.