With the improvement of infrastructure and the maturation of regulatory frameworks, RWA is expected to achieve larger-scale adoption.

Author: May Pang, Chief Compliance Officer @OORT

Introduction

When traditional finance meets blockchain technology, Real World Asset Tokenization (RWA) is reshaping the operational paradigm of global capital markets. By putting traditional assets such as real estate and government bonds on-chain, RWA provides investors with higher liquidity and transparency. According to a forecast by the Boston Consulting Group, the scale of tokenized assets is expected to exceed $16 trillion by 2030. In this wave, compliance becomes a key factor determining whether RWA can move from proof of concept to large-scale implementation. This article deconstructs three representative RWA projects, revealing the mainstream compliance paths in the current market and providing a forward-looking analysis of the opportunities and challenges facing the industry.

1. Compliance Practices of RWA: Paradigm Interpretation of Three Benchmark Projects

1. St. Regis Aspen Resort: A Compliance Model for Real Estate Securitization

Project Highlights:

• The five-star hotel St. Regis Aspen Resort in Colorado, USA, achieved asset tokenization by issuing security tokens (STO).
• The token ASPD represents indirect ownership of the company's common stock and strictly adheres to the SEC's Reg D 506(c) regulations.
• The issuer, Aspen Digital Inc., only targets accredited investors and trades through a licensed Alternative Trading System (ATS).

Innovative Value:

• Pioneering the use of Reg D 506(c) exemption to split the equity of a five-star hotel into security tokens (ASPD).
• Achieving secondary market circulation through the tZERO ATS platform, with an annual trading volume exceeding $12 million.
• Token holders can enjoy hotel consumption discounts, priority bookings, and other rights, realizing a dual value of "investment + consumption."

Compliance Key Points and Structure:

• Only targeting A-class properties and SEC-recognized accredited investors (individual net worth ≥ $1 million or annual income ≥ $200,000).
• Completing registration with the SEC to ensure compliance of the issuance.
• Trading through licensed platforms to protect investor rights.
• Dual-layer SPV design: Aspen Digital Inc., registered in Maryland, serves as the issuer, with ER-RE LLC implementing asset management.
• Ongoing disclosure: Quarterly submission of Form D updates to the SEC to ensure information transparency.

2. RealT - Compliance Practices in Property Ownership Tokenization

Project Highlights:

• RealT focuses on the tokenization of single-family and multi-family residences, successfully tokenizing 422 properties with a total value of nearly $100 million.
• Each property corresponds to a limited liability company (LLC), with tokens representing shares of the LLC, and rental income directly distributed to token holders.

Innovative Value:

• The first property platform in the U.S. to achieve automatic on-chain distribution of rental income.
• Smart contracts automatically execute leases, with a default rate 1.8 percentage points lower than the traditional rental market.

Compliance Key Points and Innovations:

• Unique "one property, one LLC" structure: Each property token corresponds to an independent LLC, isolating legal risks and ensuring a clear legal structure.
• Licensed property management: Collaborating with one of the top 10 property management companies in the U.S. to implement a unified FATCA tax reporting standard, with the property management company responsible for maintenance and transparent, traceable rental distribution.
• On-chain and off-chain collaboration: Key data such as property tax bills and maintenance records are put on-chain via Chainlink, with all operations registered and recorded within the U.S. legal framework.

3. Ondo Finance - A Compliance Benchmark for Institutional-Level Treasury Bond Tokenization

Project Highlights:

• Ondo Finance launched the USDY token, supported by short-term U.S. Treasury bonds and bank demand deposits, with an annual yield of 5.10%. The treasury bond token supports 24/7 redemptions, with T+1 settlement efficiency exceeding traditional funds by three times.
• The OUSG token is linked to BlackRock's short-term Treasury bond ETF, targeting only high-net-worth individuals and institutional investors who pass KYC, complying with SEC's Reg D and Reg S regulations, with institutional investors holding 82% of the positions.
• Innovative liquidity pool: Collaborating with Wintermute to build a market-making mechanism, keeping the buy-sell spread stable within 0.3%.

