Global RWA is trapped by the "securities" shackles. Why does the optimal compliant solution appear in Dubai?

Currently, one of the hottest tracks in the global fintech space is undoubtedly the tokenization of real-world assets. Traditional capital giants and crypto-native institutions are entering the market one after another, depicting a grand blueprint to bring trillions of dollars worth of physical assets onto the blockchain. However, beneath this vision, a fundamental regulatory shackles remain difficult to break free from: in most jurisdictions, profit-generating RWA (Real-World Assets) that touch the public market are quickly incorporated into the strict framework of traditional securities law, resulting in their liquidity being confined.

While financial centers like Hong Kong and Singapore are cautiously exploring within existing securities regulatory systems, Dubai in the Middle East has quietly completed a crucial paradigm shift. Here, the classic dilemma of “whether RWA qualifies as securities” is no longer the focus. Instead, a new category—“Asset-Referenced Virtual Assets”—has been created specifically for them, along with a comprehensive compliance system covering issuance, sales, and trading across the entire chain. This means that a dedicated “compliance expressway” for RWA has been paved in mainstream financial hubs for the first time, with its endpoint directly targeting global retail investors and high-liquidity public markets.

This is not a relaxation of regulation but a reconstruction of regulatory logic. Dubai’s practice reveals a future trend: in the second half of RWA competition, core competitiveness will shift from technological implementation to more complex legal structure design and cross-sovereign regulatory coordination capabilities. It offers not a “safe haven” to evade regulation but a “new arena” that embraces innovation with clearer rules. Projects that can understand and master this new set of rules early may secure a key hub position connecting traditional assets with global crypto capital.

1. When Global Regulations View RWA as Securities

The tokenization of real-world assets (RWA) is hailed as a bridge to bring trillions of dollars of traditional assets onto blockchain, but its development has always been constrained by a fundamental contradiction. This contradiction is that most profit-bearing RWAs (such as real estate generating rent or bonds paying interest) are economically very close to traditional financial securities.

Major global financial jurisdictions generally choose a path: using existing securities regulation frameworks to “pierce through” and “frame” RWA.

In the US, the SEC’s “Howey Test” is a Damocles sword hanging over RWA projects. Any tokenized arrangement involving “funds invested, common enterprise, and expectation of profits from the efforts of others” is easily judged as a security.

This judgment means projects must comply with strict disclosure, registration, and reporting requirements. For example, BlackRock’s BUIDL fund and Ondo Finance’s OUSG successfully operate tokenized government bonds in the US because they fully acknowledge their security attributes and strictly follow relevant regulations.

In Singapore, the MAS issued guidelines in November 2025, clearly stating the principle of “same activity, same risk, same regulatory outcome.” Through 17 specific cases, MAS demonstrated that regardless of technological form, as long as the economic substance of a token is equity, debt, or fund shares, it will be classified as a “Capital Market Product” (CMP), subject to existing securities and futures laws.

Hong Kong also adopts “piercing” regulation, bringing security tokens under the licensing scope of the SFC. Although Hong Kong actively promotes sandbox pilots, its mature capital market regulations mean that the issuance and trading of RWA mainly target professional investors, with high thresholds for retail investors.

This regulatory path results in a direct consequence: liquidity fragmentation. Projects are confined within small circles of qualified or professional investors, unable to promote publicly or efficiently conduct secondary market trading on mainstream platforms.

Early RWA projects like the tokenization of St. Regis Aspen Resort experienced delays and low trading volume—partly due to this. It creates a vicious cycle: without liquidity, large-scale capital is hard to attract; without large-scale capital, the universality of the model cannot be proven.

2. How Dubai Creates an Independent Track for RWA

While other regions try to fit new wine into old bottles, Dubai chooses to craft a new bottle. The core of this shift is the establishment of the Dubai Virtual Assets Regulatory Authority (VARA) and its clear top-level design.

In 2022, Dubai enacted the Virtual Asset Regulatory Law and established VARA as an independent agency to regulate virtual asset activities across Dubai (excluding the Dubai International Financial Centre). The first breakthrough was legally defining “virtual assets” as an independent, regulatable digital representation of value, distinguished from traditional “securities.”

This means that once a tokenized project enters Dubai, the first core question regulators ask is no longer “Are you a security?” but “Are you a regulatable virtual asset activity?”

In May 2025, VARA updated its rules manual, creating a new category called “Asset-Referenced Virtual Assets” (ARVA) tailored for RWA. According to the rules, ARVA is explicitly defined as tokens representing direct or indirect ownership of real-world assets (such as real estate or commodities) and capable of sharing income.

This move institutionally formally recognizes RWA, removing the ambiguous debate over whether they fall under securities law, and providing a dedicated legal identity and issuance/listing channel.

Chart: ARVA issuance framework under VARA regulation

The essence of this framework is a “regulatory logic shift.” It does not relax investor protection, anti-money laundering, or project transparency requirements. On the contrary, VARA’s four mandatory rulebooks (covering corporate governance, compliance and risk, technology and information, market conduct) establish a very strict compliance system.

