RWA is not simply "asset anchoring" that can immunize legal risks.

Author: Liu Honglin

In the current situation where the East and the West are not in sync, it seems that the entire virtual currency market only has one concept that can reach a consensus, that is RWA (Real World Assets, tokenization of real assets).

High-risk, low-allocated "RWA"

For various reasons, many Web3 entrepreneurs have set their sights on the opportunity to finance through blockchain technology by putting physical assets on the chain, issuing tokens or NFTs, especially those friends who have offline assets such as real estate and art. However, things are obviously not as simple as imagined. Recently, the criminal team of Mankun Law Firm handled a criminal case involving an RWA project, and lawyer Liu Honglin was deeply involved in the service process. Looking back, I think this case is very representative.

In order to protect the privacy of the parties involved, Lawyer Honglin partially fictionalized and blurred the details of the case, only for case discussion, not to be taken seriously. Through this, I want to talk to everyone about the improper legal risk prevention and control of RWA projects, and what kind of legal risks they may face. I hope that entrepreneurs can avoid pitfalls.

The story is as follows: a certain entrepreneur wanted to revitalize the real estate project in hand through the RWA model. Their plan was to use the future income of the real estate as an anchor, issue NFTs through blockchain technology, and then sell them directly to individual customers on the network. After purchasing these NFTs, investors could share the income rights of the real estate. Initially, the project's publicity was very good, coupled with the seemingly guaranteed income from the real estate, which made many users think that this was a "no-lose" project, so the sales volume was indeed good in the short term. But unfortunately, due to the continuous decline in the local economy, the operating income of the real estate in the project was far lower than expected. After the company's executives began to dig into their own pockets to make up for the funds, the project ultimately failed. However, early participants were not happy, especially those friends who bought at a high price in the secondary market, so everyone organized various rights protection and complaints, and finally the case was criminally filed in a certain place by the public security.

This story tells us a simple truth: even if you have real-world physical assets as an anchor, without fabricating facts and concealing the truth, it does not mean that you are immune to legal risks.

Real asset anchoring ≠ immunity to legal risks

In the wind of promoting the real with the virtual encouraged by many local governments, many entrepreneurs think that as long as the NFTs they issue are anchored to real assets, everything will be fine. Little do they know that anchoring assets can increase the credibility of the project, but it cannot replace sound operational capabilities, and naturally cannot completely eliminate operational risks.

From our practical experience, many problems with RWA projects arise because the project parties only focus on how to use asset anchoring to issue tokens, but do not pay attention to the project's sustainable operational capabilities. When the market environment is not as expected, if the project party cannot fulfill its promises to investors, they may face accusations of false advertising at best, and even be suspected of criminal offenses at worst.

As a lawyer specializing in Web3 business compliance, Lawyer Honglin understands that many entrepreneurs start their projects with the intention of doing things well, not just to make money and run away. However, entrepreneurs who dare to take risks often have overly high expectations for future income and tend to overlook market uncertainties. Once the market declines or operations encounter difficulties, legal issues follow.

Avoiding legal pitfalls in RWA projects

On a global scale, the concept of RWA is still in the exploratory stage, and different countries have different legal definitions and regulatory methods for it. Many entrepreneurs see the smooth development of overseas RWA projects and are eager to follow similar models domestically, but often overlook the legal environment in China. Mainland China has always had very strict regulations on virtual currencies, and virtual currency trading, financing, and related activities are high-risk areas. Many projects only see the rapid financing effect brought by token issuance in the early stage, but overlook the regulatory requirements behind it. Once the project touches the red line of virtual currency, it may not only face user complaints or civil litigation, but also criminal penalties.

For Web3 entrepreneurs, in order to avoid stepping on landmines in the RWA field, Lawyer Honglin gives three practical suggestions to entrepreneurs.

1. Do not have a "shoot and run" mentality

RWA projects are not a quick financing channel that can be cashed out rapidly. Many entrepreneurs are eager to pursue short-term gains, thinking that issuing tokens can quickly raise funds. This "shoot and run" mentality is very dangerous, especially in unstable market conditions. Once the project fails to fulfill its promised returns, investors will quickly turn to complaints and reports to the authorities. Therefore, entrepreneurship is a long-term physical activity, and there should be a long-term operational plan. Don't expect to make enough money with just one move.

2. The fund pool must be separated

Don't use investors' money indiscriminately. After many projects raise funds in the early stage, the project party arbitrarily misappropriates investors' funds for other project developments, or even engages in speculative coin investments externally. This behavior not only easily triggers dissatisfaction among investors but also is very likely to be regarded as fundraising fraud by law enforcement agencies. Ensure that the project's fund pool and company operating funds are separated, and the use of funds is transparent. This is the most basic principle of fund management.

3. Actual operation is more important than technical concepts

Whether it's blockchain, RWA, or NFT, entrepreneurs should remember one thing: no matter how cool the technology is, the project ultimately depends on operations. Investors are concerned about whether you can continue to bring returns, and consumers care about whether you can provide stable products and services, not how cutting-edge your technology is. If your business logic is not clear and your operational capabilities cannot keep up, even with advanced technology, the project is unlikely to succeed. Focus on practical operations and don't let yourself be hijacked by technical concepts; this is the long-term survival strategy.

Conclusion by Lawyer Mankun

RWA projects seem to provide a new path for Web3 entrepreneurs, but at this stage, it is somewhat immature. In today's trial-and-error environment, RWA is not simply "asset anchoring" that can immunize legal risks. In mainland China, any tokenization financing involving assets needs to be handled with extreme caution. If you are not sure about the criminal risks of your Web3 project, it is recommended to consult a knowledgeable lawyer to provide oversight.

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