0****1 Currency circle belief needs to be recharged

The currency circle needs faith, and faith needs to be recharged.

It is becoming more and more difficult to make money from traditional projects. How can you sell your dreams?

Leek oil and water are getting less and less, how to fool the old sickle of the organization?

Traditional funds want to go overseas, how to find a sexy, legal and good reason?

These three questions directly hit the hearts of the people, constantly testing various project parties and service providers in the currency circle, making them toss and turn, thinking hard.

what to do? Look through historical documents to find information. Find out if there is anything like the DAO organization. It sounds like a grand narrative about the fate of mankind, but the specifics are unclear. Everyone can do it, but everyone seems to be doing a large-scale social experiment. .

This is the good of social science, which can only be verified but not falsified. You can say that what I do is not good, but you cannot say that what I did is wrong, and I have firmly grasped the commanding heights of industry ethics.

Human history is not good at repeating, but it is good at repeating itself. Hard work pays off, from the pile of old papers, we found a new narrative logic: RWA (Real World Asset).

I also tried to learn RWA seriously.

But some friends in the circle told me, don't waste your time, your lawyers don't know what Web3.0 and RWA are.

I said, friends, we have no enmity or grudge, why do you say that?

He said that the ideal RWA of people in the currency circle is to point to a set of unsold real estate or a bad debt in their hands, and say: to go to the chain.

As a result, assets are uploaded to the blockchain, forming an immutable Token.

Therefore, netizens scattered all over the world, under the concept of decentralization, based on their high recognition of the project party's work, can't stop them from giving you the USDT or BTC in their hands.

You take the virtual currency from the fundraising and start to feel melancholy, thinking about whether you are going to party in Singapore or become a digital nomad in Bali.

If the project makes money, you say follow Brother Yourou and we will play a big game; if the project loses money, you say that everyone is an adult, it is not protected by the law and it is responsible for its own profits and losses.

I said: **I am not sure if you are talking about RWA, but it sounds like it should be illegal fundraising. **

He said: I just said that your lawyers don't understand RWA, this is called consensus.

I don't understand the consensus of the currency circle, but it does not prevent us from learning common sense. Regarding the common sense related to RWA, let’s talk about these three points together:

First point: what is RWA?

The second point: how to do the successful cases of RWA?

The third point: Is it reliable to engage in RWA in China?

Once again, this article is written by a very unprofessional Web3.0 lawyer, and only represents Honglin's personal views, and does not constitute legal opinions or suggestions on specific matters. Some of the expressions and content of this article may make native Web3.0 bigwigs feel uncomfortable after reading it.

0****2 **What is RWA? **

RWA (Real World Asset), that is, real world assets. It refers to the assets that exist in the real world, not on the blockchain network, such as real estate, stocks, bonds, artworks, etc., are mapped to the blockchain network in a certain way, so as to realize the interaction with the DeFi protocol. Provide users with more asset choices and income sources.

For example, USDT is the earliest RWA. The real US dollar was tokenized, and the US dollar token USDT appeared in the blockchain.

For example, users can use the real estate they own as collateral, lend stablecoins through a DeFi platform, or tokenize their own stocks, and trade and invest through a DeFi platform.

Good real assets, why should RWA be uploaded to the chain?

Because it's good. Tokenization can provide higher liquidity, transparency and efficiency for real assets, and it can also bring more value and diversity to the blockchain ecosystem. for example:

• Reduce transaction costs and time, improve transaction efficiency and convenience. For example, through blockchain technology, real estate transactions can be realized in fragments, so that more people can participate in real estate investment without paying high intermediary fees and handling fees.
• Increase the liquidity and accessibility of assets, and broaden the audience and market size of assets. For example, through blockchain technology, graded transactions of artworks can be realized, so that more people can appreciate and collect artworks without worrying about the authenticity and preservation of artworks.
• Improve the transparency and traceability of assets, and enhance the trust and value of assets. For example, through blockchain technology, traceability transactions of gold can be realized, so that more people can know the source and quality of gold without relying on centralized institutions and standards.

In the pursuit of RWA, human beings have always been persistent. In January 2017, RealT, an Ethereum-based platform, was launched to allow users to purchase fractional ownership and tokenized asset ownership in U.S. real estate. In June 2017, Ethereum-based Centrifuge was established, allowing companies to tokenize their commercial invoices, accounts receivable and other assets and raise funds through the DeFi platform. In October 2017, Ethereum-based MakerDAO launched the DAI stablecoin, allowing users to generate DAI by mortgaging different types of assets.

