Author: Lawyer Liu Honglin Original Link: https://mp.weixin.qq.com/s/31WnxyVQcTQEedSappEhnw Disclaimer: This article is a reprint. Readers can obtain more information through the original link. If the author has any objection to the reprint format, please contact us and we will modify it according to the author's requirements. Reprinting is for information sharing only and does not constitute any investment advice, nor does it represent Wu Shuo's views and positions. Last night, after the release of two documents regarding cryptocurrencies, my WeChat Moments was flooded with them. I saw many colleagues writing articles interpreting them, and I also saw short videos discussing RWA and other institutions or teams becoming very active. In the first half, everyone was focused on the fact that the entire crypto world was about to tighten, collapse, and crumble; later, China celebrated the Lunar New Year, and some partners said that China could finally issue its own cryptocurrency. There were quite a few different opinions. Last night, I recorded a short video in the office, discussing my basic viewpoint: from a strict perspective, there is indeed a clear contraction. Many crypto asset or Web3-related businesses that were previously operating in niche markets in China are now facing significant challenges to their survival, such as cryptocurrency mining. I also mentioned that China has finally left an opening in the RWA (Responsible Web Application) area. Of course, this wording may not be entirely accurate, because according to the China Securities Regulatory Commission (CSRC), it's not actually RWA, but rather security tokenization. However, from an industry perspective, security tokenization is likely one type within the broader RWA framework we're discussing. Therefore, I think we shouldn't be too fixated on the literal meaning; it's enough that everyone understands what the CSRC is trying to convey. Some journalists have also interviewed me about my personal views on these two documents. In yesterday's short video, I mainly discussed RWA, but I personally believe there are many aspects of this regulatory document that can be interpreted. So, in this short video, I might spend a bit more time, using my phone to review the full text of both documents and share my perspective. More importantly, for those of us in this industry, and based on what I've observed in business practices, can we still operate in mainland China? If not, what should we do? This is probably what I want to talk about in this short video. This video might be a little long, so if you're really interested in this topic, I suggest you bookmark it first so you don't have to watch it again. First, we can look at the relevant topic from the People's Bank of China and eight other ministries regarding the prevention and handling of cryptocurrency risks. This is a report from the Daily Economic News. We can examine its points one by one.The first interesting point is that it directly defines the tokenization of real-world assets at the outset, which is quite subtle. Those familiar with Chinese regulations on crypto assets know that much has already been said, such as the equivalence of virtual currencies to fiat currencies and the lack of legal protection. However, this is the first time Chinese regulators have explicitly defined the tokenization of real-world assets at the beginning of an article or regulatory document. So, this is strange because, from a Web3 perspective, RWA might just be a commercial sector, and its global application isn't as successful as one might imagine. I've discussed this extensively before; there are different types of RWA globally. The first type, perhaps represented by the US financial market, involves the tokenization of traditional financial assets. The most typical example is US stocks. We see many exchanges now promoting this, whether it's a full spot exchange or a full derivatives exchange. This essentially allows players on existing cryptocurrency trading platforms to not only buy and sell traditional crypto assets but also to buy a significant amount of US stocks. This is a sector with relatively high certainty. Globally, a large number of people want to own assets in the US capital market, but traditional securities accounts may not allow them to do so. Therefore, this is a common sector or direction, and I personally am quite optimistic about it. Secondly, within the Hong Kong framework, starting from the year before last, we've seen companies like Ant Financial, Langxin, GCL, and Xunying, among others, offering assets from mainland China to qualified investors or investment institutions in Hong Kong. Of course, this only remains in the primary market and hasn't yet created liquidity in the secondary market. Thirdly, from the perspective of financial risk prevention, Chinese regulators should be most concerned about the large amount of mainland assets, funds, and users active within China, using tokens similar to NFTs, digital collectibles, or those issued under the name of RWA. This third category is precisely what regulators should focus on preventing. Therefore, after the regulatory document was released last night, I saw many people in the RWA field cheering on social media platforms, saying they were ready to revive the industry and that this day had finally come.Personally, I think it's premature to say this. The methods and practices these individuals or teams used to operate fall under the category of illegal financial activities explicitly defined in regulatory documents. The fact that this regulatory document places RWA (Real Asset Tokenization) at the very beginning indicates that, from a