Compliance Key Points and Breakthroughs:

• Strict KYC/AML processes embedded in smart contracts, with a dynamic KYC mechanism utilizing zero-knowledge proof technology to balance compliance verification and privacy protection.
• The underlying assets are high-quality U.S. Treasury bonds, with daily third-party verification of reserves, a triple audit system providing daily reserve proof + monthly actuarial reports + annual comprehensive audits by PwC. Collaborating with institutions like BlackRock to ensure transparency and security.

2. Summary of Compliance Trends in RWA

From the above cases, it can be seen that the current compliance practices of RWA exhibit the following trends:

1. Strict Adherence to Securities Law Regulations

Most RWA projects (especially security tokens) need to complete Reg D or Reg S registration with the SEC to ensure legal issuance. They only target accredited investors or institutions to avoid crossing the red line of public fundraising.

2. Clarification of Legal Structure

Clarifying asset ownership through legal entities such as LLCs and REITs to protect investor rights. Each transaction and income distribution must comply with local laws and regulations.

3. KYC/AML as Standard Requirements

Whether in property or treasury bond tokenization, KYC and anti-money laundering (AML) processes have become basic requirements. Some projects even embed KYC into smart contracts to achieve on-chain compliance.

4. Transparency and Third-Party Verification

Underlying assets need to be disclosed regularly and audited by third-party institutions to ensure transparency. For example, Ondo publishes daily reserve reports to enhance investor trust.

3. Challenges

Despite some progress in compliance for RWA, the following challenges remain:

• High Costs and Complexity

The legal and operational costs of tokenization are high, especially regarding compliance requirements across jurisdictions. The cost advantages of tokenized assets have not yet fully materialized.

• Technical Bottlenecks

Blockchain technology still has room for improvement in speed, security, and user experience. Seamless integration of on-chain and off-chain data still needs enhancement.

• Global Regulatory Fragmentation

Different countries have varying regulatory attitudes towards RWA, and project parties must navigate multiple legal frameworks.

4. Three Solutions to Address Challenges

1. Utilizing regulatory technology (RegTech) to reduce compliance costs

In addition to the gradually adopted zero-knowledge proof, RWA projects are also attempting to use smart contracts to automatically execute compliance requirements such as Reg SHO short sale disclosures and Form 13F position reports. Deloitte has developed RWA compliance middleware that can automatically generate disclosure documents across multiple jurisdictions, while institutions like JPMorgan are testing encoding MiCAR provisions into executable smart contracts.

2. Flexibly adopting legal structures and jurisdictions to lower compliance costs

By selecting appropriate legal structures and jurisdictions, RWA projects can reduce compliance costs. For example, Singapore's Variable Capital Company (VCC) structure has become a new choice for Asian RWA projects, while the Cayman Islands SPC structure supports the issuance of multiple series of tokens for a single fund, reducing compliance costs by 40%.

3. Promoting the establishment of regulatory dialogue mechanisms and cross-jurisdictional compliance cooperation

Regulatory agencies are currently taking active actions. For example, the EU is conducting pilot systems for DLT, the U.S. SEC has established a Crypto Task Force aimed at clarifying the applicability of federal securities laws in the crypto asset market, and the Hong Kong Securities and Futures Commission applies the "same business, same risk, same rules" regulatory principle to STOs. RWA projects should actively communicate with regulators to promote cross-jurisdictional compliance cooperation to reduce compliance costs.

Conclusion

With the improvement of infrastructure and the maturation of regulatory frameworks, RWA is expected to achieve larger-scale adoption. The entry of institutional-level assets will drive industry standardization, while advancements in cross-chain technology and privacy protection may open new possibilities for RWA. The compliance of RWA is key to its foothold in mainstream financial markets. From St. Regis Aspen Resort to Ondo Finance, these cases demonstrate how the combination of compliance and innovation can bring new opportunities to investors. The development of RWA is undergoing a transition from "compliance follower" to "standard setter." Despite the challenges that remain, the future of RWA is promising—it is not only an application of blockchain technology but also an important bridge between traditional finance and decentralized finance. As Goldman Sachs' head of digital assets Mathew McDermott stated, "What we see in the next five years is not tokenized assets, but asset tokenization." In this process, building a compliance framework that respects the essence of finance while embracing technological innovation will be key for the industry to bridge the gap. Projects that can transform regulatory requirements into competitive advantages will ultimately gain the upper hand in this paradigm revolution of financial infrastructure.

(This article's data is as of Q2 2024, with some forecasts based on public market research.)

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