Let's take MakerDAO as an example to see his next narrative story.

0****3 **What about Maker DAO? **

Founded in 2014, the Maker DAO project is one of the earliest decentralized autonomous organizations on Ethereum. Maker DAO can be understood as a decentralized financial system based on the Ethereum blockchain, which provides a stable currency Dai (a cryptocurrency anchored to the US dollar), a governance token MKR, and a mortgage loan platform Maker Vault.

The goal of Maker DAO is to create a public infrastructure that is not influenced by centralized authorities or managers, providing economic freedom and opportunity to any individual on a global scale. The assets of Maker DAO have the following characteristics:

• **Diversification:**Maker DAO supports multiple types of collateral, including cryptocurrencies (such as ETH, WBTC, BAT, etc.), physical assets (such as real estate, artwork, etc.) and fiat currencies (such as USDC, TUSD, etc.) . This can reduce the risk of a single collateral and improve the liquidity and credibility of DAI.
• **Flexibility: **Maker DAO allows users to freely choose the type and ratio of collateral, as long as the minimum collateralization ratio and stability fee requirements are met. Users can adjust the asset square according to their own risk preference and return expectations.
• **Transparency: **Maker DAO's asset square is completely open and verifiable, and anyone can view the current collateral type and ratio, as well as each collateral through a blockchain browser or third-party tools Parameter settings (such as minimum mortgage rate, stability fee, liquidation penalty, etc.). This increases the trust and traceability of DAI.
• **Governance: **Maker DAO's asset square is determined by MKR holders through voting. They can adjust the parameters of each collateral or add new collateral types. This can make DAI more adaptable to market changes and needs, and also allow MKR holders to participate in the governance of the system.

During the development of Maker DAO, the important events are as follows, and we have bolded the parts related to RWA:

• In 2014, the Maker DAO project was established, one of the earliest decentralized autonomous organizations on Ethereum.
• In 2015, Maker DAO released the first version of the white paper, which introduced a system for pledging Ethereum to generate Dai through smart contracts.
• In December 2017, the single-guaranteed Dai (Sai) was officially launched, which is the first asset-backed cryptocurrency softly anchored to the US dollar.
• In January 2018, MKR tokens began to be listed on the exchange. It is the governance token of Maker DAO, which is used to participate in the risk management and parameter setting of the Maker protocol.
• In March 2020, due to the market turmoil caused by the new crown epidemic, the congestion of the Ethereum network caused the failure of the Maker Vault liquidation mechanism, and some users suffered huge losses. The Maker DAO community voted to launch the MKR issuance plan to compensate damaged users and restore system capital adequacy.
• In May 2021, Maker DAO announced a cooperation agreement with Paxos to include the Paxos stablecoin in the collateral list of the multi-collateral Dai system,** and plans to introduce physical assets (such as gold, real estate, etc.) into the system. **
• In July 2021, Maker DAO announced that it will cooperate with Centrifuge to include Centrifuge's Tinlake assets in the collateral list of the multi-collateral Dai system. ** This is the first time that physical assets are tokenized and used to generate Dai. **
• On August 4, 2021, Maker DAO announced its cooperation with Centrifuge, incorporating Centrifuge's real-time assets (Real World Assets) into its collateral system, increasing the supply of DAI by about $5 million, and contributing to DAI Provides more real asset support.
• In May 2022, Maker DAO released a new governance model MIPs (Maker Improvement Proposals), which divides the governance process into three stages: proposal, approval and execution, increasing community participation and transparency.
• In July 2022, Maker DAO became the first stablecoin project to achieve full decentralization, with all key decisions being voted on by MKR holders through a decentralized autonomous organization (DAO).
• In November 2022, Maker DAO completed support for RWA (Real World Assets), allowing users to mortgage real estate, cars, artwork and other physical assets to generate *Dai ***, increased the types and values of Dai's collateral. **
• In January 2023, Maker DAO released a new risk parameter adjustment mechanism, RWAU (Real World Asset Units), which assigned the risk assessment and management of RWA to professional asset management institutions, reducing the risk exposure of the Maker protocol.
• In May 2023, Maker DAO successfully implemented access to CBDC (Central Bank Digital Currency), allowing users to use the digital currency issued by the central bank to generate or exchange Dai, increasing the compliance and credibility of Dai.
• In July 2023, Maker DAO announced that it has reached cooperation with global mainstream payment platforms such as Visa, Mastercard, and PayPal, enabling users to use Dai for various financial activities such as cross-border payments, e-commerce, and point-to-point transfers, which improves the convenience of Dai sex and popularity.