financial risk prevention perspective, it primarily targets this third group of people, making their cheers all the more intriguing. Therefore, Attorney Hong Lin strongly advises everyone to be extremely cautious when conducting any RWA-related activities in mainland China, whether it's providing comprehensive business consulting, offering so-called token issuance technology solutions, conducting market promotion, or directly selling products to end users. This carries enormous risks in China. Placing it at the beginning of the document certainly has significant value and reasons. The second point concerns inter-departmental collaboration. I've previously discussed why there will be two documents defining stablecoins and RWA by the end of 2025. The core issue is that Chinese regulatory authorities need to reach a consensus in the field of crypto assets and blockchain. From a judicial practice perspective, the legal treatment of the crypto world is currently fragmented: from a civil law perspective, it belongs to the private property of citizens and should be protected; however, the views and understandings of courts and government departments in different regions may be inconsistent. The same situation may be protected in Shanghai, but not in some other inland cities. Therefore, this requires coordination among multiple departments. The core point of this document is that the procuratorate, courts, the Cyberspace Administration of China, and financial institutions all need to form a joint mechanism. This means that in cases or projects involving crypto assets and blockchain, all departments need to maintain consistency in their statements and actions. Taking another document No. 1 issued by the China Securities Regulatory Commission as an example, in addition to understanding related products as part of the securities regulatory framework, it also requires compliance with other relevant requirements from the Cyberspace Administration of China, financial regulatory departments, etc., which can be considered a cautious innovation. Strengthening risk prevention departments also brings the State Administration of Foreign Exchange into the picture. Because we know that towards the end of the year, especially after the regulatory definition of stablecoins, a very important regulatory direction is actually about OTC merchants. I have been strongly advising some of my partners who previously did OTC business to really slow down recently. The focus of domestic attention on cryptocurrencies has shifted from the previous emphasis on "raising funds through token issuance and ICOs" to a more nuanced approach of "being wary of fundraising through RWA (Real-Time Investment) schemes." This is a key aspect of preventing illegal fundraising and financial risks.Another key concern for regulators is capital outflow. With traditional methods becoming increasingly restricted, many are turning to stablecoins like USDT for cross-border fund transfers. From a regulatory perspective, this is a crucial area of focus. Furthermore, we understand that since last year, projects and research have been exploring using on-chain tracking combined with off-chain interbank fund flows to analyze big data and pinpoint capital outflow routes. Therefore, we conservatively believe that mainland China will not open up to cryptocurrency trading. A crucial factor is the capital management system, which is a key area of focus for the industry. From this perspective, whether you're operating an OTC broker, facilitating transactions, or offering online trading services through exchanges to encourage users to purchase crypto assets and then transfer them abroad for other purposes, the risk is excessively high, and we strongly discourage such activities. We also see restrictions on intermediaries and related service providers in this context. I think this is quite business-oriented, because the reason this regulatory document is so detailed is due to its focus on and description of numerous micro-level scenarios within the industry. For example, it even mentions: virtual currencies and related financial products must not be included in the scope of collateral or pledges; insurance businesses related to virtual currencies are prohibited, etc. I don't know how everyone will interpret this statement. Because we know that some people in the market are now using a different phrasing when doing OTC trading: "I'm lending you money, but I'll use cryptocurrency as collateral." I don't know if everyone understands this meaning. In traditional buying and selling, it's a cash-on-delivery transaction, which falls under the category of cryptocurrency trading. But now some people have become more "savvy," and they might want to make an adjustment: "I'm lending you money, a pure lending relationship, but I'm worried about your repayment risk. You happen to have some cryptocurrency assets with economic value, and you give them to me as collateral through pledging or other means. I'm not helping you complete the exchange between cryptocurrency assets and fiat currency; it's actually a lending relationship." This is a very subtle scenario. But can you imagine it? Such a regulatory document actually included descriptions like these.So from this perspective, we can understand to some extent that regulatory authorities are quite familiar with the entire cryptocurrency industry, especially with some of the tricks and tactics used in mainland China. Conversely, this is also because many insiders or industry partners describe and explain many business details when facing regulatory authorities. So don't think that just because you're being clever, the relevant departments won't