The RWA in deep purple and bright red has long been played well by the cryptocurrency circle in Shenzhen.

For years, the cryptocurrency community in Shenzhen has excelled in the use of RWA, often incorporating deep purple and bright red into their strategies.

Author: Liu Honglin

Previously, a friend from the coin circle who had been making money in Shenzhen came to Manhattan to exchange ideas. We talked about the hot trend in the industry this year, RWA (Real World Assets tokenization), and this friend expressed that he couldn’t understand it. He said the research institutions’ sharing about it was too mystical and out of touch. We in Shenzhen have already started working on RWA.

The reason why our friends in Shenzhen were able to succeed with RWA is that they didn’t overcomplicate things.

You see, the majority of people who want to get into RWA have simple reasons: either to sell better goods or to make more money.

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Due to Lawyer Honglin’s somewhat understanding of blockchain, many bosses who are interested in the second growth curve of Web3.0 often have conversations with him, saying that RWA is quite popular in the blockchain industry, and they have a project idea but don’t know if they should share it.

Based on my experience, usually, when friends start a conversation like this, they haven’t been hurt by the coin circle yet and still have a rosy impression of the industry, thinking people are foolish and money is abundant.

This is not scientific.

Leaving aside those projects that start just to scam money and run away, based on my shallow understanding of the industry, there are roughly two models for RWA:

One model is the tokenization of traditional assets or projects. For example, issuing a token is often a sales action for a commodity or traditional asset. For holders, besides reselling to others, they can also redeem the goods from the issuer. In essence, it uses tokens as a proof of ownership and secondary circulation for commodities. It’s similar to the mooncake and hairy crab coupons that Chinese people are familiar with, but it’s the Web3 version. By using the blockchain’s immutability, it helps prevent over-issuance and fundraising fraud by the project, facilitates circulation between holders, and can even make the ownership itself scarce and fun through NFTs.

In this model, legal compliance is not a particularly big issue because for users who can purchase your product, there is no qualitative difference between centralized account assets and decentralized asset certificates. They can be consumed, used, and transferred. There are indeed no major issues with this. For the issuer, it adds a sales story and marketing angle without breaking the law, which is great.

The other model is project fundraising. The upcoming token is anchored to rights such as equity, debt, or project dividend rights, and this is called “value capture” in professional terms. Then, at the beginning of the project, it is promoted and introduced to specific or general public. The future profits of the project are usually used as a selling point for attracting investment. In this case, if the project is reliable and truly profitable, there won’t be many problems with this approach because if users haven’t suffered any losses, they have no reason to go after you. After all, this is ultimately a partnership investment and operation. Unfortunately, not all adults understand the concept of taking responsibility for profits and losses. So, if a project accidentally incurs losses, you have to be careful because as lawyers, we’ve seen investors who are ready to go all out and report to the police, saying that your project is a scam or illegal fundraising.

The second type of mode is often a combination of traditional bosses who don’t understand blockchain and skilled individuals with cryptocurrency resources. The most common situation is when the boss wants to embrace the future and venture into Web3. They are introduced to a skilled individual who can plan the entire strategy. Together, they create the planning proposal, help write the project whitepaper, and try to cram in as many blockchain terms as possible to make it sound impressive and confusing to users. Then they launch and issue several tokens on the blockchain and work together to sell them to the target audience. If friends think it’s good, they might recommend it to others as well. Of course, in this process, there may be some commission for those who bring in more customers, but high-quality projects usually don’t need that kind of promotion. After all, everyone knows that blockchain projects usually don’t raise a lot of funds. So for friends participating in RWA investments, it’s just a small business venture. Even if a single project loses money, it’s acceptable because there are always other opportunities. This mode of operation is simple, and projects are delivered quickly, making it popular among friends in the fast-paced environment of Shenzhen.

The above content is only for informational reference and should not be considered as practical guidance. If you understand it after reading, you can avoid being fooled by manipulators who use the name of blockchain.

Returning to the theme of risk prevention in the cryptocurrency circle, for friends in China who want to engage in RWA for selling goods or finding angel investors early on, considering the restrictions of domestic policies, here are a few suggestions from Lawyer Honglin:

1. Try to conduct the project using an overseas company based overseas, as Chinese people won’t deceive Chinese people. The location doesn’t have to be too far away, Hong Kong is sufficient since your staff and sales targets are still in China, and it has low costs and convenient communication.

2. In the marketing stage, it is better to conduct small-scale internal testing first, as it is easier with acquaintances, and you and the project will have a higher tolerance for losses. Don’t start with large-scale marketing on the internet immediately. Business people know that individual customers not only have less money, but also more demands.

3. When considering the broad space for product development and expected returns, it is acceptable to have reasonable expectations, but don’t be too exaggerated. It is important not to boast about guaranteed profits in the product introduction or purchase contracts. On one hand, operational losses may create excessive pressure on the project, leading to stress and hair loss. On the other hand, this kind of approach could be deemed as a high risk of illegal fundraising.

4. For the sake of prudence, it is recommended to consult with a lawyer who has some understanding of the field, at least to reduce the major criminal legal risks associated with company establishment, investment agreements, and product marketing. After all, in entrepreneurship, losing money is acceptable, but harming others is not.

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