Since 2024, RWA (Real-World Assets) has become a hot topic in the field of Web3 and traditional financial digitization. From real estate tokens, bills, supply chain finance, to bonds and fund share tokenization, more and more project parties and capital are beginning to look for channels for compliance implementation around the world.

On March 17, 2025, the Dubai Financial Services Authority (DFSA) issued the "Tokenisation Regulatory Sandbox Guide", which for the first time clearly included tokenization in the regulatory focus and launched the Innovative Testing License (ITL) mechanism, releasing a realistic, clear and practical compliance path.

Currently, the application window for intent is open, only from March 17 to April 24, 2025. Therefore, for RWA project parties planning to go overseas, this path is an important option that deserves to be focused on and grasped at the current stage.

What signals does the DFSA tokenization sandbox send?

This guideline clearly points out that the DFSA will include Tokenised Investments in the regulatory system and specifically distinguish tokens into:

• Security Token

• Derivative Token

In this way, 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, bonds, etc., will also have clearer compliance basis and regulatory guidance.

At the same time, DFSA's setting of sandbox application objects provides practical operating space for different types of RWA project parties. According to the DFSA guidelines, the corporate entities that can currently apply to participate 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 their tokenization business;

• Company teams that have a deep understanding of the applicable laws and regulatory frameworks.

That is to say, whether it is a traditional financial institution with a certain financial background that hopes to expand its tokenization business, or a startup project that is in the model exploration stage and focuses on the digitization of RWA assets, they can all apply for entry with the help of the DFSA sandbox mechanism and obtain a low-threshold compliance trial opportunity.

Especially for small and medium-sized RWA startup teams, the phased regulatory exemptions and supportive policies provided in the sandbox can help the team verify the business model at a lower cost in the early stage, while clarifying the future compliance licensing path.

What is more noteworthy is that the DFSA has launched an innovation testing license mechanism called ITL Tokenisation Cohort, which allows RWA project parties to enter the market in advance without fully meeting all capital requirements and risk control obligations, and to test products and models in a real environment with a low threshold, and then transition to the licensing stage.

The overall process is divided into three stages:

1. Expression of Intent Stage

Project parties need to submit an expression of intent form to indicate their plans to conduct tokenisation business in DIFC (Dubai International Financial Centre). DFSA will conduct a preliminary assessment based on background, governance, technical solutions, etc.

2. ITL Testing Stage

After passing the initial assessment, the project can enjoy partial exemptions from capital, prudential obligations, and reporting requirements within a window period of 6-12 months, access the real market environment at low cost, and test the business model. However, DFSA also clearly pointed out that participating projects are still subject to continuous supervision, and project parties need to ensure that key risk points such as information disclosure, DLT system security, and custody arrangements meet regulatory requirements.

3. License conversion stage

After the test period, the project needs to choose to apply for a full DFSA license or to clear the business according to the exit mechanism. The DFSA will strictly implement market exit for projects that fail to meet the "graduation" standards.

It should be noted 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, there are clear regulatory frameworks for RWA or tokenized assets, mainly concentrated in the two markets of Dubai and Hong Kong. Although both actively promote the clarification of RWA supervision, there are significant differences in specific implementation.

It can be seen that although Dubai DFSA and Hong Kong HKMA are actively promoting the clarification of tokenization supervision, the two mechanisms show significant differences in participation thresholds and applicable entities.

For RWA entrepreneurs, the ITL sandbox mechanism launched by DFSA this time has several practical advantages that deserve special attention:

1. Suitable for start-ups and small and medium-sized teams, independent application is flexible

Hong Kong Ensemble Sandbox, the overall design focuses on the participation of the traditional financial system, and is dominated by licensed institutions such as banks and securities companies. Start-up project parties often need to rely on partners to participate, and the application chain is relatively complex.

In contrast, the DFSA's ITL mechanism allows project parties to apply directly as independent entities without relying on the background of existing financial institutions. For RWA projects with limited resources and in the model exploration stage, it has higher autonomy and operational flexibility.

2. Phased exemptions during the testing period to reduce compliance testing costs

DFSA clearly provides a 6-12 month testing window, during which capital requirements and prudent risk control obligations are phased in. In particular, it allows projects to quickly verify business models in a real market environment, while significantly reducing early testing costs and operational burdens. Therefore, the DFSA ITL mechanism is a rare practical case that provides independent application channels, phased exemptions, and a full-chain path for graduation and formalization for RWA entrepreneurial projects under the current global multi-regulatory system.

The overall compliance threshold of the Hong Kong path is relatively high, especially the SFC licensing system has strict requirements on capital and governance structure, which will pose a great challenge to start-up teams in the short term.

3. The regulatory framework is clear, and RWA assets are officially regulated

DFSA has included Security Token and Derivative Token in the current financial regulatory system, eliminating the policy gaps and legal risks previously faced by tokenized assets. Project parties only need to follow the existing financial product regulatory framework of DFSA to legally and compliantly carry out issuance, trading and other businesses, and the policy is highly predictable.

In comparison, the Hong Kong Ensemble sandbox is still in the collaborative pilot stage between banks and financial institutions, and its scope of application is more inclined to the financial infrastructure level. It is suitable for Web3 project parties, especially the direct regulatory channels for entrepreneurial projects, which need to be improved.

It can be seen that the launch of the DFSA sandbox this time is not only a simple compliance innovation, but also reflects Dubai's policy intention to strive for the first-mover advantage in the RWA track as a fintech center in the Middle East.

Mankiw's advice

Whether choosing Hong Kong or Dubai, the key to the RWA project is always how to find the most suitable compliance path for the current stage of the project according to its own stage, resources and strategic planning.

The tokenized regulatory sandbox launched by the DFSA this time is providing a realistic opportunity with a moderate threshold, a clear regulatory framework and controllable costs for RWA project parties that are in the exploration stage and hope to quickly verify the model.

However, it is worth noting that this window is not open for a long time. Project parties must not only grasp the time, but also complete compliance preparations in advance to truly be the first to land.

In this regard, Mankiw Lawyer recommends focusing on the following points:

• Complete DIFC registration and legal structure design as soon as possible.Only by establishing a registered entity in DIFC can you 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.DFSA has detailed requirements for DLT system design, custody mechanism, and compliance process. It is recommended to hire a compliance team to assist in preparing relevant materials to ensure that it is passed in one fell swoop during the ITL application stage.

• Plan the licensing path after ITL graduation. The sandbox period is only a temporary convenience. The ultimate goal should be to obtain the full DFSA license. It is recommended to prepare long-term plans such as capital replenishment and governance document improvement to avoid operational interruption after the sandbox period.

It can be foreseen that the DFSA sandbox will attract an influx of global projects, but the teams that can truly land first and complete graduation and formalization are still those who have made early arrangements in governance, risk control, and compliance preparation.

The regulatory window period has already opened, and the market often does not leave much time for actors.