Author: Xiao Za Legal Team

Recently, thanks to the favorable release of the Web3 Declaration 2.0 in Hong Kong, the RWA concept has broken through its initial boundaries and has even attracted a large number of traditional capital market intermediaries to embrace this emerging new track. However, as a team that has personally experienced the p2p era, the air coin era, and the NFT collection era, the Xiao Za team is well aware that beneath the surface of prosperity, there are hidden concerns.

At present, due to the insufficient compliance experience with RWA in Hong Kong, incomplete institutional construction, and issues with information disclosure, the RWA market has already seen a lot of chaos: many uninformed companies impulsively entering the market, unscrupulous intermediaries fabricating false information for rampant marketing, and all sorts of dubious entities starting to use the RWA banner to harvest…

Today, the Xiao Za team will clarify what compliant RWA looks like in our country, the current development status of compliant RWA, and the legal risks of non-compliant RWA, all in one go, to achieve the effect of clarifying the source.

01 What Does Compliant RWA Look Like in Our Country

Let’s start with a conclusion (one opinion): Compliant RWA in our country refers only 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 genuine compliant RWA projects on the market:

(1) A certain new group issued an RWA project in August 2024, using approximately 9,000 electric vehicle charging piles located in mainland China as underlying assets, raising about 100 million RMB.

(2) A certain Xinnengke issued an RWA project in December 2024, using approximately 82 megawatts of distributed photovoltaic power stations located in Hunan and Hubei as underlying assets, raising about 200 million RMB. Investors in this project can use Hong Kong dollar stablecoins (e-HKD) for subscription.

Since the issuance of the Xinnengke project in December 2024, the Hong Kong Securities and Futures Commission has not approved any other entities to issue RWA projects. Limited by the fact that RWA in Hong Kong is still in the sandbox testing phase, the reference value of these two successful projects for current market participants is quite limited.

First, the Hong Kong Securities and Futures Commission has not publicly released clear RWA issuance guidelines, 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 for regulatory agencies, RWA is still in the early experimental stage.

Second, the information disclosure of these two successful RWA projects is extremely opaque, only disclosing the approximate fundraising scale and intermediary institutions, blockchain technology service providers, but failing to disclose truly important information such as the specific underlying asset situation, yield, whether the raised funds have cross-border flows, data compliance solutions, and details about token buyers and settlement methods.

Therefore, to be honest, the authenticity of the information circulating in the current market is questionable. It is recommended that partners consult from multiple sources, compare repeatedly, and avoid being misled.

02 What Does Non-Compliant RWA Look Like

(1) Basic Characteristics of Non-Compliant RWA

Having clarified what compliant RWA is in our country, partners should understand that, apart from the aforementioned two, all other RWA projects issued in our country, especially those raising funds from Chinese investors, 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 example is a project claiming to be "China's first green energy exchange RWA" that raised tens of millions of Hong Kong dollars; yet another example is a real estate company that issued a project claiming to be "the first real estate RWA" after upgrading its related entities' licenses, which is mysteriously done through NFT issuance…

Currently, a large number of intermediary and consulting institutions' research reports equate the charging pile RWA of a certain new group and the photovoltaic RWA of a certain Xinnengke with other non-compliant RWA projects, and even promote other RWAs as "another path," which is actually a misleading, extremely irresponsible, and potentially illegal act that may even cross criminal lines.

(2) Legal Risks of Issuing Non-Compliant RWA

What are the legal risks of non-compliant RWA projects? The People's Bank of China and six other departments issued a clear answer in the "Announcement on Preventing Risks of Token Issuance Financing" (referred to as the "9.4 Announcement") in 2017.

The 9.4 Announcement clearly states: Token issuance financing (ICO) refers to the act of financing entities raising Bitcoin, Ethereum, and other so-called "virtual currencies" through the illegal sale and circulation of tokens, which is essentially an unauthorized public financing behavior that is suspected of illegal token issuance, illegal securities issuance, illegal fundraising, financial fraud, pyramid schemes, and other illegal activities. Relevant departments will closely monitor related dynamics, strengthen collaboration with judicial departments and local governments, strictly enforce the law according to existing work mechanisms, and resolutely address market chaos. Any suspected criminal issues will be referred to judicial authorities.

Some partners might say, "The 2017 9.4 Announcement describes 'raising Bitcoin, Ethereum, and other so-called virtual currencies' and does not mention raising legal currency. So, if I bypass the relevant securities regulatory authority and sell tokens or NFTs to the general public in China to raise legal currency, that wouldn't be considered an ICO, right?"

This is actually a misconception. Raising legal currency without the permission of regulatory authorities is suspected of the crime of illegal public deposit-taking, and if the underlying assets are fraudulent, it may even involve the crime of fundraising fraud.

The so-called "crime of illegal public deposit-taking" refers to: "the act of illegally absorbing public deposits or disguising the absorption of public deposits, disrupting financial order."

According to Article 176 of the Criminal Law and the "Interpretation of Several Issues Concerning the Application of Law in the Trial of Criminal Cases of Illegal Fundraising" by the Supreme People's Court, to constitute the crime of illegal public deposit-taking, it must simultaneously meet the four requirements of "illegal, public, non-profit, and social":

(1) Illegality: Absorbing funds without approval from relevant departments or using legitimate business forms to do so. Non-compliant RWA projects that bypass the Hong Kong Securities and Futures Commission basically meet this requirement.

(2) Publicity: Publicly promoting through media, promotional meetings, flyers, text messages, etc. The Xiao Za team has seen many non-compliant RWA projects that even specifically purchased marketing resources.

(3) Inducement: Promising to repay principal and interest or provide returns in the form of currency, physical goods, equity, etc., within a certain period. This is self-evident; the inducement characteristic is a basic attribute of RWA.

(4) Sociality: Absorbing funds from the general public, i.e., from unspecified social objects. There is controversy over whether some non-compliant RWA projects are making primary offerings to unspecified public, but some projects that claim to have started secondary circulation are very dangerous.

03 In Conclusion

From the perspective of a neutral third-party legal service provider, the Xiao Za team "dares" and "can only" provide services to entities that issue compliant RWA. We understand that due to the slow progress of testing by the Hong Kong Securities and Futures Commission, the high costs of compliant issuance, and the special restrictions on underlying assets, many companies actually have concerns about compliant RWA issuance.

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, auditing firms, due diligence firms, and legal opinion providers will be drawn into various legal responsibilities, which is not worth the loss.

Additionally, the Xiao Za team will also analyze the legal risks of engaging in regulated cryptocurrency business without a license or beyond the scope of the license in Hong Kong for everyone's reference.

Finally, the old saying still holds: before engaging in 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 chase after trends you do not fully understand, but to focus on what you can do at present.

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