The legal legitimacy of cross-border RWA financing: challenges and responses

RWA financing across borders combines recognition of real-world assets on the one hand, and issuance in the form of tokens and their subsequent automated settlement on the other. This combination poses issues of enforceability of the underlying rights, classification of securities, cross-border capital controls, and institutional responsibility. The present paper considers the hypothetical structure which includes RWA from Mainland China and its issuance through a SPV in Hong Kong. The analysis involves doctrinal research of the laws of Mainland China and Hong Kong, structured regulatory coding, transaction modelling and limited comparison with the Howey test in the U.S. In total, three cumulative criteria are identified that determine the legality of such transactions. First, the rights attached to the assets need to be effectively transferred or allocated. Second, the regulatory requirements concerning the issuance and settlement must be satisfied. Finally, investor rights should be enforceable against particular entities. Smart contract automation might redistribute the responsibilities without changing contractual and regulatory liabilities. The transaction node approach enables the connection between asset origination, issuance, custodianship, oracles, settlement, and secondary transfer and relevant parties, rights, and authorities.