Risks and Difficulties of Blockchain RWA Entrepreneurship

Source: Mankiw Blockchain Law

01 The industry is developing

China’s regulatory attitude towards virtual currencies is actually very clear:

• This thing is not currency, it can only be a commodity;

< li>

Since it is a commodity, it cannot have financial attributes and cannot be speculated.

It can be said that by grasping these two red lines, blockchain entrepreneurs in China can avoid 99% of pitfalls.

However, it is fun to issue coins on the sidelines for a while, and it will continue to be fun if you keep issuing coins. Therefore, there is an endless stream of friends who are thinking about issuing tokens. And the banner is also advancing with the times as the industry develops. In the first few years, it may be ICO, but later ICO will not be allowed, then it will be STO. After STO cools down, the new narrative will be RWA.

RWA refers to converting real world assets (Real World Asset, referred to as RWA) into circulated digital tokens through blockchain technology, thereby achieving decentralization, transparency and efficiency of assets. . The advantages of RWA tokenization are that it can reduce transaction costs, improve asset liquidity, expand the investor base, increase asset value, etc. Its application scenarios include real estate, finance, art and other fields.

By definition, RWA is a good thing with great prospects and financial prospects. However, it would be a bit troublesome if the product is not used according to the instruction manual after leaving the factory.

02 The project party is doing something

You may not believe it when you say it. As far as I can see, the most popular RWA in China is actually friends who are engaged in NFT digital collection entrepreneurship. It is not an exaggeration to say that it is RWA entrepreneurship V1.0.

People in the industry call it empowerment. For example, if you purchase an NFT digital collection issued by the project party, you will have the right to redeem a certain product/service. What if you don’t want to redeem or pick up the goods? You can wait for real assets to appreciate and then transfer them to other friends who want them through the consignment market.

Theoretically, this narrative story is quite logical and good. The seller has an additional sales scene, and the buyer’s friends have more reasons to stock up and buy, especially those who have purchased goods over time. Commodities that may appreciate in value, such as tea and liquor.

Some friends may say that the data you are talking about is not RWA, but what I want to express is that the deformation god remains unchanged. This is just a problem of different model parameters.

In such a model, a real asset with stable price or slow growth may have a stable supply and demand relationship in the traditional market. It is difficult to tokenize it. It can bring a leap in value; and the price range of an item can be very mysterious, such as a digital artwork. Everyone has their own preferences for radish and cabbage. Zhang San is willing to pay 3 yuan, but Li Si is willing to give 500. If both parties can get it, It's good to achieve it freely, but if Li Si is one of the people in the market who pulls up the price and then takes over, it's probably a bit dangerous.

So for RWA in these two scenarios, the market is likely not to buy into the former because the investment returns are too limited; the latter is easily hurt because the financial attributes are too strong.

03 RWA Entrepreneurship Dilemma

Some time ago, the Mankiw legal team received A case can be said to be a living case. The general situation is this. A company has registered a company overseas. The company has held some real assets through purchases and business cooperation. How to revitalize the assets and make them bigger and stronger? The solution they came up with was to divide these assets into several parts and sell them on the Internet in the form of NFT. In addition to promoting the attractive quality and low price of the assets, it also informs buyers that if they hold the NFT, the income from the corresponding offline assets will be your dividends. The idea was great, but due to the economic downturn, not only did the appreciation of real assets fail to materialize, the company also suffered from poor management and almost went bankrupt. The early users who got on board saw that the NFT price in the market was about to collapse, and they were focused on making a fortune at that time. Users who came with the idea stopped doing it, saying it was a fraud and illegal fund-raising. We need to unite and send the project parties in, and then go to various places to report the case in an organized and disciplined manner. Friends on the project team were panicking, fearing that one day they would be slapped on the head by the police.

