Unveiling the RWA Myth: Blockchain is Not a Magic Wand for Asset Tokenization

In the field of Web3 in 2025, “outlets” will emerge one after another. Following DeFi, NFT, metaverse, and meme, RWA( real-world assets ) become a hot topic in a new round. The market is full of slogans such as “asset on-chain restructuring of the financial system” and “new blue ocean of trillion-dollar market”, and various RWA industry organizations have sprung up like mushrooms after a rain, and the number of projects far exceeds the actual number of projects. However, in the face of this craze, we must think calmly: when people are talking about “RWA assets on the chain”, do they understand what they are talking about?

The essence of RWA: old money that has changed the ledger, not an innovative species

Don’t be fooled by the flashy packaging of “Web3 innovation”. Funds on Alipay, A-shares in stock software, and bonds in bank apps are essentially manifestations of “real asset tokenization”. Stocks are digital certificates of equity, funds are certificates of shares of asset portfolios, and bonds are electronic records of creditor’s rights. The fundamental difference between traditional finance and RWA is only that the former stores tokens in the centralized databases of banks and brokerages, while the latter stores them on the decentralized ledger of the blockchain. It’s like moving the bookkeeping system from Excel to Google Docs, the core function is still bookkeeping, but the bookkeeping method has changed.

The history of asset tokenization can be traced back to the 17th century when paper certificates were used, which later evolved into electronic data. RWA is actually “tokenization 2.0”, migrating credentials from a centralized database to the blockchain, adding features such as immutability and decentralized verification, but the underlying logic is still “using digital credentials to represent rights”.

For example, when you buy Tencent shares, the brokerage app shows that you hold 100 shares, and these 100 shares are the tokens of Tencent equity, which are stored in the brokerage’s database; If Tencent issues RWA equity, you receive 100 Tokens on the blockchain, which essentially still represents the 100 shares, the difference is that this Token can be circulated on the chain, while traditional shares can only be transferred on the exchange. Instead of creating new assets, RWA provides a more modern ledger system for existing assets.

Key Misunderstanding: RWA is not about putting data on the blockchain, but about putting rights certificates on the blockchain.

There is a common misconception in the market that “data on the chain = assets on the chain”. Some people think that by scanning the title deed into a PDF and uploading it to the blockchain, the property will be automatically converted into RWA. This is a complete misunderstanding. Even if hundreds of photos of the real estate certificate are taken and deposited into the blockchain, the registration of the property still exists in the housing authority system and has no legal connection with the on-chain data. Data is just information, and the core of assets is “rights” – you own a property, not because you have a photo of the title deed, but because your name is recorded in the housing authority’s register, which is a right granted by law.

It is also worth being wary of those who claim that “Token is a 1:1 mapping of real assets, and holding Token is equivalent to owning assets”. A “mapping” without legal support is nothing more than a castle in the air. The core of RWA is not to transfer the physical assets themselves to the chain (the real estate cannot be moved, and the equity cannot be directly transferred), but to tokenize the “legal documents that prove the ownership of assets” - such as the conversion of legally recognized equity certificates such as stocks, bonds, and property rights certificates into on-chain tokens.

The key point is that the essence of assets is “rights”, and the carrier of rights is “legally recognized certificates”. Movable property relies on contracts and invoices, immovable property relies on title deeds, equity depends on shareholder registers, and claims rely on debt contracts. The real mission of RWA is to use blockchain technology to repackage these legally protected credentials and improve the efficiency and transparency of credential circulation, but only if there is a confirmation of rights under the legal framework, and then the expression of on-chain tokens. Skipping the law and talking directly about “assets on the chain” is inherently misleading.

Legal Support: Without a legal framework, RWA is just a castle in the air.

The blockchain community often says that “code is law”, but in the field of RWA, the real law is the foundation. If you own the private keys to the bitcoins, you have 100% control over the bitcoins, because the “rights” of the bitcoins are completely defined by the blockchain code; However, RWA’s Token represents real assets, and the ownership of real assets is determined by the laws of various countries. If you buy an RWA token that represents a U.S. property and the developer then loses contact, you can’t sue a U.S. court with your private key alone—the court will first consider: Is the token recognized as a legitimate proof of interest in the local legal system? Do you meet the requirements of U.S. regulations for an “accredited investor”? Is your purchase process compliant with U.S. securities laws?

