Written by: Xiao Sa Legal Team
Recently, thanks to the positive impact of Hong Kong's announcement of Web3 Declaration 2.0, the concept of RWA has broken into new circles, even attracting a large number of traditional capital market intermediaries to embrace this emerging new track. However, as someone who has personally experienced the p2p era, air coin era, and NFT collection era, the Sa Jie team is well aware that amidst the prosperity, hidden worries must exist.
Currently, due to the insufficient practical experience with compliant RWA in Hong Kong, incomplete institutional construction, and lack of transparency in information disclosure, the RWA market has already seen a lot of chaos: many uninformed companies impulsively enter the market, unscrupulous intermediaries fabricate false information for marketing, and all sorts of dubious entities begin to collect funds under the banner of RWA...
Today, the Sa Jie team has clearly explained what compliant RWA is in our country, the current development status of compliant RWA, and the legal risks of non-compliant RWA to achieve the effect of clarifying the source.
01 What does compliant RWA look like in our country?
To conclude (my personal opinion): compliant RWA in our country only refers to RWA projects that have been reviewed and approved by the Hong Kong Securities and Futures Commission for issuance in the Ensemble sandbox.
Currently, there are only two truly compliant RWAs on the market, namely:
(1) A new group issued an RWA project in August 2024 using approximately 9,000 electric vehicle charging stations located in mainland China as underlying assets, with a fundraising scale of about 100 million RMB:
(2) A certain Xin Neng Ke issued an RWA project in December 2024 using approximately 82 megawatts of distributed photovoltaic power stations located in Hunan and Hubei as underlying assets, with a fundraising scale of about 200 million RMB. Investors in this project can use Hong Kong dollar stablecoins (e-HKD) for subscription.
Since the completion of the issuance by a certain Xin Neng Ke in December 2024, the Hong Kong Securities and Futures Commission has not approved any other entity to issue RWA projects. Limited by the fact that RWA in Hong Kong is still in the sandbox testing phase, the reference value of the aforementioned two successful projects for current market entities is quite limited.
Firstly, the Hong Kong Securities and Futures Commission has not publicly issued clear guidelines on RWA issuance, and has not even started the first public consultation. Therefore, the review of these two successful RWA projects was conducted on a 'case by case' basis, which means that RWA is still in the early experimental stage for regulatory authorities.
Secondly, the information disclosure of the two successful RWA projects is extremely non-transparent, only disclosing the approximate fundraising scale and intermediary institutions, blockchain technology service providers, but the specific conditions of the underlying assets, yield rates, whether the raised funds have cross-border flows, data compliance solutions, and the identities of token buyers and settlement methods—all truly important information—have not been publicly disclosed.
Therefore, to be honest, the authenticity of the information circulating in the current market is questionable. It is recommended that partners consult multiple sources, compare repeatedly, and avoid listening to only one side.
02 What does non-compliant RWA look like?
(1) Basic characteristics of non-compliant RWA
To clarify what compliant RWA is in our country, partners should understand that except for the aforementioned two entities, all other RWA projects issued in our country, especially those raising funds from investors in our country, can basically be classified as 'non-compliant' RWA.
For example, a project claiming to be the 'first agricultural industry RWA in mainland China' that raised 10 million RMB; another claiming to be 'China's first green energy exchange RWA' that raised tens of millions of Hong Kong dollars; and yet another real estate company that issued a project claiming to be the 'first real estate RWA' after upgrading its related entities' licenses 4 and 9 (curiously, this project was also done through NFT issuance)...
Currently, many intermediary and consulting institutions' research reports compare a certain new group's charging pile RWA with a certain Xin Neng Ke's photovoltaic RWA and other non-compliant RWA projects. They even promote other RWAs as 'another path', which is actually a confusing and irresponsible behavior that may even violate criminal laws.
(2) Legal risks of issuing non-compliant RWA
What legal risks do non-compliant RWA projects have? The announcement (on preventing risks of token issuance financing) released by the People's Bank of China and seven other departments in 2017 has already provided clear answers.
The 9.4 announcement clearly states: Token issuance financing (ICO) refers to the illegal sale and circulation of tokens by the financing entity to raise Bitcoin, Ethereum, and other so-called 'virtual currencies' from investors. Essentially, this is an act of illegal public financing without approval, suspected of illegally selling token vouchers, illegal issuance of securities, and illegal fundraising, financial fraud, pyramid schemes, and other illegal activities. Relevant departments will closely monitor the dynamics, strengthen cooperation with judicial departments and local governments, strictly enforce the law according to the existing work mechanism, and resolutely address market chaos. Any suspected criminal issues will be referred to judicial authorities.
Some partners have mentioned that the 9.4 announcement in 2017 describes "raising Bitcoin, Ethereum, and other so-called 'virtual currencies' from investors," without mentioning the absorption of legal currency. So, although I bypassed the relevant securities regulatory authority and sold Tokens or NFTs to the unspecified public in China to absorb legal currency, doesn’t that fall under ICO?
This is actually a misconception. Absorbing legal currency without the permission of regulatory authorities is suspected of illegally absorbing public deposits, and if the underlying assets are fraudulent, it may even be suspected of fundraising fraud.
The so-called 'crime of illegally absorbing public deposits' refers to: 'Illegally absorbing public deposits or disguised absorption of public deposits, disrupting the financial order.'
According to Article 176 of the Criminal Law and the Supreme People's Court's interpretation on several issues concerning the specific application of laws in cases of illegal fundraising, to constitute the crime of illegally absorbing public deposits, four elements must be met: 'non, public, unlicensed, and profit'.
(1) Illegality: Absorbing funds without the approval of relevant departments or using the form of legitimate business operations. Non-compliant RWA projects that bypass the Hong Kong Securities and Futures Commission basically satisfy this requirement.
(2) Publicity: Publicly promoting through media, promotional meetings, flyers, SMS, etc. The Sa Jie team has seen many non-compliant RWA projects even specifically purchasing marketing resources.
(3) Inducement: Promising to repay capital and interest or provide returns in cash, physical goods, equity, etc. This need not be stated, as the characteristic of inducement is a fundamental attribute of RWA.
(4) Social aspect: Absorbing funds from the public, i.e., unspecified social objects. There is controversy over whether some non-compliant RWA projects are aimed at unspecified public for primary sales, but some projects claiming to have started secondary circulation are very dangerous.
03 Final remarks
From the perspective of a neutral third-party legal service provider, the Sa Jie team can 'only dare' to provide services to entities that issue compliant RWA. We understand that, due to the slow progress of the Hong Kong Securities and Futures Commission's testing, the high costs of compliance, and the special restrictions on underlying assets, many companies actually have concerns about issuing compliant RWA.
However, under the financial regulatory system in our country (including Hong Kong), the basic situation is take it or leave it; any circumvention or loophole behavior is unacceptable. Otherwise, not only the issuing entity but also all intermediary institutions, supervisory organizations, and legal service providers issuing asset appraisal reports, audit reports, due diligence reports, and legal opinions will be involved in various legal responsibilities, leading to a loss.
Additionally, the Sa Jie team will also analyze the legal risks of conducting regulated cryptocurrency asset businesses without a license or beyond the licensing scope in Hong Kong for everyone's reference.
In the end, the old saying still applies: before doing RWA, ask yourself if there is a real need? Can you accept the current uncertainties? If the answer is no, then it is more important not to pursue some hot topics you don't really understand and to focus on what you can do right now.