To be honest, this is the reality of RWA in China that we can see with our naked eyes. Many new entrepreneurs who have high education, high cognition, and are reasonable in every situation are easily affected physically and mentally in this cruel jungle. harm. A very important reason is that they mistakenly think that what they understand is understood by others. Not only users can understand, but the police also understand. In addition, I believe that by registering the company overseas, strictly abiding by the team's own moral bottom line, and leaving the rest to the market, I can have a clear conscience and don't have to worry about any risks. But as an entrepreneur, you can talk to users about Web3 and the Metaverse. , talks about decentralization, but the user only talks to you about whether he has made money. If he makes money with you, you will be his big brother or Xiao Tiantian. If he accidentally becomes a taker in the market, then you It was Mrs. Niu who he regarded as the most evil person.

We have reason to believe that the original intention of many RWA friends is to revitalize assets and promote investment to benefit users, but the reality is such a slap in the face. How to make your RWA project clear of mud without being stained, and how to reduce the legal risks of your entrepreneurial project. In addition to market operation risks, these are all things that friends who are thinking about RWA should consider.

04 How to prevent legal risks?

As an RWA entrepreneur, if your market development is aimed at mainland China. Then everyone needs to pay special attention to at least the following three aspects:

(1) Ensure the legality and authenticity of assets.

Whether you issue coins or not, you must not deceive people when doing business. The premise of RWA tokenization is to ensure that the assets involved are legal and do not violate national laws and regulations. At the same time, you must also ensure that the assets involved are genuine and there is no fraud or concealment. Whether your anchor is a large real estate such as a house, or a small commodity with pure e-commerce logic. There are criminal laws and consumer protection laws, which must be observed. Therefore, for real assets anchored by digital tokens, certain due diligence investigations and audits must be carried out, and purchase agreements must be signed with relevant parties to stipulate the quality assurance and after-sales of the items. , these are the most basic compliance workload proofs.

(2) Be cautious about the characterization of token issuance.

This is a top priority for compliance. When assets are put on the chain and issued as Tokens, whether they are NFTs or digital collections, the name is not important. What is important is what is the nature of these digital tokens after RWA? Is it a commodity, currency, security or something else? This will directly affect the nature of issuance behavior. China’s regulatory attitude towards virtual currencies is relatively clear, that is, any form of alternative currency issuance and circulation activities are prohibited. Therefore, when tokenizing RWA, entrepreneurs should avoid positioning the token as currency or a substitute; if RWA tokenization involves the issuance of equity, debt, fund shares, etc., certificates that can reflect investors’ rights or claims , then it may constitute a security; if RWA tokenization involves trading standardized contracts and agrees to deliver physical assets or perform cash settlement at a specific time in the future, then it may constitute a futures. These are obviously red lines for China’s financial supervision. Please stay away.

(3) Beware of high-frequency criminal risks.

Two laws that friends in the currency circle should be familiar with and stay away from:

• According to " According to Article 176 of the Criminal Law, illegal fund-raising refers to the act of violating relevant national regulations, raising funds from the public without approval, and promising to pay interest or return principal and interest in other ways.

• According to the provisions of Article 266 of the "Criminal Law", fraud refers to the use of fictitious facts or methods of concealing the truth to defraud others of property for the purpose of illegal possession. Behavior.

Therefore, if RWA tokenization involves violating relevant national regulations, raising funds from the public without approval, and promising to pay interest or return principal and interest in other ways Behavior, or behavior involving the use of fictitious facts or methods of concealing the truth to defraud others of property for the purpose of illegal possession, may constitute illegal fund-raising or fraud, and thus be subject to corresponding criminal penalties. Therefore, if RWA tokenization involves falsely promoting the value, income or risk of physical assets, or concealing the ownership, mortgage or disputes of physical assets, thereby inducing others to purchase or invest in RWA tokens, it constitutes illegal fund-raising or fraud. The risk is extremely high.

05 Conclusion

RWA tokenization turns real-world assets into Digital tokens sound like a beautiful idea, but in practice, they are somewhat difficult to explain. For those who start a blockchain RWA business in China, ensuring the legality and authenticity of assets is the foundation, clarifying the nature of tokens is the focus, and preventing criminal risks is the bottom line. In the final analysis, China’s rules for virtual currency and blockchain are two big red lines: they don’t recognize you as currency, only treat you as a commodity; since it is a commodity, don’t think about playing financial tricks. This rule is clear and direct. As long as blockchain entrepreneurs don’t step out of line, they can basically get rich safely.