From Polymesh to Ondo: Understanding the Three Major Schools of RWA Tokenization in One Article

Written by: Luke, Mars Finance

In the ongoing maturation of the cryptocurrency industry, its ambitions are no longer limited to building a parallel, native digital financial system. Today, the industry's gaze is firmly directed towards the real world, with the intention of bringing trillions of dollars in real-world assets (RWA) such as real estate, bonds, and private equity on-chain. At the core of this grand process lies a fundamental technical and philosophical challenge: how to design a "code law" that not only embraces the efficiency of blockchain but also meets regulatory requirements for these highly regulated assets.

Therefore, the choice of RWA token standards has evolved into a profound strategic confrontation. This is not a simple technical selection, but a fundamental decision related to the project's future liquidity, compliance path, and even business model. In this silent war, several completely opposite paths are emerging, forming a "trio" that concerns the future.

Common Starting Point - Design Limitations of ERC-20

The most widely used ERC-20 standard on Ethereum is designed with the core principle of maximizing interoperability and simplicity. This feature makes it the cornerstone of DeFi (Decentralized Finance) — a blockchain-based financial application ecosystem that does not require traditional intermediaries, supporting a wide range of applications from governance tokens to stablecoins. However, when the application scenario shifts to securities that are strictly regulated by law, this simplicity becomes a structural limitation.

Regulated assets, such as fund shares or bonds, require the ability to directly enforce transfer restrictions at the protocol level based on the identity, qualifications, and jurisdiction of the investor. The underlying ERC-20 standard, as a generic template for fungible assets, lacks a native mechanism to implement these nuanced controls. It is like an unregistered note, unable to identify the holder, which is unacceptable for financial products that require strict access. This fundamental design mismatch has given rise to the subsequent birth of all specialized standards and has initiated the first significant divergence regarding the future of RWA.

Path One: Polymesh and ERC-1400

Faced with the limitations of ERC-20, the first solution is to build an "institutional fortress." This concept was initially explored in ERC-1400, a token standard proposal designed specifically for modular securities on Ethereum. Its core capability lies in implementing complex compliance strategies through "partitioning," such as dividing tokens into "U.S. qualified investor zones" and "European institutional zones," and applying different transfer rules to tokens in different partitions.

Ultimately, the ultimate embodiment of this concept is the birth of Polymesh. Simply put, Polymesh is an independent Layer 1 (L1) blockchain specifically designed for regulated assets – that is, an underlying foundational network that operates independently like Bitcoin or Ethereum. The creator of Polymesh, Polymath, believes that instead of running sensitive financial assets on a generic public road, it is better to start from scratch and build a "walled garden."

In this "garden," compliance is an inherent attribute of the protocol, rather than an add-on module. From the ground up, identity verification (Customer Due Diligence) is deeply integrated, and unverified addresses cannot perform any valid operations on the network. This model provides a strong attraction for traditional financial institutions seeking ultimate security and a controllable environment. For projects that need to tokenize private securities or corporate equity, Polymesh offers a clear and controllable environment. Its strategy is to replicate a fully compliant on-chain capital market, rather than connecting to the existing DeFi world, which is an ultimate isolation of risk.

Path Two: ERC-3643

Unlike Polymesh's "starting anew," the second solution is to build a "DeFi bridge." Represented by ERC-3643, it opts to achieve compliance on existing public chains like Ethereum through a sophisticated "passport and security check system."

The core of this standard is an on-chain identity credential called "ONCHAINID," which binds the real identity verified through offline KYC with the on-chain address. Subsequently, each ERC-3643 token is managed by a "controller contract," which automatically calls the identity registry during each transfer to check the identity status of both parties in the transaction, ensuring compliance with preset regulatory rules (for example, whether they are on the whitelist, whether they are frozen); otherwise, the transaction will be automatically rejected. This automated compliance enforcement mechanism is one of its core advantages that distinguishes it from other standards.

The strategy of ERC-3643 is a huge bet on the "network effect." It allows compliant assets to directly leverage the vast user base and deep DeFi liquidity of mainstream public chains. More importantly, it embraces the composability of DeFi—the ability to combine different financial protocols like building with Lego blocks to create new products. Due to its high maturity and clear implementation path, this standard has been widely adopted by institutions such as Tokeny and ABN AMRO, making it particularly suitable for building regulated and standardized RWA platforms.

