RWA Compliance Observations Is After-sales Leaseback a Legitimate Good Business?

Is After-sales Leaseback a Legitimate and Compliant Business? RWA Compliance Observations Examines

Source: Lawyer Liu Honglin

01 Where is the new story in the crypto world?

Recently, the trend in the crypto market has been a bit unpredictable. People have different opinions on where the market is heading, and it’s quite exciting. Will it continue to be a financial game where the price is everything, or will it integrate real-world assets into the blockchain?

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Regardless of where the next narrative in the bull market will be, there is at least one consensus among professionals: we need to look forward and the industry needs new topics and new developments.

From a personal perspective, I would lean towards the narrative logic of bridging virtual currency with the real world. After all, no matter how fun an internet cafe game is, you still have to go home to eat. All financial games eventually have to return to the real world’s fundamentals. The value of creating new financial plays for the blockchain industry is evidently limited.

One unavoidable aspect of integration with reality is RWA (Real-World Assets). Among many models, I see one that may be “relatively feasible” for the majority of entrepreneurs, and that is incorporating the traditional “post-sale and leaseback” model into the blockchain. The reason is simple: entrepreneurial teams are the future of an industry. However, compliance costs and licensing fees that amount to millions of dollars are clearly not something that most startups can afford. The institutions that can afford such expenses are often solely focused on the capital market game, and while they have the desire to make money, their drive for innovation is often lacking.

02 When post-sale meets RWA

“Post-sale and leaseback” is certainly not a new concept or gameplay. I believe many friends have received phone calls similar to real estate sales, where someone tells you about a prime location that can be passed down for three generations, and if you buy it, not only will you profit, but you can also entrust an agency to lease it on your behalf, and you can just sit back and collect rent. The typical operation mode is that after the developer sells the property, they sign a leaseback agreement with the buyer, in which the buyer agrees to lease the commercial property back to the developer for them to manage or rent it out collectively. The lease term can range from 3 to 10 years. During the leaseback period, investors can receive a “fixed rate of return” or a share of the “market rent level.” After the leaseback period ends, investors can freely manage the purchased property: they can lease it out, sell it, operate it independently, or request a buyback from the developer, etc.

In the blockchain scenario, the company would sell the goods (or a portion of the goods) in the form of NFTs and then accept the client’s request to commercialize the purchased assets. For example, a gaming company designs a new type of gaming device and sells it to the market in the form of soul-bound NFTs. Buyers can choose to have the seller maintain and operate the asset after purchasing it. The revenue generated by the related devices would then be distributed among the parties according to the predetermined ratio.

This seems to be a win-win situation. Gaming device companies can constantly innovate and increase product sales. They can even earn revenue by providing services in addition to initial sales. Players have another channel for consumption and investment, and naturally, they are willing to promote and advertise for the project. For the operators of offline physical stores, the addition of new devices brings more foot traffic, ultimately increasing their revenue.

More importantly, this model seems to have no substantial obstacles within the legal framework in China. The former is a purchase contract, and the latter is an entrusted contract. In a purchase contract, the buyer and seller reach an agreement on the transaction of goods, which is a standard commercial transaction. When the buyer entrusts these devices to the seller for management and operation, this relationship becomes an entrusted contract.

Of course, some friends might say this sounds familiar. Isn’t this how mining in the crypto world works? We invest in mining machines and then delegate miners to manage them. From the beginning to the end, I never really saw my mining equipment at home. Will this model face a similar situation of invalid mining agreements?

My opinion is: China does not allow cryptocurrency mining, mainly because the mining process of virtual currencies such as Bitcoin consumes too much electrical energy and lacks substantial economic value, which does not comply with China’s dual-carbon national strategy. However, in the above-described business scenario of after-sales leaseback + blockchain application, there is no energy consumption issue.

03 Risks of After-Sales Leaseback

When industry friends discuss this type of RWA business model with me, they are also frank about the difficulties involved.

Firstly, how to ensure the authenticity of the devices and assets being recorded on the blockchain? If there is no corresponding real asset, it is easy for the project to become an “air coin” project, posing risks of consumer fraud and illegal fundraising.

Secondly, there is the issue of data on-chain during the device operation process and the distribution of revenue. If the data recording and asset allocation are not purely on-chain, the project is prone to cheating. When the funds in the pyramid scheme become sufficient, running away with the money can happen in minutes.

Indeed, there is nothing new under the sun. I believe those who have been harvested by rented stores before must have firsthand experience.

What is the solution? Perhaps the combination of RWA and DePIN (Distributed Physical Infrastructure Network) can provide a new way of thinking.

DePIN is a physical network that combines blockchain technology, aiming to improve the efficiency and transparency of asset management. In the DePIN model, physical devices and infrastructure are connected to the blockchain through smart contracts, enabling remote management and automated transactions of assets. This allows for clear transparency in the entire process, from product release, delegation, daily operations, to revenue distribution.

Let’s go back to the scenario we described earlier. A tech company produces a batch of smart drones for commercial performances. These drones are not just physical assets, but can also be connected to a blockchain network through the DePIN model. Players can purchase these drones and then entrust their operations to the company. In this process, ownership, usage, and maintenance records of the drones can be tracked and managed using blockchain technology.

The benefits of this model are obvious. It not only improves the efficiency and transparency of asset management but also reduces operational costs. By combining physical assets with blockchain technology, a more secure and reliable trading environment is created.

04 Conclusion

The most important aspect of new technology is its integration with real business scenarios. The combination of RWA, DePIN, and the traditional post-sale leaseback business model not only allows for the efficiency of the existing business model but also showcases the advantages of blockchain technology. This is not only a reflection of technological innovation but also a beneficial exploration within the framework of business models and legal compliance. It is worth our attention. If you are interested in the compliant innovation of RWA’s business model, feel free to reach out to Lawyer Honglin for discussions.

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