A more specific example: Suppose someone puts a set of Beijing real estate on the chain and issues 1,000 tokens, each representing 0.1% of the property rights. According to Chinese law, changes in property rights must be registered at the real estate registration center, and the transfer of on-chain tokens is legally meaningless. If the homeowner sells the property, the token holder will defend their rights to the court, and the court will only refer to the real estate deed records, not the data on the blockchain - because the current legal system does not recognize the legal validity of such “on-chain equity certificates”.

Therefore, the core challenge of RWA is not the technical implementation, but the construction of the legal system: how to make the on-chain token recognized in the real legal framework and become a valid proof of equity? There are three key issues that need to be addressed:

1. Rights Anchoring: Tokens must correspond to clearly defined rights protected by law in the real world (such as equity, debt, or property rights), rather than abstract concepts.

2. Compliance Framework: The issuance process must comply with the regulatory requirements of the target market (such as the US SEC regulations, Hong Kong financial regulatory provisions), otherwise it may constitute an illegal securities issuance.

3. Dispute resolution mechanism: When there is a dispute over the rights of the token representative, whether the legal system recognizes the on-chain record as valid evidence and whether it can protect the rights and interests of the holder.

The behavior of discussing RWA outside of legal contexts either stems from ignorance or is a deliberate attempt to mislead—after all, the beautiful vision of “decentralization and global circulation” is more eye-catching than “first resolving regulatory issues in various countries.”

The Essence of RWA: Financial Products rather than Technological Miracles

Many have described RWA as a “revolutionary tool for disrupting finance”, claiming that it gives ordinary investors access to overseas real estate, top-tier private equity funds and rare art. However, the fact is that RWA is essentially a tokenized expression of financial instruments, and cannot escape the territorial and regulatory constraints of finance.

First of all, all RWAs fall under the category of “financial products”. Whether it is real estate mortgage bonds, corporate accounts receivable, or fund shares, they are essentially “capital appreciation” tools, which must comply with the core principles of financial regulation: protect investors, control risks, and maintain market stability. For example, in the United States, purchasers of RWA-type securities must meet the “accredited investor” qualification, while in China, financial products must be approved and illegal public fundraising is prohibited. Projects that claim that “anyone can buy RWA” are either suspected of illegal fundraising or engaging in dangerous regulatory arbitrage.

Second, the geographical nature of finance determines that it is difficult for RWA to achieve “seamless global circulation”. Real estate RWA Tokens issued in the U.S. may be considered “foreign securities” in China and may not be sold to Chinese investors without approval; Similarly, the RWA of Chinese corporate debt, which U.S. investors may not be able to purchase due to regulatory restrictions. Even if global transactions are technically possible, legal recognition remains a huge hurdle – it’s hard to imagine a Chinese investor being able to file an effective lawsuit against a defaulting U.S. company in a U.S. court with just an on-chain token.

More realistically, financial risks do not disappear simply by being “on-chain.” Credit risk, market risk, and liquidity risk in traditional finance also exist within RWA, and may even become more concealed due to the “decentralized” characteristics. For example, an RWA project might use fake assets as collateral to issue Tokens, and the immutability of the Blockchain could make the scam harder to expose—while the data may be real, the underlying assets are fictitious.

RWA Bubble Warning: The Huge Gap Between Ideals and Reality

The current situation in the RWA market is very similar to the ICO boom of 2017: white papers are overwhelming, there are more intermediaries than actual projects, and there are more industry associations than project parties. However, there are very few projects that demonstrate compliant, actionable RWA cases. The reason for this is that there are three serious hurdles that need to be overcome to implement RWA:

First step: Legal compliance

This is the most challenging part. In the United States, for example, the SEC considers most RWAs to be “securities” that must be registered or exempted under the Securities Act, or they will be unlawful. This means hiring a team of highly qualified lawyers, investing millions of dollars in preparing legal documents, and passing regulatory reviews. China’s regulations are stricter, and any activity involving “asset securitization” or “financial product issuance” must be approved by the financial regulatory authorities.

