The regulatory window has already opened, and the time left for actors in the market is often limited.
Written by: Iris, Liu Honglin
Since 2024, RWA (Real-World Assets) has become a hot topic in the digitalization of Web3 and traditional finance. From real estate tokens, bills, supply chain finance, to the tokenization of bonds and fund shares, more and more project teams and capital are beginning to seek compliant channels for global implementation.
On March 17, 2025, the Dubai Financial Services Authority (DFSA) released the "Tokenisation Regulatory Sandbox Guide," which clearly includes tokenization as a regulatory focus for the first time and introduces an Innovation Testing Licence (ITL) mechanism, providing a realistic, clear, and practically operable compliance path.
Currently, the application window is open only from March 17 to April 24, 2025. Therefore, for RWA project teams planning to go overseas, this path is an important option worth focusing on and seizing at this stage.
What signals does the DFSA tokenization sandbox release?
This guide clearly states that the DFSA will include Tokenised Investments in its regulatory system and specifically distinguishes between:
Security Token
Derivative Token
As a result, tokenized assets will no longer be in a regulatory gray area, and RWA projects in the Dubai market, especially the tokenization of traditional assets such as real estate, supply chain finance, bills, and bonds, will have clearer compliance bases and regulatory guidance.
At the same time, the DFSA's setup for sandbox applicants provides practical operational space for different types of RWA project teams. According to the DFSA guidelines, companies eligible to apply for participation in the sandbox include:
Companies that issue, trade, hold, or settle tokenized investments (such as stocks, bonds, Islamic bonds, and collective investment fund units);
Financial institutions that already hold DFSA licenses and plan to expand tokenization business;
Company teams with a deep understanding of applicable laws and regulatory frameworks.
In other words, whether it is traditional financial institutions with a certain financial background looking to expand their tokenization business or entrepreneurial project teams focused on the digitalization of RWA assets during their exploratory phase, they can apply to enter through the DFSA sandbox mechanism and gain low-threshold compliance testing opportunities.
Especially for small and medium-sized RWA entrepreneurial teams, the phased regulatory exemptions and supportive policies provided within the sandbox can help teams validate their business models at a lower cost in the early stages while clarifying future compliance licensing paths.
What is even more noteworthy is that the DFSA has introduced an innovative testing license mechanism called the ITL Tokenisation Cohort, allowing RWA project teams to enter the market early without fully meeting all capital requirements and risk control obligations, enabling low-threshold testing of products and models in a real environment before transitioning to the licensed stage.
The overall process is divided into three stages:
- Expression of Intent Stage
Project teams need to submit an intent form indicating their plans to conduct tokenization business in the DIFC (Dubai International Financial Centre). The DFSA will conduct a preliminary assessment based on background, governance, technical solutions, etc.
- ITL Testing Stage
After passing the initial evaluation, projects can enjoy exemptions from certain capital, prudential obligations, and reporting requirements during a 6-12 month window period, allowing them to access the real market environment at a low cost to test their business models. However, the DFSA also clearly states that participating projects must still be subject to ongoing regulation, and project teams must ensure that key risk points such as information disclosure, DLT system security, and custody arrangements comply with regulatory requirements.
- Licensing Transition Stage
After the testing period ends, projects must choose to apply for a full DFSA license or exit the business according to the exit mechanism. The DFSA will strictly enforce market exit for projects that do not meet the graduation standards.
It is important to note that this sandbox only serves the tokenization of traditional financial assets and real-world assets; therefore, other pure cryptocurrency projects (Crypto Tokens) and fiat stablecoins (Fiat Crypto Tokens) are not applicable.
Why is the DFSA tokenization sandbox worth paying attention to?
Currently, globally, the clear regulatory frameworks for RWA or tokenized assets are mainly concentrated in the Dubai and Hong Kong markets. Although both actively promote the clarification of RWA regulation, there are significant differences in specific implementation.
