Author: Zhang Feng
In recent years, with the rapid development of blockchain technology, the tokenization of real-world assets (RWA) has gradually become a hot topic in the global financial market. However, discussions about RWA projects in China are often accompanied by controversy. Some have stated, "Any imitation of overseas RWA models in China, which tokenizes and publicly sells assets such as real estate or artworks, will be deemed illegal financial activities." While this viewpoint carries a certain warning, it is overly simplistic to categorize all domestic RWA projects as illegal activities that cannot raise funds. We should examine this issue from a more comprehensive perspective, considering the essence, legal framework, innovative value, and risks of domestic RWA projects.
1. What are domestic RWA projects? Simple distinctions between domestic and international are not advisable.
RWA projects refer to the conversion of real-world assets (such as real estate, artworks, debts, etc.) into digital tokens through blockchain technology, thereby achieving asset fragmentation, circulation, and trading. The core of such projects lies in leveraging the transparency, immutability, and efficiency of blockchain to reduce the costs of traditional asset transactions and enhance liquidity. For example, a property worth hundreds of millions can be tokenized and divided into tens of thousands of shares, allowing investors to participate with a lower threshold and enjoy asset appreciation or rental income.
Firstly, overseas RWA projects indeed have different characteristics. Internationally, especially in countries like the United States and Singapore, virtual currencies have gradually been incorporated into the regulatory framework for securities or similar assets, requiring issuance and trading to comply with strict securities law regulations. For instance, the U.S. Securities and Exchange Commission (SEC) views certain token issuances as securities offerings, requiring compliance with registration and disclosure obligations. This regulatory environment provides a certain legal space for overseas RWA projects.
In contrast, domestic regulation of virtual currencies and token issuance is much stricter. Since 2017, China has explicitly prohibited ICOs (Initial Coin Offerings) and the operation of virtual currency trading platforms, emphasizing that any form of token financing activities is suspected of illegal financial behavior. Therefore, if domestic RWA projects attempt to imitate overseas models and publicly sell tokens for financing, they indeed face extremely high legal risks. Regulatory authorities have repeatedly stressed that virtual currencies should not circulate as currency in the market, and tokenized assets involving public fundraising may be deemed illegal fundraising or securities fraud.
However, it is not advisable to simply distinguish RWA projects as domestic versus international and set them in opposition. Firstly, domestic RWA projects are not entirely outside regulatory oversight. Many projects explore within a compliance framework, such as blockchain registration systems linked to physical assets or small-scale pilots in collaboration with financial institutions, and engage in cross-border interactions with Hong Kong within the existing legal framework. Secondly, international RWA projects also face regulatory uncertainties and market acceptance issues. If we make such distinctions, then projects like Langxin and Xiexin in the Hong Kong RWA sandbox are considered domestic or international? Therefore, simply categorizing the feasibility of RWA projects based on geography ignores the complexity of technology and the market. Domestic projects should focus on how to leverage the advantages of blockchain technology without crossing legal red lines.
2. There is a distinction between legal and illegal blockchain projects, which is unrelated to RWA itself.
Blockchain technology, as a tool, is inherently neutral; the key lies in how it is used. The same applies to RWA projects: some operate within the legal framework, while others operate outside regulation, attempting to evade the law. This is unrelated to the essence of RWA but depends on the intentions and operational methods of the project parties.
RWA projects operating within the legal framework typically emphasize asset authenticity and compliance. For example, some domestic projects collaborate with law firms and accounting firms to ensure that the asset tokenization process complies with existing property laws, contract laws, and financial regulatory requirements. They may not involve public fundraising but instead serve specific groups through private placements or institutional investors. Such projects emphasize the application of technology, such as using blockchain to improve the efficiency of asset registration and trading, rather than focusing on financing functions.
In contrast, RWA projects operating outside the legal framework often lure investors with high returns, publicly selling tokens to unspecified individuals while promising fixed returns. Such projects may involve illegal fundraising, pyramid schemes, or fraud. For instance, some so-called "real estate tokenization" projects may exaggerate asset values or may not have real assets at all, with the token value entirely dependent on the funds of subsequent investors, essentially constituting a Ponzi scheme. Regulatory authorities have repeatedly cracked down on such behaviors, such as a platform that illegally raised funds under the guise of "art tokenization" in 2021, which was ultimately investigated.
Therefore, we cannot completely deny the innovative value of RWA due to some illegal projects. Blockchain technology provides new ideas for asset circulation, but legal risks primarily stem from the operational methods of the project parties, not the technology itself. Just as the internet can facilitate information sharing but can also be used for online fraud, RWA projects need to explore development under compliance.
3. RWA projects are an innovative form of investment and financing, and reasonable and legal projects have financing functions.
RWA is essentially a new investment and financing model and project operation mode that combines technology, finance, and industry. Despite strict domestic regulations, RWA projects are fundamentally an innovative form of investment and financing that has the potential to address pain points in traditional finance. For example, issues such as the difficulty of financing for small and medium-sized enterprises and low liquidity of real estate can be partially alleviated through asset tokenization. Within a reasonable and legal framework, RWA projects can indeed possess financing functions, with the key being how to design the structure and comply with the law.
