This article is reprinted with permission from lawyer Xiao Za, and the copyright belongs to the original author.

Under the slogan of "chain reform," RWA has gradually become a popular direction for the integration of Web3 and traditional finance. By putting real assets such as real estate, debt, and equity on the blockchain, it enhances transaction liquidity and convenience. However, RWA is not inherently compliant; as long as it has the substantive characteristics of "illegally absorbing funds from the public," even with complex smart contracts and exquisite packaging, it may constitute illegal fundraising. Behind the technical packaging, there have been frequent occurrences of illegal fundraising scams disguised as RWA, where many criminals exploit the popularity of the RWA concept and the public's unfamiliarity with emerging technologies to carefully package various traps, resulting in significant losses for many investors. Today, the Sa Jie team will discuss where the risk boundaries between RWA and illegal fundraising lie, how companies can avoid crossing the red line, and how ordinary investors can prevent being scammed.

(I) The Risk Boundaries Between RWA and Illegal Fundraising Crimes

In 2017, the People's Bank of China and seven other ministries jointly issued the "Announcement on Preventing Risks of Token Issuance Financing." This announcement clearly states that token issuance financing refers to the act of financing entities raising Bitcoin, Ethereum, and other so-called "virtual currencies" from investors through the illegal sale and circulation of tokens, which is essentially an unapproved illegal public financing activity, suspected of illegal token issuance, illegal securities issuance, as well as illegal fundraising, financial fraud, and pyramid schemes. Although Hong Kong passed a tiered regulatory system in 2025 allowing compliant RWA projects to be conducted, providing new pathways for cross-border financing, at least currently within mainland China, there is no recognition of RWA as a financing method. In judicial practice, financing of this nature can lead to service contract disputes being deemed invalid civil actions, and platforms may also face legal risks of being classified as illegal fundraising or pyramid schemes.

According to the "Regulations on Preventing and Dealing with Illegal Fundraising" and Article 192 of the Criminal Law and related judicial interpretations, illegal fundraising has the following core characteristics: (1) Illegality: Absorbing funds from the public without approval from relevant state departments; (2) Publicity: Raising funds from unspecified groups through advertisements, online platforms, etc.; (3) Return: Promising principal or fixed returns to induce investment; (4) Sociality: Involving a large number of people and posing social harm. The essence of RWA is "asset on-chain + tokenized circulation," which is technically similar to financial products like securitization and ABS.

While there are certain similarities between the two, there are also essential differences that depend on the regulatory environment and operational model, requiring a dual judgment of form and substance. Formally, it is necessary to see whether the fundraising complies with the legal framework, such as whether it is issued through compliant financial institutions and whether investor suitability management is in place. If fundraising is conducted privately and shares are split to sell to the public, it is already suspected of violating regulations. Substantively, it is necessary to examine whether the use of funds is genuine and whether risks are transferred. If "asset collateral" is used as a gimmick while the funds are actually put into empty arbitrage, or if "rigid repayment" is promised to cover risks, even if packaged as RWA, it is still essentially illegal fundraising. The core difference between the two is that compliant RWA involves risk pricing of real assets, while illegal fundraising uses the name of assets to actually raise money.

(II) A Clear Table: Judgment Dimensions for Whether RWA Constitutes Illegal Fundraising

(1) Ensure Specificity of Fundraising Targets

Under the current regulatory framework for RWA in China (mainly Hong Kong), companies cannot raise funds from unspecified members of the public. This requires companies to clearly define the scope of investors, such as setting certain investment thresholds, only opening to specific investors who meet certain conditions, such as having corresponding risk tolerance and asset levels, like some high-end financial products being available only to high-net-worth clients.

(2) Do Not Make False or Exaggerated Promises of Returns

Companies cannot guarantee investors that their principal will not be lost or promise fixed high returns, as investments inherently carry risks and returns are uncertain. For example, investors should be truthfully informed about the risks and potential fluctuations in returns that the project may face.

(3) Ensure Clear and Reasonable Use of Funds

It is essential to clearly plan the flow of funds for the company's genuine business development, project construction, etc., rather than misappropriating them at will. For instance, a company issuing bonds to raise funds for expanding production should provide detailed disclosures about the use of funds to investors.

Additionally, it is necessary to comply with relevant laws and regulations and regulatory requirements, actively communicate with regulatory authorities, stay updated on policy dynamics, and ensure that the business model complies with regulatory provisions without crossing legal red lines.

(1) In-Depth Research on Underlying Assets

A real and reliable RWA project must have clear, identifiable, and verifiable underlying assets. Investors should require the project party to disclose detailed information about the underlying assets, such as proof of asset ownership, evaluation reports, etc. Furthermore, it is necessary to assess whether legal ownership certificates (such as real estate certificates, shareholder registers, etc.) are provided and whether it can be verified that the assets have been confirmed.

(2) Carefully Review Project Qualifications

When investing in RWA projects, it is important to check whether the project party has the relevant financial business qualifications. Legitimate and compliant RWA projects may need to obtain licenses issued by financial regulatory authorities in certain countries or regions. For example, conducting stablecoin-related RWA business in Hong Kong requires compliance with the "Stablecoin Regulations" and obtaining the corresponding license. Additionally, it is advisable to check whether the project has undergone KYC and AML certification, which are crucial steps to ensure the project's compliant operation and protect investors' funds. If the project party cannot provide this information or is vague about qualification issues, the project is likely to carry risks.

(3) Cautiously Assess Return Logic

Illegal fundraising projects often use high returns as bait to attract investors, so investors should remain highly vigilant about the sources and promises of returns from the project. Legitimate RWA project returns should come from the actual operating income of the underlying assets, such as rent, interest, asset appreciation, etc., and the return distribution ratio should match the actual profit situation. If a project promises "capital preservation with high returns," such as an annualized return far exceeding reasonable market levels, or if returns are unrelated to asset operating conditions and rely solely on token price increases, then the project is very likely an illegal fundraising trap. Moreover, if the project employs models like "referral commissions" or "multi-level distribution" to encourage investors to develop downlines for additional returns, this is essentially a Ponzi scheme, and one should never participate. On-chain assets cannot discuss returns without considering risks; any promises of "5% monthly interest, 30% annualized returns, capital preservation and interest" are high-risk signals. If the liquidity of funds overly depends on new entrants or if the platform sets various "thresholds" to restrict withdrawals, it can be deemed a typical "funding scheme," and one should quickly distance themselves.

As a bridge between the blockchain world and the real economy, RWA indeed has certain financial innovation value. It is expected to lower financing thresholds, enhance asset liquidity, and provide more capital channels for emerging markets. However, technology itself is not a get-out-of-jail-free card; if its usage violates the basic principles of financial regulation, it will ultimately be held accountable in the form of illegal fundraising. For ordinary investors, facing the ever-evolving "chain reform" projects, it is crucial to remain rational and vigilant. Any financing behavior that promises high returns, no risks, and new models should be "thought through before investing."

The development path of RWA is destined to be a game of technology, regulation, and law. Perhaps its future is worth looking forward to, but for now, in a regulatory framework that is not yet perfect and with few successful market operation cases, both companies and the public need to proceed with caution. Only in this way can the true value of RWA be realized and prevent it from becoming a tool for criminals to harvest the unsuspecting.

Related Reading: The Life and Death of the Token Market: Regulation and RWA Tokenization Bring New Hope

Original text: “Boundary Determination Between RWA and Illegal Fundraising: Opportunity or Legal Crisis?”

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