The regulatory focus on asset nature is on real economic activities. Under mainstream standards, the vast majority of functional RWA tokens are regarded as securities. This article is written by Shao Jiadian, lawyer at Mankun Blockchain, and reorganized by PANews.
(Background recap: Behind the explosion of RWA: opportunity or scam?)
(Additional background: Lawyers warn that China’s RWA industry only has two paths: go overseas or completely give up)

Table of Contents

• Introduction
• What do you think you’re doing with “RWA functional type” in the eyes of regulators?
• Real Case 1:
• Real Case 2:
• Why is the “functional type” particularly untenable in the RWA field?
• A harsh reality you must face:
• A brutally honest summary:
• So, are RWA “only able to be securities”?

Introduction

Many RWA projects, when consulting lawyers for the first time, almost always say the same thing:

“We are not securities, just a functional RWA token.”

“We simply put real assets on the chain, without financing attributes.”

“We are utility tokens, not security tokens.”

Honestly, I’ve heard these words so many times I’m numb.

But the problem is — regulation is never based on what you “call yourself,” but on “what you are actually doing.”

And very importantly:

The gray buffer zone of “functional RWA tokens” has already been gradually squeezed out by real legal cases in major regulatory jurisdictions worldwide.

Today, I will do only one thing in this article:

No abstract laws, no vague theories, just real regulatory cases to tell you — how “functional RWA tokens” are gradually turned into “security tokens.”

What do you think you’re doing with “RWA functional type” in the eyes of regulators?

Let’s clarify this first. The vast majority of so-called “functional RWA tokens” in reality have the following structure:

Project party:

“I put mining machines, computing power, power stations, charging stations, real estate, accounts receivable on the chain.”

User:

“I buy your tokens.”

Actual economic relationship:
Money flows into an asset pool controlled by the project;
The project purchases and operates RWA assets;
Profits are proportionally distributed to token holders;
At the same time, you give them some “governance rights,” “usage rights,” or “ecosystem rights.”

What you package externally is:

Functionality, governance, ecosystem, on-chain certificates.

But regulators see four standard securities elements:

Capital investment (paying for tokens)
Entering a common asset pool (you operate RWA collectively)
Expected returns (dividends, interest, distribution of output)
Returns derived from others’ efforts (you operate the assets)

Once these four points are established, in mature jurisdictions like the US, EU, Switzerland, Hong Kong, they are directly pointed to with one term: Investment Contract = Security

Whether you call it RWA, Token, or NFT, it does not affect the legal conclusion that “it is a security.”

Real Case 1:

“RWA + governance tokens” directly penalized by the SEC as “securities issuance”

This is a name you must remember:

DeFiMoney Market (DMM)

What does the project say externally?

It’s a “DeFi + real asset income protocol”
Underlying assets are: real-world debt claims like auto loans (standard RWA)
It offers users two types of tokens:
One is a “fixed income token” (promising an annualized 6.25%)
The other is a “governance token DMG,” claiming to be “governance + ecosystem functions”

The project states:

One is a yield tool, the other is a functional governance token.

What does the SEC (U.S. Securities and Exchange Commission) say?

A one-sentence classification:

Both types of tokens are securities.

The reasoning is very straightforward:

Funds enter a unified RWA asset pool;
Returns come from the project’s operation of real assets;
Investors are passive recipients;
The so-called “governance rights” do not change their “investment nature.”

The final result:

Unregistered securities issuance;
The project is fined;
Investors are subject to refund procedures.

The cruelest part of such cases is:

Even if you truly hold real assets, generate real returns, and put them on the chain,
as long as your structure is “you manage assets, users receive returns,”
you cannot escape the legal classification of securities.

Real Case 2:

“Asset-backed RWA tokens” directly recognized as securities + scams

Let’s look at a project closer to what you see in the current market: “asset-backed RWA” projects:

Unicoin case (SEC lawsuit in 2025)

This project’s initial positioning was very standard:

Issuance of “rights certificates” + future exchange for RWA tokens;
Publicly claimed:
Tokens are backed by real estate + pre-IPO equity;
It is a “secure, stable, real-asset-backed crypto asset.”

Sounds very “compliant,” right?

Very similar to the language in many RWA whitepapers now?

The SEC’s (U.S. Securities and Exchange Commission) conclusion is only one sentence:

This is a typical unregistered securities issuance + fraudulent asset support promotion.

The core logic is also very harsh:

Investors are not buying “usage rights”;
But expecting “future returns from an asset pool”;
Packing this expectation into a token, which is fundamentally still a security.

Why is the “functional type” particularly untenable in the RWA field?

Because there is an inherent conflict between RWA and “functional tokens”:

Functional tokens emphasize:

Usage rights, consumption, access, governance participation

RWA emphasizes:

Assets, returns, cash flow, yields

If your RWA token has any of the following:

Periodic dividends
Proportional profit sharing
Corresponding to real cash flow of assets
Redeemable underlying assets according to rules

Then in the eyes of regulators, you are not a “functional token,” but:

Profit rights certificate
Asset-backed certificate
Investment contract
Security-type Token

This is not abstract reasoning; it is the logic that global regulators have already practically enforced.

A harsh reality you must face:

Future RWA tokens will increasingly resemble securities

This is not a trend judgment, but an established fact:

In the US:

All RWA + yield structures will first face unregistered securities review.

In the EU (MiCA + securities law):

Any “transferable + yield-bearing + public-facing” structure naturally falls under securities regulation.

Switzerland:

Utility tokens with “investment purpose” are directly treated as securities.

Hong Kong:

As long as it constitutes a “Collective Investment Scheme (CIS),” regardless of whether it’s a token, it falls under the securities regulatory system.

In other words:

Regulators are not unfamiliar with RWA; they are simply applying an upgraded “securities” framework to RWA.

A brutally honest summary:

You may dislike this statement, but it applies to most “functional RWA token projects”:

You are not unaware that you are raising funds; you are unwilling to admit that you are doing a “fundraising that cannot be classified as securities.”

The problem is:

You can deceive the market;
You can talk about functions, ecosystems, narratives in groups;
But you cannot deceive the true legal classification of regulation.

So, are RWA “only able to be securities”?

Finally, I will say a very practical and important thing:

Not all RWA must be securities, but as long as you want to “raise funds from the public + expect returns,” you must accept the path of securities regulation.

From a global practical perspective, currently, there are only three truly feasible models for RWA to avoid the “traditional securities law path”:

First, completely de-yielding, retaining only on-chain usage and consumption attributes — “pure functional RWA certificates”;
Second, strictly private placements within qualified investor scope;
Third, the “securities logic virtual assetization” route represented by Dubai’s VARA — it does not avoid securities, but allows securities-like RWA Tokens to be legally accessible to retail under the virtual asset regulatory framework.

Apart from these, any “public fundraising + profit sharing + free circulation” RWA structure will almost inevitably be pulled back into the securities regulatory framework in major jurisdictions worldwide.

Furthermore:

• Targeting retail investors
• Tradable
• Yield-bearing
• Dividend-paying
• Asset pools

No matter how you package “functional type,” in the face of regulation, the outcome is highly predictable.

Finally, a message to all projects struggling with “functional RWA”:

You are not choosing between “functional” or “securities”; you are choosing — “long-term compliance” or “short-term luck.”
This is not a moral issue; it’s a survival issue.