Firstly, reasonable and legal RWA projects focus on utilizing technological means to enhance asset authenticity and transparency. Through blockchain technology, asset information can be publicly verifiable, reducing information asymmetry. For example, a debt tokenization project based on real supply chain receivables, audited by a third party, can provide new financing channels for small and medium-sized enterprises. Such projects do not involve public sales but target qualified investors, complying with current financial regulatory requirements.
Secondly, domestic policies do not completely reject innovation. In recent years, China has actively promoted the application of blockchain technology, such as the digital yuan pilot and the use of blockchain in government affairs. Regulatory authorities have also emphasized the concept of "sandbox regulation," encouraging financial technology to test within controllable risk ranges. Therefore, if RWA projects focus on technological empowerment and avoid the financialization of tokens, they may gain policy support. For instance, certain regions are exploring "digital asset registration platforms" aimed at improving asset transaction efficiency without involving fundraising.
Finally, there are successful international cases showing that compliant RWA projects can play a financing role. For example, some real estate tokenization projects in Singapore have improved asset liquidity by serving institutional investors through compliant issuance. Although domestic projects face different environments, they can learn from these experiences and innovate in conjunction with local laws. In summary, if RWA projects are reasonable and legal, they can not only raise funds but also enhance the efficiency of financial markets. We should not deny their overall value due to some illegal cases.
4. We should remind against illegal operations rather than simplistically deny.
In the face of the risks associated with RWA projects, a simplistic "one-size-fits-all" denial not only hinders market development but may also stifle innovation. A more rational approach is to identify specific illegal operations and provide targeted risk warnings. Here are some common illegal behaviors and related risks.
Public fundraising without legal procedures. Globally, it is generally prohibited to issue tokens to the public without legal procedures, and China is no exception. Any RWA project claiming "everyone can participate" is likely suspected of illegal fundraising. Participants should be cautious about whether the project is marketed to the public and promises high returns.
Asset exaggeration or lack of backing. Some projects exaggerate asset values or may not have real assets to support them. Participants need to verify whether the assets exist and whether there are third-party evaluation reports. For example, a certain "art tokenization" project once inflated the value of a painting worth millions, while its actual value was only hundreds of thousands.
Promises of fixed high returns. Financial principles indicate that high returns are invariably accompanied by high risks. If a project claims "capital preservation and interest guarantee" or "annual returns exceeding 20%," it is likely a scam. Legitimate investments should emphasize a balance between risk and return.
Evasion of regulation and information disclosure. Compliant projects will proactively disclose information and accept supervision, while illegal projects often operate opaquely. Participants should check whether the project collaborates with legitimate institutions and whether there are legal opinions.
Pyramid-style promotion. Some projects develop downlines through "referral" methods and offer rewards, which is suspected of being a pyramid scheme. Participants should be wary of multi-level distribution models.
In response to these risks, regulatory authorities, industry organizations, and the media should strengthen public education to help the public identify illegal projects. At the same time, project parties should also practice self-discipline, focusing on technological applications rather than speculative hype. A simplistic denial will only lead to market chaos, while detailed risk warnings can promote healthy development.
5. Remind RWA participants to be aware of risks.
For investors or practitioners intending to participate in RWA projects, risk prevention is crucial. Overall, it is essential to guard against exaggeration or even false advertising, market manipulation, or the use of projects for money laundering or other illegal activities.
Here are some specific reminders, especially to be cautious of the following types of promotional language.
Claims of high returns. No investment guarantees "profit without loss." If project parties emphasize risk-free high returns, they are likely setting a trap. Historical cases show that most fraudulent projects attract investors this way.
Claims of quick financing. While blockchain technology can improve efficiency, asset tokenization itself requires time for compliance review and value assessment. Projects claiming "financing completed in a few days" may overlook legal procedures and harbor risks.
Claims of many cases. Currently, there are not many RWA cases, especially domestically. Some project parties may list "successful cases" to prove their strength, but these cases may be fabricated or exaggerated. Participants should independently verify and check relevant reports or regulatory records.
Claims of being the last opportunity in the market. Using the psychology of getting rich quickly for promotional purposes is a common marketing tactic. Truly valuable investment opportunities will not be marketed as "the last chance." Participants should remain rational and avoid impulsive decisions.
Additionally, participants should learn basic financial and legal knowledge and understand domestic regulatory policies regarding virtual currencies and token financing. Before participating, consult professional lawyers or financial institutions to assess project compliance. Remember, innovation does not mean crossing legal boundaries; technological development must be based on controllable risks.
Domestic RWA projects are not incapable of raising funds; rather, they need to explore innovation within a strict legal framework. Simply opposing domestic and international projects or completely denying the financing function of RWA is not factual. Blockchain technology brings new possibilities for asset tokenization, but the key lies in how to balance innovation and compliance. We should encourage the development of reasonable and legal projects while severely cracking down on illegal activities and protecting participants through risk education. In the future, the regulatory environment will continue to improve, and domestic RWA projects may inject new vitality into the financial market on a larger scale. Participants should remain rational, embrace innovation, and not forget to guard against risks.
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