Discussion on the Definition and Compliance of RWA Projects

Recently, RWA( real-world assets ) projects have become a hot topic in the Web3 field. Many observers believe that RWA will reshape the financial ecosystem in Hong Kong and usher in breakthrough developments under the existing regulatory framework in Hong Kong. However, there are differences in the industry's understanding of "Compliance," which stems from inconsistencies in the understanding of the RWA concept.

This article will explore the definition and compliance requirements of RWA from a professional legal perspective.

1. Definition of RWA

RWA is a broad concept, and the process of asset tokenization through blockchain technology can be referred to as RWA. A true RWA project should possess the following characteristics:

1. Based on real assets
2. Asset Tokenization on Chain
3. Digital assets have ownership value.
4. The issuance and circulation comply with legal regulations and are subject to administrative supervision.

RWA projects can be divided into two categories:

1. Narrow RWA: Physical assets on-chain
2. STO( Security Token Offering ): Financial assets on-chain

STOs are subject to securities regulations, and the standards for identifying security tokens vary by country. The U.S. SEC employs the Howey Test to determine whether it constitutes an "investment contract."

2. RWA Project "Compliance" Layering

RWA Compliance can be divided into four levels:

1. Sandbox Compliance: For example, the Hong Kong Monetary Authority's Ensemble sandbox project.
2. Hong Kong Administrative Compliance: Incorporating into STO Framework Management
3. Clear regulatory framework for crypto-friendly regions
4. "General Compliance": Not yet deemed non-compliant in specific offshore jurisdictions.

Currently, most projects find it difficult to achieve the first two types of Compliance, and are trying the third path.

3. Compliance Suggestions for RWA Projects

1. Choose a policy-friendly jurisdiction
2. Ensure that the underlying assets are real and redeemable.
3. Obtain investor recognition
4. Ensure that institutional operations in the chain are in Compliance
5. Preventing Post-Compliance Risks
6. Emphasize Brand Reputation Management

RWA projects should maintain policy sensitivity, proactively carry out "self-compliance" work, establish investor screening and education mechanisms, and continuously pay attention to changes in the dynamic regulatory environment.

In summary, the development of RWA projects needs to promote the improvement of the system through practical exploration, based on respect for the existing legal framework, to achieve a virtuous evolution.