Last Friday night, eight national departments jointly issued the"Notice on Further Preventing and Dealing with Related Risks such as Virtual Currency" (hereinafter referred to as the "Notice").

On the same day, the China Securities Regulatory Commission issued"Regulatory Guidelines on the Overseas Issuance of Asset-Backed Securities Tokens by Domestic Assets" (hereinafter referred to as the "Guidelines")

Some people say that this is the dawn of China's RWA, and China has officially opened up the channels for compliant RWA, but is this really the case?

We will use this article to dismantle the two heavyweight documents of the "Notice" and the "Guidelines" in detail, analyze the core context and regulatory framework, help you understand the following issues from a more rational and objective perspective:

1. What is China’s regulatory attitude towards virtual currencies and RWA? What has changed from before?

2. How does this new policy build a regulatory framework for compliant RWA? What details are worth noting?

3. How difficult is it to conduct RWA compliance issuance based on domestic assets? What are the possible stuck points in actual landing?

1 Overall conclusion and judgment

First of all, let us give you our overall judgment on this policy

Our government still continuesthe policy of severely cracking down on virtual currencies.

In contrast, this new policy liberalizes RWA for overseas issuance of securitiesClear compliance channels and regulatory guidelines. However, from the perspective of basic assets, issuing entities, and issuance activities, the compliance threshold for RWA is still very high.

Whether China's compliant RWA can really explode, awaits further improvement of the details of the rules and the implementation of actual cases.

2 The Dichotomy of Virtual Currency and RWA

Based on the two documents "Notice" and "Guidelines", this time our government has adopted a clear dichotomy for the supervision of virtual currencies ——

It is divided intogeneral virtual currencies and asset-backed tokens based on real-world assets (hereinafter referred to as "RWA tokens"), and adopt completely different regulatory attitudes.

(The above picture is a schematic diagram of the dichotomy of virtual currency supervision in my country)

As for general virtual currencies, our government still insists on a strict crackdown and an attitude of never giving in.

Based on the core positioning of "illegal financial activities", regulatory rules and combat methods have been further refined from the following dimensions:

Financial, intermediary, technology and other service institutions; Internet information content and access management; mining activities, etc.

As for RWA, this new regulatory policy provides a clear definition and regulatory path. This is also the first time that RWA has a formal “status” in China’s regulatory context, which is indeed of great significance.

"Tokenization of real-world assets refers to the use of encryption technology, distributed ledgers or similar technologies to convert asset ownership, income rights, etc. into tokens (certificates) or other equity and bond certificates with token (certificate) characteristics, and conduct issuance and trading activities."

——"Notice"

So, what is the RWA compliance path provided by this new regulation? Then we have to take an in-depth analysis of the regulatory framework itself based on specific document details.

3 RWA compliance path and regulatory framework

We can gain a systematic insight into the RWA regulatory framework conveyed by the two documents based on the picture below:

We can see from the figure that the core distinction of the RWA regulatory framework lies in whether domestic assets are issued domesticallyor overseas. The two correspond to completely different regulatory paths.

If RWA tokens are issued domestically based on domestic assets, then the overall attitude of current supervision can be summarized as"principle prohibition + exception permission" model.

Principle prohibition is actually not unexpected, because our country’s supervision currently does not allow domestic token issuance. Therefore, what is more noteworthy is the exception defined in the notice, which is "relying on specific financial infrastructure with the consent of the competent business department in accordance with laws and regulations". However, at present, the regulations are relatively vague and lack enough effective information.

As for another regulatory path,is to issue RWA tokens overseas based on domestic assets. The "Notice" clearly acknowledges that there is a corresponding compliance path for this model, but does not elaborate on the specific details.

The China Securities Regulatory Commission simultaneously issued the "Guidelines" to disclose more details on the compliant issuance of securities RWA tokens. Combining the two, we can see a morethree-dimensional and comprehensive perspective.

In short, the compliance standards of securities RWA can be analyzed according to "three angles, two departments, one principle".

The "three perspectives" are basic assets, issuance entities and issuance activities

1. Basic assets:

• There is no major ownership dispute, and it can be transferred in accordance with the law

• There are no underlying assets for domestic asset securitization businessNegative ListProhibited circumstances

2. Issuing entity:

• Be able to raise funds legally through the capital market

• Domestic entities or their controlling shareholders and actual controllers have not committed any specificcriminal crimes

• Not investigated in accordance with the lawFiling a case

3. Issuance activities:

• Should strictly abide by cross-border investment, foreign exchange management, network and data security and other legal regulations

• PassedState CouncilRelevant competent authoritiesNational security review

• Complete the filing withChina Securities Regulatory Commission

"Two departments" are the two core departments in the compliance framework - The State Council and the China Securities Regulatory Commission, which are responsible for national security review and filing and registration respectively.

And "one principle" is very clear:Adhere to the principle of penetration supervision of "same business, same risks, same rules".

After reading this, I believe you have a more systematic theoretical understanding of the RWA regulatory framework of this new deal. So, based on practical experience, What are the practical obstacles that may arise in implementing RWA based on this regulatory framework?

4 Realistic stuck points and key details

First of all, for the compliance path for domestic issuance of RWA, we need to understand the special permission mentioned above.

"Carrying out real-world asset tokenization activities within the country should be prohibited; with the consent of the competent business authorities in accordance with laws and regulations, except for related business activities based on specific financial infrastructure."

——"Notice"

The "competent department" here refers to which department of which institution? What does “specific financial infrastructure” mean? It's not clear yet.

Secondly, for the issuance of securities RWA tokens overseas, There are also several details that require special attention:

1. The underlying assets need to avoidthe prohibited situations in the "Negative List of Basic Assets for Domestic Asset Securitization Business", which limits the types of underlying assets that can be issued RWA.

(The picture above is a screenshot of the first item of the "Negative List of Basic Assets for Domestic Asset Securitization Business")

2. It needs to meet the two major thresholds of the State Council’s national security review + the China Securities Regulatory Commission’s material filing. The actual implementation depends on more specific regulatory window opinions. The compliance requirements are high and there is great uncertainty.

3. In addition to special compliance standards, basic cross-border investment and financing compliance thresholds are also not low, such as the fields mentioned aboveCross-border investment, data and network, foreign exchange managementand so on. The compliance obligations of RWA issuers in these areas cannot be ignored.

4. If RWA is issued overseas, it will definitely involve details such as joint supervision between my country's China Securities Regulatory Commission and overseas China Securities Regulatory Commission.