Written by: Xiao Za Legal Team

In recent months, the team has clearly felt the rising popularity of concepts such as "stablecoins" and "RWA." Various brokerages have occasionally mentioned "RWA concept stocks" in their research reports, listing several major A-shares related to RWA. Some self-media outlets are also jumping on the bandwagon to hype these concepts. While researching related legal issues, the team naturally came across these report contents, but to be honest, most of it seems to be overly conceptualized hype, with many listed companies engaging in "trend-surfing." A particularly amusing example is a certain A-share listed company that the team once followed, whose main business is lottery printing, but has now become an RWA concept stock, which is quite ridiculous… Today, the team would like to chat with all of you about the legal risks following the hype around RWA and stablecoins…

01 As of the end of July, multiple regions have issued risk warnings

If there are friends who really want to take advantage of RWA and stablecoins to hype a concept and then run away with the profits, they must be cautious. Since July of this year, financial management departments across the country have continuously issued risk warnings, directly pointing out that some criminals are engaging in illegal financial activities under the guise of stablecoins and other names.

In mid-July, the Zhejiang Provincial Local Financial Supervision Administration issued a risk warning titled "Beware of Illegal Financial Activities Under the Guise of Stablecoins," which clearly stated that recent concepts represented by stablecoins, digital collectibles, and RWA have received widespread market attention. Some illegal institutions are using "financial innovation" as a pretext to issue or hype these emerging concepts as investment projects, illegally raising funds, promising high returns, and enticing the public to participate in the speculation.

This "Risk Warning" directly points out the criminal risks associated with raising funds through the hype of stablecoins and RWA: namely, that such speculation breeds illegal fundraising, illegal operations, fraud, pyramid schemes, money laundering, and other illegal activities. Friends who have been around since the P2P era are naturally familiar with these charges, and now that these terms have appeared in the risk warnings regarding RWA and stablecoins, everyone must stay alert.

Coincidentally, the Suzhou Office for Preventing and Combating Illegal Financial Activities has also issued a corresponding "Risk Warning," reiterating the relationship between so-called "stablecoins," "RWA," and virtual currencies. It also reminds that virtual currencies do not have the same legal status as legal tender, and activities related to virtual currencies are considered illegal financial activities. Foreign virtual currency exchanges providing services to residents in our country via the internet are also deemed illegal financial activities, and participating in virtual currency investment and trading carries legal risks. Additionally, Suzhou further emphasized the risks of illegal fundraising associated with financial activities using concepts like RWA.

Other regions such as Beijing and Shenzhen have also successively issued corresponding "Risk Warnings," which the team will not elaborate on here. From the aforementioned "Risk Warnings," friends can glimpse the attitude of regulatory authorities (at least local regulatory authorities) towards concepts like stablecoins and RWA: First, RWA and stablecoins still fundamentally belong to "virtual currencies," which are subject to our country's virtual currency regulatory policies; second, even if it is a legally operating foreign exchange, providing corresponding services to domestic residents still constitutes illegal financial activities; third, speculating on RWA and stablecoin concepts domestically carries a high risk of illegal fundraising and illegal operations.

02 Speculating abroad should not be done recklessly

Some friends might say, "If we don't speculate on stablecoins and RWA concepts in the mainland, can we focus on places like Hong Kong, Dubai, or Abu Dhabi?" In fact, many friends have recently consulted the team on how to conduct RWA and stablecoin businesses in Hong Kong. The team would like to remind everyone that Hong Kong's regulations are likely to be even more standardized and stricter. If the goal is merely to hype a concept and take profits, Hong Kong may not be a good choice.

Take the stablecoin business as an example. After the "Stablecoin Ordinance" came into effect in Hong Kong, promoting unlicensed stablecoins to the public constitutes a criminal offense, with violators facing fines of up to HKD 50,000 and six months of imprisonment. The Hong Kong SFC has simultaneously strengthened anti-money laundering requirements, stipulating that stablecoins must be fully backed by high-quality liquid assets (government bonds, cash, or deposits), and reserves must be independently custodied, isolated from the issuer's assets. The team would like to remind everyone again that Hong Kong's regulatory framework has been described by foreign media as "the most standardized and strict stablecoin regulatory framework in the world," combining criminal penalties with financial sanctions, which is more stringent than the EU's mere fines and the UK's ineffective enforcement. If the goal is just to copy the stablecoin concept, then Hong Kong is truly not a good choice; failing to achieve this could lead to significant losses, and it is not impossible to end up in legal trouble.

Now, regarding the RWA concept, a careful study of the so-called examples of RWA in Hong Kong published by the media reveals that there are only two successful projects, while the vast majority are merely "hyped concepts." Some projects have only obtained a certain financial license and immediately hype themselves as entering the RWA space, which is clearly just pure concept hype. So why is the RWA concept so hot, yet only two projects have succeeded? The reason is simple: Hong Kong currently does not have a written, complete RWA process, and under these conditions, the Hong Kong government can only conduct extremely strict reviews of RWA projects to mitigate financial risks for itself and the public. Under such stringent conditions, most RWA projects can only remain at the PPT stage. The team reminds everyone that if you truly want to achieve something and not just hype concepts, then it is better to wait for clearer regulatory rules regarding RWA in Hong Kong before proceeding.

03 In conclusion

In addition to friends who want to make a mark in the RWA and stablecoin fields (whether through speculation or genuine project development), the team would also like to share a fraud prevention guide regarding RWA and stablecoins for ordinary investors. The team's observation is that the speed of innovation in scams is truly astonishing. Recently, the media exposed the "JD Stablecoin Scam," which is a fraudulent activity that imitates a "certain East Stablecoin project." This stablecoin project claims to "give away 10,000 JD stablecoins pegged 1:1 to the Hong Kong dollar upon registration, along with 1,000 shares of JD original stock." If one successfully invites another person to register, they can receive corresponding JD stablecoins and JD original stock. This is a typical "trend-surfing" stablecoin scam. The "certain East" has repeatedly denied any connection with the so-called JD stablecoin, stating that any issuance of coins or attempts to attract customers using terms like "JD" or "JDHKD" before obtaining a stablecoin issuance license in Hong Kong constitutes fraud.

Even though "certain East" has repeatedly refuted these claims, many investors still fall for it, indicating that the "game" of stablecoins is indeed very deep. The team once again reminds all friends that if you are not a professional investor, please be sure to keep your eyes wide open!

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