Written by: Xiao Za Legal Team

In mid to late November 2025, a Real World Asset (RWA) project based on accounts receivable from small and medium-sized enterprises (SMEs) in the United States collapsed due to large-scale defaults of the underlying assets, causing the value of its on-chain tokens to plummet. In the past, the market viewed "asset tokenization" as a solution to the pain points of traditional asset investment, enhancing credibility due to the transparency and efficiency of blockchain. However, investment risks do not disappear; they essentially become "risks on-chain," injecting the credit risks that slowly ferment in the off-chain world directly and instantaneously into the 7*24 hour operating on-chain financial world without any attenuation.

Today, the Xiao Za team will not discuss asset innovation with our old friends, but rather focus on risk governance. Through this project, which marks the industry's first "explosion," we will deeply analyze the complete transmission path of risk from off-chain to on-chain and the RWA risk management framework.

1. Blockchain as an Efficient Risk Transmitter

The failure of this RWA project ultimately stems from the underlying assets in the off-chain world, specifically the credit risk of accounts receivable from SMEs in the United States. These underlying assets differ from those in other new energy and high-tech fields and have three typical characteristics:

(1) Highly Non-standardized: Each account receivable has different debtors, specific amounts, payment cycles, and debtor credit qualifications;

(2) High Credit Dependency: The asset value is highly dependent on the performance capabilities of the issuing company and its customers, as well as the overall economic environment;

(3) Information Opacity: External investors find it difficult to conduct continuous and effective supervision and investigation of the vast number of accounts receivable.

In a declining economic environment, companies face increased operational pressure, and the payment capabilities of their debtors weaken, leading to rising overdue and default rates for accounts receivable. This is also quite common in traditional finance, where risks typically emerge over months through financial reports and industry reports, providing investors with some warning signals.

However, in an RWA project, oracles serve as the bridge connecting off-chain data with on-chain smart contracts. When accounts receivable experience large-scale defaults, this will be reflected in real-time on the on-chain world, updating asset valuation reports and synchronizing with DeFi protocol smart contracts. This creates a 7*24 hour uninterrupted financial environment strictly executed by code, with no room for human intervention.

More seriously, RWA tokens are widely used as collateral in DeFi, for lending stablecoins or other assets in protocols like Aave and Compound. When oracles quickly reflect the state of the off-chain world, significantly lowering the price of RWA tokens, the value of all tokens used as collateral may not be sufficient to cover debts, triggering large-scale, systemic liquidations. The liquidation of one protocol can spread to others, causing systemic risks across the entire DeFi ecosystem.

Large-scale liquidations themselves will flood the market with a significant amount of RWA tokens, further depressing their prices, which in turn triggers more liquidations, leading to a "default of accounts receivable - token price drop - triggering liquidation - token sell-off - further price drop" death spiral. The RWA token plummeted from $1 to $0.18 in just 48 hours.

2. The Illusion of Blockchain Transparency: Compliance is the Final Line of Defense

The high transparency of blockchain is a significant advantage of RWA, but it only allows for the querying of transaction records, contract codes, and asset flows. The ultimate success or failure of an RWA project depends on the legal structure and rights design off-chain, rather than the on-chain technical implementation.

1. SPV Firewall

To isolate the risks of asset initiators, RWA projects typically employ a Special Purpose Vehicle (SPV) structure. This is a standard and effective financial tool in RWA, where the asset initiator transfers accounts receivable and other underlying assets to the SPV through real transactions, and the SPV issues tokens backed by these underlying assets. When the asset initiator defaults due to its own reasons or mismanagement, its creditors cannot pursue the assets in the SPV, thus protecting the rights of token holders.

The RWA project initially claimed to establish an SPV to achieve asset bankruptcy isolation, but under immense default pressure, the establishment of the SPV does not equate to an impenetrable firewall; a penetrating judgment of the legal structure is still required.

2. Rights of Tokens

The tokens purchased by investors in RWA projects correspond to a wide variety of legal rights, which directly determine the rights enjoyed when risks arise. Generally, the rights corresponding to tokens fall into the following categories:

(1) Ownership Shares: Directly owning a share of the underlying assets, with the highest claim rights in the event of bankruptcy or default by the project party, allowing direct participation in asset disposal and distribution.

(2) Secured Rights: Enjoying priority rights to recover from the underlying assets, with priority in the realization value of the secured assets.

(3) Trust Beneficiary Rights: Enjoying the right to receive benefits from trust property.

(4) General Bonds: Equivalent to purchasing securities from the issuer, with the lowest recovery priority.

Many investors focus solely on the yield when purchasing RWA tokens, without delving into the legal rights represented by the tokens. When risks such as defaults or bankruptcies arise, they realize the differences in token rights. This asymmetry of information at the legal level is a more insidious risk than technical vulnerabilities.

3. Future Compliance Trends for RWA

This RWA project was also issued under a "compliance framework," claiming that the underlying accounts receivable were audited by third-party institutions and received indirect endorsement from traditional financial institutions. However, when large-scale defaults occurred and credit collapsed, it ultimately became the first case of "explosion." The Xiao Za team believes that the industry should shift from the initial focus on "asset tokenization" to the construction of a risk governance system, specifically:

(1) Review of Asset Initiators: Assessing the past performance of the review team, their professional capabilities, and whether they possess the ability to repay debts and maintain stable operations;

(2) Review of Underlying Assets: Evaluating the credit rating of the assets, the methods of valuation, whether there are independent third-party valuation reports, and whether the funding pool is sufficiently diversified;

(3) Review of Legal Structure: Confirming whether the assets are genuinely sold to the SPV and its independence, requiring legal opinions and clear legal rights corresponding to the tokens;

(4) Technical and Operational Review: Ensuring the security of smart contracts and the effectiveness of the oracle mechanism.

In Conclusion

The first default of RWA is by no means the end of the RWA industry, but rather a true beginning. This allows the industry to cool down from the technological frenzy of asset tokenization and begin to study deeper levels of risk governance. In the future, RWA projects will no longer compete on whose underlying assets are of higher quality or who can tokenize more assets, but rather on who can build a more robust, transparent, and compliant RWA risk management framework. This is the future direction of RWA!

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