Building on the fundamental idea of the "DeFi Bridge", the developer community is continuously evolving. For instance, ERC-7518 provides greater flexibility for institutions needing multi-chain deployment, with its "strategy-driven" and "pluggable compliance" features allowing for flexible support of cross-chain multi-asset deployment. Meanwhile, the experimental ERC-7943 offers a lightweight "compliance patch" that defines a universal compliance control interface, enabling existing projects to enhance compliance quickly through this non-intrusive interface without the need to reissue tokens.

Path Three: Giants Build Fortresses on the Fertile Soil of ERC-20

As the theoretical debate over "fortresses" and "bridges" intensifies, the market's gravity pulls us towards a third, and the most unexpected, path. The real RWA giants, such as Ondo Finance and Franklin Templeton, have made their choices through concrete actions.

They did not adopt any complex proprietary standards, but instead returned to the source, building their own exclusive centralized permission layer on top of the most liquid ERC-20 standard.

Taking Ondo Finance as an example, its core product is to package real-world U.S. Treasury bonds, money market funds, etc., into tradable shares on the blockchain. When investors buy its tokens, it is equivalent to holding fund shares and enjoying profit distributions. These tokens are standard ERC-20 tokens. The compliance logic is entirely handled off-chain: investors must complete detailed KYC/AML checks through Ondo's platform, and only addresses that pass the checks will be placed on a "whitelist" managed centrally by Ondo, thus qualifying to hold and trade its tokens.

This model of "on-chain accounting and off-chain compliance" views blockchain as the most efficient "settlement and accounting layer," rather than a "legal enforcement layer." Its advantage lies in its high flexibility, enabling rapid adaptation to the ever-changing regulatory requirements of different jurisdictions. For these giants holding massive assets and customers, what they need is not an open standard, but an absolutely controllable and efficient tool that can be utilized. This model has also been adopted by several successful RWA lending platforms such as Maple Finance and Goldfinch.

Expanded Arsenal: A More Flexible and Lightweight Solution

Beyond the three major mainstream battle lines, the developer community is continuously exploring more diverse solutions to meet the specific needs of different scenarios. Among them, ERC-7518 and ERC-7943 are emerging forces worth paying attention to.

ERC-7518: Born for cross-chain strategists. The core features of this standard are "dynamic partitioning" and "cross-chain support." It introduces the concepts of "strategy-driven" and "pluggable compliance," allowing issuers to set flexible rules for different jurisdictions or investor groups and apply these rules to assets deployed across multiple blockchains. For institutions that need to manage complex asset portfolios in a multi-chain environment (such as real estate or funds), ERC-7518 provides more dynamic and powerful cross-chain deployment capabilities than ERC-3643. Currently, this standard is being explored in practical applications by projects such as Zoniqx.

ERC-7943: A "compliance patch" designed for existing projects. Unlike the aforementioned standards that attempt to build a complete compliance framework, ERC-7943 provides a "lightweight and non-intrusive" solution. It defines a universal compliance control interface that can be appended to existing token contracts. This is a highly attractive option for projects that have already issued tokens but wish to enhance their compliance, as it avoids the complex process of reissuing tokens. Currently, ERC-7943 is still in the community experimental phase, and its value lies in providing a convenient compliance upgrade path for the large existing token market.

Final Chapter: Strategic Game Board - The Final Weighing of Three Philosophies

At this point, three distinct paths in the battlefield of RWA token standards have become clear. The competition between them has long transcended the merits of code, evolving into a philosophical discourse about the future of finance.

This standard battle may not have a single winner from the very beginning. What we are likely to see is a layered and diversified future. Private equity that requires the highest level of regulatory assurance may choose Polymesh's "Institutional Fortress". Innovative projects eager to combine with DeFi to create new financial products may embrace the "DeFi Bridge" of ERC-3643. Meanwhile, asset management giants pursuing efficiency and market scale may continue to use the "Pragmatic Hybrid" model in the short term.

Ultimately, what will determine the direction of this war is the flow of capital. Capital will flow to the safest, most efficient, and most liquid places. These three paths are the great experiment centered around these three core elements. The results of this experiment will not only define the future of RWA but will also profoundly shape the financial landscape of the next decade.