According to makerburn.com, as of June 29, 2023, Maker is expected to generate an annual profit of $73.67 million. Apart from stablecoins and exchanges, there are few decentralized applications that are more profitable than Maker DAO. Currently, MKR has a market cap of approximately $820 million.

There are many people who are popular, and during the development of Maker DAO, doubts about it are also constantly being questioned, mainly in the following three aspects:

For example, is Maker DAO's governance truly decentralized? Some people question whether the governance process of Maker DAO is controlled by a small number of big players or the core team, and whether it can fully reflect the wishes and interests of community members.

For example, is the stability mechanism of Maker DAO reliable? Some people pointed out that the stability mechanism of Maker DAO relies too much on the market mechanism and liquidation penalties. Once an extreme situation occurs, it may cause the system to collapse or the token to depreciate.

For example, is Maker DAO's collateral selection reasonable? Some people think that Maker DAO's collateral selection is too conservative or too aggressive, and it does not make full use of the diversity and innovation of the blockchain, nor does it effectively control risk exposure and leverage.

0****4 **Is RWA feasible in China? **

According to a statistical data from BCG Boston Consulting Company, it is estimated that by 2030, the RWA track may reach an overall size of 16 trillion US dollars.

The future looks bright, but I often see some blockchain practitioners in China with a painful look on their faces, as if they feel that their country is not worthy of their ambition to change the world and get rich. **

So they often wander in different countries, holding Chinese passports, and want to be homeless in the world. Their circle of friends focuses on the global market, discussing the Fed’s interest rate cut and the latest speech by a minister in Dubai, but they just don’t consider one issue: whether it’s Web3.0 or blockchain, the biggest market dividend and opportunity ,Where? How should it land properly? **

Before answering this question, we may have to change the topic and talk about basic legal logic.

Human beings are the sum of a series of social relations. If we want to roughly classify these social relations, there are roughly two types in law: one is property rights, and the other is creditor's rights.

Property rights can be understood as the mobile phone in your hand or the monitor you are staring at at this time. If it can move, it is called movable property (such as mobile phone, car); if it cannot move, it is called real property (such as a house).

Creditor's rights can be understood as your right to ask others for things, whether it's because someone else lent you money, or someone beat you up for medical expenses because they didn't like you. The former arises from a loan relationship, so it is called a contract debt; the latter arises from the other party’s personal injury, so it is called a tort debt.

Everything in the world is simplified, and the general social relationship is like this. Expressed as a mind map:

The biggest difference between property rights and creditor's rights is that: **Real rights are up to you, while creditor's rights are up to you. **

For example, if you really can’t read this article, you can throw your mobile phone to the ground, and no one can stop it, because this mobile phone belongs to you, you are the owner of the thing, and you have this right.

But debts are different. Someone owes you money, and the other party will not pay it back. Even if you use your thoughts to ask him to change it, draw a circle to curse him, but in the end you still have to rely on him to pay it back.

So here comes the question, is RWA** a real right or a creditor's right? **

To untie the bell, the person who tied the bell must be needed. Let’s see how the tokenization of RWA is carried out. Generally speaking, there are two main ways we see RWA:

One is to transfer the ownership or benefit of the physical assets to a specific blockchain address through a trust or legal contract, and then issue the corresponding tokens. This method is called Off-chain Anchoring.

The other is to map the properties or status of physical assets to the blockchain through smart contracts, and then issue corresponding tokens. This method is called On-chain Mapping.

**Either way, a trusted third-party agency is required to verify and supervise the relationship between physical assets and tokens to ensure the authenticity and security of tokens. **

But friends who really love the blockchain and don't love humans at all understand: **Once someone intervenes, this matter is a bit unreliable. **

The core problem of encrypted assets based on blockchain technology is that users can control and control their own digital assets without relying on any third party. However, according to the narrative logic of RWA, traditional assets, which may be unfinished real estate such as houses, or a company’s debts to others that have been held for several years, are packaged and uploaded through the RWA blockchain. The essence of the method is to unify the property rights/claims and then turn them into divided claims. **

**The exercise of creditor's rights requires the credibility and execution of a third party.**As a consumer user and holder of RWA, when you buy RWA assets, from a legal point of view, you cannot directly exercise your rights rights, but need to rely on offline centralized institutions.

