The heat in the RWA field continues to rise, but there are still differences in the definition of the concept.

Recently, RWA projects have sparked heated discussions in the Web3 community. Many observers believe that "RWA will restructure the new financial ecology of Hong Kong" and that Hong Kong's regulatory framework provides an opportunity for breakthrough development in this sector. However, there are disputes within the industry regarding the issue of "compliance," and the understanding of "what constitutes compliance" varies. This actually stems from differences in understanding the concept of RWA.

As a professional legal team, we believe it is necessary to clarify the concept of RWA and outline its compliance red lines.

1. How to define the concept of RWA?

( One ) Background and Advantages of RWA Projects

RWA has become a market focus, mainly based on two major backgrounds:

1. The advantages of tokens compensate for the shortcomings of traditional financing. Compared to traditional IPOs, RWA has advantages such as faster financing speed, asset diversification, and lower costs.

2. Hong Kong's "compliance" drives enthusiasm. Regulatory innovation in Hong Kong provides domestic investors with compliant channels to participate in RWA, attracting attention from both crypto assets and traditional sectors.

( Two ) RWA Project Elements and Characteristics

Real RWA projects must possess the following characteristics:

1. Based on real assets
2. Asset Tokenization on Chain
3. Digital assets have ownership value.
4. Issuance and circulation comply with legal regulations and are subject to administrative supervision.

( Three ) RWA project types and regulations

RWA projects are mainly divided into two categories:

1. Narrow RWA: Physical Assets on the Chain
2. STO: Financial assets on the blockchain

STOs are subject to securities regulations, and the criteria for identifying security tokens vary by country. The United States uses the "Howey Test" to determine whether something constitutes a security.

2. The Legal Logic of the "Compliance" Layering in RWA Projects

The compliance of RWA is a layered system:

1. Sandbox Compliance: Such as the Hong Kong Monetary Authority's Ensemble sandbox project
2. Hong Kong Administrative Regulatory Compliance: Incorporating into the STO Framework Management
3. A clear regulatory framework for crypto-friendly regions
4. "General Compliance": A status that has not been explicitly identified as non-compliant.

Currently, most projects find it difficult to meet the first two types of compliance and are attempting the third path. The breakthrough of RWA will depend on whether Hong Kong can explore the secondary market mechanism, especially for cross-border capital flow.

3. Legal Advice for RWA Projects

1. Choose a jurisdiction with friendly policies
2. The underlying assets must have real redeemable capability.
3. Obtain investor recognition
4. Ensure that the institutional operators in the blockchain comply with regulations.
5. Preventing Post-Compliance Risks
6. Emphasize Brand Reputation Management

4. Conclusion

The types of RWA projects are diverse and need to be studied one by one. The biggest challenge lies in the uncertainty of the system, and it is necessary to explore the "practical standards." However, existing legal frameworks must be respected, as this is the bottom line for innovation.