It can be seen that while both the DFSA in Dubai and the HKMA in Hong Kong are actively promoting the clarification of tokenization regulation, there are significant differences in the participation thresholds and applicable entities between the two mechanisms.
For RWA entrepreneurs, the ITL sandbox mechanism launched by the DFSA has several practical advantages worth special attention:
- Suitable for startups and small to medium-sized teams, independent application flexibility
The overall design of the Hong Kong Ensemble sandbox leans towards participation from traditional financial systems, dominated by licensed institutions such as banks and brokerages, where startup project teams often need to rely on partners to participate, making the application chain relatively complex.
In contrast, the DFSA's ITL mechanism allows project teams to apply as independent entities without relying on existing financial institution backgrounds, providing higher autonomy and operational flexibility for RWA projects with limited resources and in the exploratory phase.
- Phased exemptions during the testing period reduce compliance testing costs
The DFSA clearly provides a 6-12 month testing window, during which capital requirements and prudential risk control obligations are subject to phased exemptions, especially allowing projects to quickly validate their business models in a real market environment while significantly reducing early testing costs and operational burdens. Therefore, the DFSA ITL mechanism can be considered one of the few practical cases under the current global diverse regulatory system that provides independent application channels, phased exemptions, and a full chain path to graduation for RWA entrepreneurial projects.
In contrast, the overall compliance threshold in Hong Kong is relatively high, especially with the SFC licensing system imposing strict requirements on capital, governance structure, etc., posing significant challenges for startup teams in the short term.
- Clear regulatory framework, formal management of RWA assets
The DFSA's inclusion of Security Tokens and Derivative Tokens into the existing financial regulatory system eliminates the policy gaps and legal risks previously faced by tokenized assets. Project teams only need to follow the existing financial product regulatory framework of the DFSA to legally and compliantly develop issuance, trading, and other businesses, with strong policy predictability.
In comparison, the Hong Kong Ensemble sandbox is still in the collaborative pilot stage among banks and financial institutions, with its applicable scope leaning more towards financial infrastructure, and a direct regulatory channel for Web3 project teams, especially entrepreneurial projects, still needs to be improved.
It can be seen that the launch of the DFSA sandbox is not just a simple compliance innovation but also reflects Dubai's policy intention to strive for a first-mover advantage in the RWA track as a fintech center in the Middle East.
Advice from Mankun Lawyers
Whether choosing Hong Kong or Dubai, the key for RWA projects is always how to find the most suitable compliance path for the current stage of the project based on their own stage, resources, and strategic planning.
The tokenization regulatory sandbox launched by the DFSA provides a moderate threshold, clear regulatory framework, and controllable costs for RWA project teams in the exploratory phase who wish to quickly validate their models.
However, it is worth noting that this window is not open for a long time; project teams not only need to seize the time but also need to complete compliance preparations in advance to truly land first.
In this regard, Mankun Lawyers suggest focusing on the following points:
Complete DIFC registration and legal structure design as early as possible. Only by establishing a registered entity in the DIFC can one enter the DFSA regulatory system. It is recommended to plan the equity structure and tax arrangements in advance to avoid missing the application window due to insufficient compliance preparation.
Prepare technical solutions and risk control materials in advance. The DFSA has detailed requirements for DLT system design, custody mechanisms, and compliance processes. It is recommended to hire a compliance team to assist in preparing relevant materials to ensure a successful application during the ITL phase.
Plan the licensing path after ITL graduation. The sandbox period is only a phased convenience; the ultimate goal should be to obtain a complete DFSA formal license. It is recommended to simultaneously prepare long-term plans for capital supplementation, governance document improvement, etc., to avoid operational interruptions after the sandbox period ends.
It is foreseeable that the DFSA sandbox will attract a surge of global projects; however, those teams that have laid out governance, risk control, and compliance preparations in advance will still be the ones that can land first and complete the graduation transition.
The regulatory window has already opened, and the time left for actors in the market is often limited.
Are you ready for the next step?
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