After all, in the process of putting real assets on the chain, no matter how compliant it is, it is nothing more than letting lawyers spend a few more days in the asset due diligence process to build various legal structures, and let the project party sign a few more legally. It's just a pledge or guarantee agreement, there is proof and progress of compliance workload, but things will not be qualitatively different. **

In addition to departing from the original idea of blockchain decentralization and the original intention of the trust-free mechanism, RWA also faces some legal difficulties and obstacles. According to my unprofessional superficial understanding, there may be several problems that need to be solved by capable people in the circle.

1. **RWA right confirmation and registration issues. **

RWAs are assets in the real world, and they usually need to be registered with the relevant title registry to prove their ownership and value. For example, if you buy a house in China, you have to go to the real estate center to register and get a small book to prove that the house belongs to you; if you want to sell the house to someone else, both parties need to register again. From a legal point of view, this is called property registration doctrine. All verbal statements are useless, it only depends on who is registered by the housing management bureau.

**If the salesman who sells the house talks to you and you reach a consensus with me, you pay me and I verbally promise to give you the house. I guess your whole family will not agree. **

On the blockchain network, RWA exists in the form of digitization or tokenization, and transaction flow is very easy. If RWA is transferred or changed on the blockchain network, will it affect its ownership and value in the real world? For example, if a user tokenizes the real estate he owns and sells it to others on the blockchain network, does he also own the real-world ownership of that real estate? If a dispute or dispute arises, under which legal system should it be resolved?

2. **RWA assessment and audit issues. **

Assets in the real world are evaluated and audited by professional evaluation agencies or third-party organizations, and after confirming their authenticity and value, they are uploaded to the blockchain and exist in the form of tokens. At this time, an interesting question comes Now, how to ensure that the value of RWA on the blockchain network is consistent or similar to the value in the real world? How can RWA be prevented from excessive volatility or manipulation on the blockchain network? How to ensure the authenticity and credibility of RWA on the blockchain network?

3. Regulatory and compliance issues for **RWA. **

RWAs are assets in the real world, and they are usually constrained and regulated by relevant regulatory agencies or laws and regulations to ensure their legality and security. If they exist in the form of tokenization, they often go beyond the existing regulatory boundaries and scope, which leads to the question of how to comply with relevant regulatory requirements and regulations while maintaining the innovation and flexibility of blockchain technology. compliance standards? How to achieve effective supervision and management of RWA on the blockchain network without compromising the interests and privacy of users? How to intervene and deal with risks or crises in a timely manner?

These issues are not only related to the feasibility and sustainability of the combination of RWA and DeFi, but also related to the development and application of blockchain technology in China's financial field. In order to solve these problems, regulators, legal experts, evaluation agencies, blockchain companies, DeFi platforms, users, etc. need to work together. Only by establishing a complete legal compliance system can RWA and DeFi be combined. Provide more possibilities and opportunities for China's financial innovation and development.

0****5 Summary

• RWA is an idealism that people in the currency circle love to see, just like the DAO organization is the ideal business of many project parties. However, the narrative logic of RWA that most people are currently discussing runs counter to the original intention of cryptocurrency. Everyone hopes that the transaction of assets will be decentralized, flow freely around the world, and be able to get rich by speculation, but they also hope that the chaining of assets will be centralized, assets will be compliant, and asset appreciation will be reliable. The showy operation makes non-Web3.0 people a little confused.
• The narrative story and demand of RWA is not so much the fantasy of getting rich by people in the currency circle, but the clanging of the abacus of traditional financial institutions. Traditional asset management companies and fund gangs have almost harvested the big players. How can they tell investors a good and sexy story? The story of RWA seems to be a good show in the movie "Let the Bullets Fly", where the county magistrate and Huang Silang Jinshan fight bandits. The name is not important, but the fundraising is the most important. The money is in hand, six or four cents.
• RWA legal compliance involves RWA rights confirmation, registration, evaluation, auditing, supervision, etc. At this stage, it faces problems such as unclear supervision, imperfect laws, insufficient liquidity, and bad debt risks. China has the feasibility of RWA, but it is obviously a long way to go. Friends who want to make money with long-term peace of mind, don’t worry, let the bullets fly for a while.