introduction
Many RWA projects, when first consulting with lawyers, say almost exactly the same thing:
"This is not a security; it's a utility RWA token."
"We are simply putting real assets on the blockchain; it has no financing attributes."
"We are utility tokens, not security tokens."
To be honest, I'm numb to hearing these kinds of things.
But the problem is that regulation is never based on "how you call yourself," but on "what you are actually doing."
And a very important point is:
The gray area of "utility RWA tokens" has been gradually "squeezed out" by real-world precedents in major regulatory jurisdictions around the world.
In this article, I'll only do one thing:
Without abstract legal provisions or vague theories, this book uses real regulatory precedents to show you how "functional RWA tokens" are gradually transformed into "security tokens".
You think you're creating a "RWA functional application," but what do regulators see you doing?
Let's be clear from the start. The vast majority of so-called "functional RWA tokens" actually have the following structure:
Project Team:
"I put real assets such as mining machines, computing power, power plants, charging piles, real estate, and accounts receivable on the blockchain."
user:
"I'll buy your tokens."
Actual economic relations:
The money went into an asset pool controlled by the project team;
The project team will purchase and operate RWA assets;
Profits are distributed proportionally to token holders;
At the same time, you should also give him some "governance rights", "usage rights" and "ecological rights".
What you are packaging is:
Functions, governance, ecosystem, and on-chain credentials.
However, regulators see four standard securities elements:
Investing funds (buying cryptocurrency)
Enter the common asset pool (you manage RWA uniformly).
There are expected returns (dividends, interest, output distribution).
The profits come from the efforts of others (you are managing the assets).
Once these four points hold true, in all mature legal jurisdictions such as the United States, the European Union, Switzerland, and Hong Kong, it will all point to one term: Investment Contract = Securities.
Whether you call it RWA, Token, or NFT, it doesn't change the conclusion that it is "a security in law".
Real Case Example 1:
The "RWA + governance token" scheme was penalized by the SEC as a "securities offering".
This is a name you must remember:
DeFiMoney Market (DMM)
How should the project be presented to the public?
This is a "DeFi + Real-world Asset Yield Protocol"
The underlying assets are: real-world debt such as auto loans (standard RWA).
Users are given two types of tokens:
One type is "fixed-income tokens" (promising an annualized return of 6.25%).
One type is the "governance token DMG," which is touted as "governance + ecosystem functions."
The project is about:
One is a yield-generating tool, and the other is a functional governance token.
What does the SEC (Securities and Exchange Commission) say?
In short:
Both of these tokens are securities.
The reason is also very straightforward:
Funds are channeled into a unified RWA asset pool;
The revenue comes from the project team's operation of the actual assets;
Investors are simply passively waiting for distribution;
The so-called "governance rights" cannot change its "investment nature".
Final result:
An unregistered securities issuance was established;
The project team was fined;
Investors have entered the refund process.
The cruelest aspect of these types of cases is that:
Even if you actually created real assets, actually earned returns, and actually recorded them on the blockchain,
If your structure is "you manage the assets, and the users get the profits," you can't escape the securities law.
Real Case Two:
The "Asset-Backed RWA token" was directly classified as a security fraud.
Let's look at another "Asset-Backed Asset-Backed Asset-Backed (RWA)" project that's closer to what you see on the market right now:
The Unicoin case (indicted by the SEC in 2025)
The initial positioning of this project was very standard:
Issuing so-called "rights certificates" that can be exchanged for RWA tokens in the future;
Publicly declared:
The token is backed by real estate and pre-IPO equity;
It is a "secure, stable, and real-asset-backed crypto asset".
Doesn't that sound very "compliant"?
Doesn't this sound a lot like the rhetoric used in many RWA white papers these days?
The SEC's (U.S. Securities and Exchange Commission) determination can be summarized in just one sentence:
This is a typical case of an unregistered securities offering combined with fraudulent asset support advertising.
The core logic is also very ruthless:
Investors are not buying "usage rights";
Rather, it is an expectation of future returns for an asset pool;
Even if you package this expectation into a token, it is still essentially a security.
Why is the concept of "functionality" particularly untenable in the RWA field?
There is an inherent conflict between RWA and "utility tokens":
Utility tokens emphasize:
Usage rights, consumption, access, governance participation
RWA emphasizes that:
Assets, income, cash flow, returns
Once your RWA token has any of the following:
Regular dividends are distributed proportionally, and the corresponding cash flow from real assets can be used to redeem the underlying assets according to the rules.
In the eyes of regulators, you are not a "utility token," but rather:
Income rights certificate, asset-backed certificate, investment contract, security token
This is not abstract reasoning; it is logic that has been uniformly implemented in global regulations.
A reality you must face:
In the future, the regulation of RWA tokens will only become more and more like that of securities.
This is not a trend prediction, but a fact that has already occurred:
USA:
All RWA+ revenue structures will be given priority in the unregistered securities offering review process.
EU (MiCA + Securities Law):
Anything that is "transferable, has income-generating properties, and is open to the public" naturally falls under securities regulation.
Switzerland:
Utility tokens are treated as securities as long as they "also serve an investment purpose".
Hongkong:
As long as it constitutes a "Collective Investment Scheme (CIS)," it will be included in the securities regulatory system regardless of whether it is a token or not.
in other words:
The regulators are not unaware of RWA; they are viewing RWA entirely as an "upgraded version of securities."
A truly cruel summary in one sentence
You may not like this statement, but it holds true for the vast majority of "functional RWA token projects":
You're not unaware that you're raising funds, but you're unwilling to admit that you're conducting a "fundraising that can't be done like securities financing."
The question is:
You can fool a bunch of people in the market;
You can talk about features, ecosystem, and narrative in the group;
But you can't fool the legal definition of real regulators.
Does that mean RWA is "only allowed to do securities"?
Finally, I'd like to say something very honest and important:
Not all RWAs have to be treated as securities, but if you want to "raise funds from the general public and offer expected returns," you must accept the proper path of securities regulation.
From a global practice perspective, if the RWA wishes to avoid the "traditional securities law path," there are currently only three truly viable models:
First, completely remove the revenue-generating aspect and retain only the "pure functional RWA certificate" with on-chain usage and consumption attributes;
Second, privately-owned RWAs are strictly limited to qualified investors;
Third, the "securities logic virtual assetization" path represented by Dubai's VARA—it does not avoid securities, but allows RWA tokens with securities attributes to reach retail investors in a compliant manner under a specialized regulatory system for virtual assets.
In addition, any RWA structure that "raises funds from the public, distributes profits, and is freely tradable" will almost certainly be pulled back into the securities regulatory framework under the major legal jurisdictions around the world.
In addition to this:
- Targeting retail investors
- Tradeable
- There is profit
- There are dividends
- There is an asset pool
No matter how you package it as "functional," the outcome is highly predictable in the face of regulation.
Finally, a message for all project teams currently struggling with the concept of a functional RWA:
You're not choosing between a "functional" or "securities" investment; you're choosing between "long-term compliance" and "short-term luck." This isn't a moral issue; it's a matter of survival.