Second Step: Asset Penetration

For RWA to gain investor trust, it must address the issue of “asset authenticity”. For example, in real estate RWA, investors need to confirm whether the on-chain token does correspond to the physical property. Is the property right clear? Is there a collateral encumbrance? This requires professional asset valuation, due diligence and legal confirmation procedures, and cannot be solved by relying on the “automatic execution of smart contracts” described in the white paper. Many projects claim that “the right is confirmed on the chain”, but in reality, the confirmation of real estate ownership is a complex legal procedure, and the blockchain can only record the results, not replace the offline legal process.

Third Step: Investor Protection

Traditional financial systems have mature investor protection mechanisms, such as regulatory supervision, bank custody, risk alerts, etc. But in RWA projects, who supervises the behavior of the project party? Who guarantees the investors’ right to know and right to redeem? If the Token price drops significantly, can investors exit like redeeming a fund? If the underlying assets are fraudulent, what channels do investors have for protecting their rights? Without resolving these issues, RWA can only remain at the conceptual stage.

Ironically, many RWA projects have been creative in circumventing regulation: setting up issuers in the Cayman Islands to evade legal liability in the name of "decentralized autonomous organizations (DAO) claiming to be “not regulated by any state”. But the reality is that as long as you are targeting investors in a particular country, you must comply with the laws of that country — DAOs are not outside the law, and tokens are not a talisman to circumvent regulation.

The Future of RWA: Returning to Tool Attributes, Discarding Mythical Color

The above analysis does not negate the value of RWA. On the contrary, RWA does have great potential: it can improve the efficiency of asset circulation, reduce financing costs, and create liquidity for niche assets, such as art shareholding, real estate investment trust (REITs), corporate accounts receivable, etc. But the premise is that we must abandon the illusion that “blockchain is omnipotent” and solve legal, regulatory and compliance issues in a down-to-earth manner.

Looking to the future, the healthy development path of RWA should be:

Compliance First: Operate within specific legal frameworks, such as the Reg D private placement exemption in the United States and regional asset securitization pilots, ensuring the legality of financial instruments before exploring on-chain innovations.

Technical Assistance: Using Blockchain to enhance the efficiency of certificate circulation and increase transparency, rather than attempting to subvert the legal system. For example, using smart contracts to automatically execute dividends and applying on-chain data for real-time regulatory compliance checks.

Focus on vertical scenarios: Start with standardized assets, such as funds, bonds, commercial papers, REITs and other areas with clear legal relationships and mature regulatory frameworks, rather than trying to “fragment real estate” or “artwork splitting” and other high-complexity and high-regulatory risk projects at the beginning.

Most importantly, investors need to stay awake: RWA is not a “lie to earn” artifact, but a more efficient financial tool that also requires risk assessment, legal review and compliance considerations. Projects that use the gimmick of “assets on the chain and global circulation” are either ignorant or deliberately misleading – real RWA practitioners are silently connecting with national regulators, rather than shouting slogans on social media.

Conclusion: See the essence of RWA and look at the value of blockchain rationally

When we discuss “RWA assets on the chain”, what we are essentially discussing is not a technical gimmick, not a utopia for the free circulation of global assets, but a compliance change of “how to use blockchain technology to reconstruct the equity certificate system”. The core of this change is not technology, but legal adaptation; Instead of pursuing decentralization, it seeks regulatory compatibility; It’s not about creating new asset classes, it’s about improving the efficiency of existing assets.

Talking about RWA out of the law is like building a skyscraper on the beach; Ignoring regulation and discussing global circulation is like walking through a powder keg with a torch in hand. The true value of RWA lies in the compliance documents of each jurisdiction, in the mapping of assets to tokens, and in the specific terms to protect investors – not in the rhetoric of “disruption”, “refactoring” or “trillion-dollar market” as described in the white paper.

When someone tells you that “RWA assets on the chain will change the world”, you may want to ask three key questions:

1. In which country’s legal system is your Token recognized as a legal rights certificate?

2. How do you prove that the on-chain Token corresponds to real assets rather than fictional concepts?

3. When an asset defaults, what legal channels can investors use to protect their rights?

The answer lies in these three questions. The story of RWA has only just begun, and it is only by lifting the veil of the “myth” that its true value can be discovered – or, alternatively, by identifying potential bubbles.