securities", pointing out that regulators determine the nature of a product based on its business substance rather than its name.
Drawing on two typical cases of DMM and Unicoin, it dissects the core elements that lead to RWA tokens being classified as securities, analyzes global regulatory trends, and puts forward viable models to circumvent traditional securities regulation, thus providing compliance guidance for RWA project parties.
TABLE OF CONTENTS
securities”, pointing out that regulators determine the nature of a product based on its business substance rather than its name.
Drawing on two typical cases of DMM and Unicoin, it dissects the core elements that lead to RWA tokens being classified as securities, analyzes global regulatory trends, and puts forward viable models to circumvent traditional securities regulation, thus providing compliance guidance for RWA project parties.
When many RWA projects consult lawyers for the first time, they all tend to say almost the same things:
“Ours is not a security; it’s just a utility RWA token.”
“We’re merely tokenizing real-world assets—there’s no financing feature involved.”
“We issue utility tokens, not security tokens.”
To be honest, I’ve grown numb to such claims.
But here’s the catch—regulators never classify a product based on what you call it, but rather on what you actually do.
What’s even more crucial is this:
The gray area surrounding “utility RWA tokens” has been gradually eroded by real regulatory precedents across major global jurisdictions.
In this article, I’m only going to do one thing:
Instead of citing abstract legal provisions or spouting vague theories, I will use real regulatory cases to show you exactly how “utility RWA tokens” are increasingly being reclassified as “security tokens”.
Let’s cut to the chase. The actual structure of most so-called “utility RWA tokens” in the market boils down to this:
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The Project Party: “We tokenize real-world assets such as mining machines, computing power, power stations, charging piles, real estate, and accounts receivable.”
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The Users: “We buy your tokens.”
- Funds flow into an asset pool controlled by the project party;
- The project party purchases and operates RWA assets;
- Profits are distributed proportionally to token holders;
- Token holders are also granted nominal “governance rights”, “usage rights”, or “ecological benefits”.
What you market to the public focuses on:
Utility, governance, ecosystem, on-chain credential.
But what regulators see are the four classic characteristics of a security:
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Investment of Money: Users pay to purchase tokens;
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Common Enterprise: The RWA assets are managed centrally by the project party;
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Expectation of Profit: Token holders expect returns through dividends, interest, or profit-sharing;
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Profit Derived from the Efforts of Others: Returns depend on the project party’s operation of the assets, not the holders’ own efforts.
Once these four conditions are met, in all mature jurisdictions including the US, EU, Switzerland, and Hong Kong, the token will be immediately defined as an Investment Contract—which is legally equivalent to a security.
It doesn’t matter whether you call it an RWA, a Token, or an NFT—this legal classification remains unchanged.
There’s one name you need to remember:
DeFi Money Market (DMM)
It claimed to be a “DeFi + real-world asset yield protocol”.
Its underlying assets were real-world claims such as auto loans (a textbook example of RWA).
It issued two types of tokens to users:
- A “fixed-income token” (promising a 6.25% annual yield);
- A governance token, DMG, marketed as a tool for “governance + ecosystem utility”.
The project insisted:
One token was a yield-generating instrument, and the other was a utility governance token.
In one sentence, the SEC made its ruling:
Both tokens are securities.
The reasoning was straightforward:
- Funds were pooled into a centralized RWA asset pool;
- Profits came from the project party’s operation of real-world assets;
- Investors merely waited passively for distributions;
- The so-called “governance rights” did nothing to alter the token’s fundamental investment nature.
- The unregistered securities offering was deemed illegal;
- The project party was fined;
- A restitution process was launched for affected investors.
The harshest lesson from such cases is this:
Even if you truly tokenize real assets, generate actual profits, and put everything on-chain—as long as your structure follows the model of “you manage the assets, users collect the returns”, you cannot evade securities laws.
Let’s look at another case that’s much closer to the “asset-backed RWA” projects flooding the market today:
It issued so-called “right credentials” plus RWA tokens redeemable in the future.
It marketed itself aggressively with the following claims:
The tokens are backed by a combination of real estate and pre-IPO equities;
They are “safe, stable, crypto assets backed by real-world assets”.
Does this sound familiar?
Does it echo the language used in countless RWA whitepapers today?
The SEC’s ruling was concise and unambiguous:
This constitutes a classic case of unregistered securities offering plus fraudulent asset-backed promotion.
The core logic behind this ruling was incisive:
Investors are not buying “usage rights”;
They are buying the expectation of future returns from an asset pool.
Packaging this expectation into a token makes it a security, plain and simple.
The reason is simple: there is an inherent contradiction between RWA and “utility tokens”.
If your RWA token has any one of the following features, regulators will not see it as a “utility token”. Instead, they will classify it as:
A profit-sharing right credential;
An asset-backed credential;
An investment contract;
A security token.
This is not abstract reasoning—it is a unified regulatory logic that has been put into practice globally.
This is not a trend prediction—it is a fact that has already unfolded:
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United States: All RWA structures with yield components are automatically subject to scrutiny for unregistered securities offerings.
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European Union (MiCA + Securities Law): Any token that is “transferable + yield-bearing + offered to the public” falls squarely under securities regulation.
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Switzerland: Even a utility token will be treated as a security if it serves an investment purpose.
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Hong Kong: Any structure that constitutes a “Collective Investment Scheme (CIS)” will be regulated by the securities authority—regardless of whether it is labeled a “token” or not.
In other words:
Regulators do understand RWA. They simply view it as an upgraded version of securities.
You may not like hearing this, but it applies to the vast majority of “utility RWA token projects”:
You know perfectly well that you are raising capital. You just refuse to admit that you are conducting a financing activity that should comply with securities laws.
Here’s the problem:
You can fool the market;
You can pitch utility, ecosystem, and narratives in online groups—but you cannot fool regulators when it comes to legal classification.
Finally, let’s get to the honest, crucial point:
Not all RWAs must be structured as securities. However, if you intend to raise capital from the general public + offer profit expectations, you have no choice but to comply with securities regulations.
Based on global practices, there are currently only three viable models for RWAs to avoid the “traditional securities law path”:
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Complete De-Yieldization: Launch “pure utility RWA credentials” that only retain on-chain usage and consumption functions, with no profit-sharing features;
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Private Placement for Accredited Investors Only: Restrict RWA offerings strictly to qualified investors, keeping the structure closed to the general public;
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“Securities-Logic-to-Virtual-Asset” Path (Exemplified by Dubai’s VARA): This approach does not evade securities regulation. Instead, it allows RWA tokens with security-like features to reach retail investors in compliance with a dedicated virtual asset regulatory framework.
Beyond these three models, any RWA structure that involves public fundraising + profit distribution + free tradability will almost certainly be pulled back into the securities regulatory framework in major global jurisdictions.
To put it plainly:
If your RWA targets retail investors, is tradable, generates yields, offers dividends, and operates with an asset pool—no matter how much you package it as a “utility token”, its fate in the eyes of regulators is highly predictable.
You are not choosing between “utility token” and “security token”.
You are choosing between long-term compliance and short-term luck.
This is not a moral question—it is a question of survival.
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