Lawyer's sharing: My understanding of RWA

Hello everyone, I am lawyer Liu Honglin, the founder of Mankun Law Firm. We are the first law firm in China focused on the new economy of Web3.0, deeply engaged in the blockchain sector, and currently have teams in Shanghai, Shenzhen, and Hong Kong.

Our friends who are familiar with us should know that Lawyer Mankun often shares many legal articles and short videos related to the Web3.0 industry, and also organizes some online and offline activities. The original intention of continuing to do these things is very simple: since the beginning of our entrepreneurial journey, we set a goal for ourselves: to ensure that Web3.0 occurs legally in China.

Today, the theme of the meeting is "AI + RWA". I would like to take this opportunity to share some observations and thoughts from a lawyer's perspective on the RWA track.

My understanding of this track is that the crypto world and traditional capital markets are undergoing a "two-way rush".

What does it mean? We can see many assets from traditional capital markets, such as stocks, funds, bonds, and even real estate, being brought onto the blockchain or centralized exchanges in a tokenized manner. This has expanded their original audience and provided an additional channel for distribution and circulation.

On the other hand, we also see on-chain assets beginning to converge with traditional markets. For example, many projects are attempting to turn Tokens into products that can be freely traded in securities accounts, such as Bitcoin ETFs, Ethereum ETFs, etc. They are gradually moving towards the form of compliant products in traditional finance.

I believe this "mutual effort" is a very definite trend, and its market growth potential will also be very large.

At this intersection, there is a relatively clear track, which is RWA.

Over the past year, we have received a lot of inquiries about RWA projects, and the types are very diverse. Overall, I would categorize them into three types.

The first category is a model that is very popular in the North American market, for example, buying and custodian stocks like Tesla and Apple, and then mapping them out using blockchain technology, transforming them into a structure that allows for cross-chain lending, collateralization, and other operations on-chain. This type of project is characterized by clear underlying assets, transparent custody, and relatively complete contract arrangements, with the entire process basically completed in sync both on-chain and off-chain. In terms of compliance and transparency, we believe this is the most representative direction.

The second type is a method that appears more frequently in Hong Kong. However, it is not really a public market model; it is more like an extension of traditional private placements. For example, we see some projects that "complete the transaction first and then package it on-chain," meaning that investors first inject money, and later receive tokens or rights. These projects are usually only aimed at qualified investors or institutions and do not conduct public sales. I would say it is more like "getting married first, then registering the marriage," which is a relatively "low-key" way of playing. This path is particularly interesting to many small and medium-sized enterprises in mainland China, as they think, "If they can do it, can I also do it?" But I think the core issue still lies in whether its secondary market can actually become liquid; this is still a bottleneck at the moment. Personally, I am quite optimistic about the liquidity of the secondary market for these types of assets; it's just a matter of time.

The third category is currently the most common and also the most complex one we see in the Greater Bay Area. I call it "training institution-style RWA." This often involves some third-party service providers or certain "exchanges" taking the lead. They will find potential companies looking for financing, such as a tea plantation, a piece of real estate, or even some non-performing assets, and say they can help them get listed on overseas exchanges for fundraising, especially in the offshore market, packaging it into a tradable RWA product.

To be frank, much of this is half-true and half-fake. They may indeed have done some compliance-level designs, but from our professional perspective, many projects are not solid. For example, the most core question is, after you tokenize a domestic asset, who is the buyer? If the buyer is indeed an overseas institution or individual, that could be acceptable. But if your ultimate sales target, promotional goals, and marketing paths are still aimed at mainland users, then as Chinese lawyers, we must remind you: legal and financial risks will ultimately fall back on the mainland entrepreneurs. This is the most common type of project we are currently seeing and need to be vigilant about.

From my personal point of view, whether RWA can be done well in the future hinges on two key judgment criteria:

The first question is whether the data can truly be put on the chain. For example, if you are dealing with charging piles or photovoltaic power stations, can the operational data of your equipment, user usage records, power generation, and revenue settlement be written onto the blockchain right from the source? Is it end-to-end and completely trustworthy? If it’s just turning a paper contract into a file and then "symbolically" generating a hash on the chain, that doesn’t actually change any substantive issues and cannot bring additional trust.

The second point is whether value can truly flow. If after tokenization, you still rely on notifying via email, making offline payments, and using paper contracts for profit distribution, then the advantage of "automatic value circulation" that blockchain brings is completely wasted. What you should really do is distribute profits directly to holders through stablecoins or project tokens using smart contracts. In my view, this is where the value of RWA lies.

I personally believe that the compliance path of this industry in the future will definitely revolve around these two links: one is the data on-chain path, and the other is the value flow path.

If you can connect these two links, the project will naturally have vitality. If you only create a "packaging of financial products," then no matter how cool it looks, it will only appear to be a Blockchain.

Finally, I would like to say that I understand that you are very excited about the combination of RWA, new technologies and new business models like AI, including the prospect of the next phase of asset digitization. But the more times like this, the more calm we must be, and the more we must see the underlying structure, legal boundaries, data flows, and capital chains clearly.