understand or see your tricks; that's highly unlikely. I think this document does have many points that can be discussed and studied in detail, which is why I'm using a relatively long short video to talk about this. The seventh point is "strengthening the management of internet information content and access." Everyone should understand this point, because currently on many short video media platforms, such as Douyin, Douyin, and WeChat Video, we see many overseas exchanges or project teams using a large number of "alias" accounts to promote themselves, even for recruitment. Platforms also regularly tighten restrictions on sensitive words and control related accounts according to the requirements of the Cyberspace Administration of China. Regulatory authorities have already noticed this trend, and therefore, the regulatory requirements for these internet platforms are becoming increasingly stringent. When law enforcement cooperation is involved, relevant internet platforms or content platforms also need to cooperate. The eighth point is "strengthening the registration and advertising management of business entities." Here, I can share two details. The first detail concerns Khorgos in Xinjiang. There is a free trade zone there. From what I understand, in the past two years, when the local management committee issued business licenses to some companies within its jurisdiction, the scope of business included "judicial disposal of cryptocurrencies." Therefore, such regulations or documents are specifically aimed at this kind of detail. Because now many free trade zones may think they can conduct some financial innovation pilots within the zone. But this document actually directly gives a negative attitude. Another small detail is that we know that last year, a wealth management product related to cryptocurrency investment appeared on a certain platform. Of course, it sold out on the same day and was then taken down. That wealth management product was essentially an investment fund product. If I remember correctly, about 10% of its underlying assets were invested in Bitcoin ETFs and some crypto asset concept stocks, such as Coinbase equity. So strictly speaking, it is not a cryptocurrency fund product as we understand it.However, advertisements for investing in related assets through this multi-layered nesting method are also subject to regulatory restrictions. Therefore, they have also been removed from the platform and cannot be used for related advertising and promotion. The ninth point concerns the crackdown on cryptocurrency mining activities. A particularly important point here is that, in addition to the emphasis since 2021 that any cryptocurrency mining discovered in mainland China must be shut down and no new mining is permitted, this is also a response to the resurgence of cryptocurrency mining activities in mainland China over the past year. We know that mainland China once accounted for 70% of the global Bitcoin hashrate, with very high output. However, after 2021, theoretically, all cryptocurrency mining in China has moved overseas. However, according to lawyer Hong Lin's observations over the past two years, from a statistical perspective, China still accounts for at least 20% of the Bitcoin mining hashrate. In the past six months, I have seen many people directly selling mining machines and even providing mining machine hosting services in news media, such as on social media platforms like Douyin, and in my WeChat Moments. Of course, these things are often well-hidden, for example, within cloud computing centers and computing power centers in many places. Some might be more blatant, thinking the government's attitude on this issue has softened. But in reality, this is a reiteration and reiteration: it's not allowed. Another point I think everyone needs to pay special attention to is the strict prohibition on mining machine manufacturers providing mining machine sales and other services within the country. This essentially means that mining is prohibited, and selling mining machines in mainland China is also prohibited. I often see people selling mining machines on social media. This means that mining machines can only be exported, not sold in mainland China. Those selling mining machines, hardware, or so-called "nodes" or "servers" under the guise of "DePin" need to be especially careful. There's a misconception that selling machines for other cryptocurrencies is acceptable, but regulators are aware of this and want to stop this kind of skirting the rules. Later, I'll mention that besides illegal financial activities, if criminal offenses are involved, the case will be transferred to the police; we won't elaborate on that. We also won't go into detail about strengthening industry self-regulation. The fourth part, which is the main focus of our discussion, concerns RWA. This document explicitly states that if you are a domestic entity and wish to conduct activities under the name RWA within mainland China, this is not permitted. Similarly, if you are a domestic company or project and wish to issue related RW tokens directly overseas, this is also not allowed.However, there's a small loophole: after obtaining approval from the relevant regulatory authorities, you can then conduct related operations overseas. This echoes or corresponds to the China Securities Regulatory Commission's (CSRC) Document No. 1 of 2026. This document states that if a domestic entity or project wants to issue RWA products overseas, firstly, you must register with the CSRC in China. While it's not an approval process, I think its authority is slightly weaker, but the threshold and requirements are still quite high. Secondly, if you want to issue RWA products overseas, you must find an overseas subsidiary or branch of a domestic financial institution. There are also requirements regarding some business details, but I understand it's basically the same logic and standards as overseas bond issuance. Therefore, these points clearly define what's permissible and impermissible in the Web3 industry's understanding of the RWA field. The impermissible points are: if the assets are domestic, you cannot directly issue related tokens domestically; if the assets are domestic, when issuing RWA tokens overseas, you cannot target mainland Chinese consumers; even if your project and assets are overseas, you cannot sell to mainland Chinese residents. The key point is that after filing with the China Securities Regulatory Commission (CSRC) in China, you can find overseas subsidiaries or branches of domestic financial institutions to provide related issuance services. Furthermore, information throughout the entire product and project operation process needs to be promptly shared with the regulatory authorities. This is essentially what we see as what can and cannot be done in the RWA (Rich Virtual Asset) field. Therefore, the CSRC's Document No. 1 describes some negative lists (i.e., what cannot be done, which companies cannot do, and which individuals cannot do). Although its wording doesn't use the term "RWA," I understand it to be a cautious innovation. This morning, a reporter interviewed me, asking for my opinion on this matter. I believe that, under the current circumstances, China wants to address the issue of high-quality assets in the mainland, or rather, the development direction the country wants to encourage, through this kind of security tokenization: on the one hand, it can support Hong Kong's financial innovation and industrial applications in Web3; on the other hand, it is also a cautious financial innovation under the CSRC (securities regulator). It may be a very long way from what our industry partners want to achieve. This is basically not something for small players or startups.Therefore, I believe that Ant Group, which has been doing things before, will likely collaborate with the China Securities Regulatory Commission (CSRC) again. It might be among the first in China to implement and launch projects in this direction. Thus, I think either a large enough internet company with fintech capabilities will be able to do this, or some listed companies in China might allocate some projects for pilot programs. The initial compliance process and costs are extremely high. Therefore, I think if you're interested in RWA, you can wait another six months or a year and see how things develop. Finally, regarding legal liability, this addresses a concern many have raised since this news came out. One point is, what are the legal risks for individual investors investing in related crypto assets or financial products? This viewpoint is not innovative; it remains the same: civil acts are invalid. Risk is borne by the individual. Another point is that those suspected of disrupting financial order or endangering financial security will be investigated and dealt with by relevant departments according to law. There's a slightly subtle point here: "financial order" actually includes systems like foreign exchange management. This means that if you're buying cryptocurrency purely for personal cross-border use, there are still significant legal risks if you're caught. I think everyone understands this, so I'll leave it at that. Besides individual investors, we also know that many KOLs and Chinese-speaking operational partners are active in mainland China. A friend told me that 40% of global cryptocurrency trading volume is currently conducted in mainland China. Most exchanges that constantly talk about compliance, except for the two in Hong Kong, still conduct business face-to-face, a practice known as "selective compliance": applying for licenses overseas while simultaneously operating in China. We won't judge this now, but what I really want to emphasize is that KOLs or content creators providing lead generation and promotion services for these exchanges should pay attention. I was talking about this at an event a while ago. Many people think that it's not a big problem for them to put relevant referral links on foreign media like X (formerly Twitter) so that users can register and get referrals.However, in reality, the content and information we publish in foreign media will be noticed, and everyone should understand what that means. Therefore, for those of us in mainland China, whether through activities or links, helping some non-compliant overseas exchanges (here, "compliant" is a gray area term) attract customers is a matter of probability and luck, especially for large, core platforms. However, for smaller platforms, where people are drawn by high commissions and promote them extensively, if the platform is subsequently found to be operating illegally or involved in gambling-related content during enforcement, the criminal risks for those attracting customers are very high. Therefore, regarding legal liability, besides focusing on individual holdings and investments, we also need to pay close attention to partners who attract and promote these trading institutions or OTC merchants. This is something we particularly need to focus on. This concludes my discussion of this regulatory document and, combined with the CSRC's Document No. 1, my personal views, which took about half an hour. Of course, I didn't prepare a written transcript, so the expression may not be entirely precise, but I believe the core points and meanings have been conveyed.