The real difference is that it designs a complete closed-loop path for RWA from issuance to listing, from institutional to retail, rather than forcing them into an ill-fitting traditional securities issuance channel.

3. Why Is Dubai Different? A Global Comparison of RWA Regulatory Paths

The success of Dubai’s model can only be better understood through a comparison within the global regulatory landscape. Different jurisdictions, based on their legal traditions and financial development goals, have shaped very different RWA regulatory philosophies.

According to a research report by China Galaxy Securities, global regulatory paths roughly fall into two categories: “strict regulation prioritizing safety” and “innovation-oriented pilot prioritization.”

The US exemplifies the former, relying on case-by-case judgment via the Howey Test, which, while flexible for complex situations, introduces huge uncertainty and compliance costs. Singapore and Hong Kong represent a cautious balance of innovation.

Singapore’s “technology neutrality” principle emphasizes economic substance, providing clear classification standards for various tokens, but its conclusions often still direct most RWAs into existing capital market product regulations. Hong Kong, on a mature financial regulatory foundation, leaves room for innovation through sandbox mechanisms but maintains relatively high licensing thresholds overall.

Dubai represents a more thorough “architectural innovation” path. It is not patching on old frameworks but building a parallel, modernized regulatory infrastructure for virtual assets and RWA from scratch.

Chart: Core comparison of major RWA regulatory paths worldwide

This difference results in obvious business outcomes. An RWA project eager for broad liquidity and access to global retail funds might struggle under traditional paths but could find a compliant shortcut within Dubai’s framework.

A Dubai-supervised apartment tokenization project in 2025 sold out within minutes, with buyers from over 35 countries, 70% of whom were first-time Dubai real estate investors—an intuitive demonstration of this model’s advantage.

4. Not Outside the Law: Strict Requirements Behind Dubai’s RWA Opportunities

Viewing Dubai as a “regulatory gap” or “loose licensing” is a serious misinterpretation. VARA offers a clear but not lenient compliance expressway, not a lawless wilderness. Its strictness manifests in multiple dimensions.

First, the high thresholds for licensing applications and ongoing operations. Any institution wishing to provide virtual asset services in Dubai must undergo a rigorous two-stage application process. This involves not just submitting forms and paying fees but also comprehensive in-depth reviews of corporate governance, risk controls, technical security, and anti-money laundering measures.

After obtaining a license, companies must continuously adhere to the four mandatory rulebooks, covering governance, compliance and risk management, technology and information security, and market conduct. ARVA issuers also face strict ongoing obligations like monthly independent audits.

Second, AML and KYC standards are extremely strict. The UAE, under the evaluation of the FATF, faces immense pressure to meet the highest international standards for AML/KYC for virtual asset service providers. This requires projects to establish robust off-chain identity verification and on-chain monitoring systems, possibly involving partnerships with compliance service providers, real-time sanctions screening, and suspicious activity reporting mechanisms. For DeFi and RWA integrations, maintaining decentralization while satisfying these requirements is a significant technical challenge.

Furthermore, asset ownership and legal segregation are fundamental. VARA explicitly requires ARVA to be backed by clear real-world assets. This means the underlying assets’ ownership must be legally unambiguous and uncontested, often through special purpose vehicles (SPVs) to ensure bankruptcy remoteness from the issuer’s assets.

Any ambiguity or legal structural flaws will directly prevent project approval. Dubai’s deep involvement in real estate tokenization aims to ensure a solid link between on-chain tokens and off-chain property rights.

Finally, the risk of “factual securities” classification still exists. Although Dubai has created the ARVA category, regulators do not ignore the financial substance. If a project’s “functional” or “usage rights” token’s economic substance, marketing, and user expectations point toward joint investment and profit sharing, VARA may still classify it as a “collective investment scheme” (CIS) or similar structure requiring stricter regulation.

Additionally, project parties must be vigilant about cross-border regulatory risks. Being compliant in Dubai does not mean ignoring the laws of the asset’s location or investors’ countries. For example, selling tokenized products to US citizens could trigger SEC jurisdiction and serious legal consequences.

5. RWA Competition Enters the Era of “Legal Engineering” and Dubai’s Hub Role

Dubai’s practice in RWA marks the beginning of a new era: the core of RWA competition is shifting from early “technological demonstration” to a “legal engineering” stage that tests “legal and regulatory structure design capabilities.”

Future leading RWA projects will be those capable of mastering cross-jurisdictional legal frameworks, skillfully designing SPV structures, and achieving financial innovation within strict compliance. Dubai’s VARA framework provides the first standardized professional arena for this high-level competition.

From a broader trend perspective, the flow of global capital and projects is subtly changing. In the past, Middle Eastern capital flowed to Europe and America seeking investment opportunities. Now, there is a phenomenon of US and European fintech and RWA projects actively seeking compliance in Dubai.

The driving force behind this is not tax incentives but the scarcity of regulatory systems that are certain and aligned with innovation. By providing this resource, Dubai is positioning itself as a key hub connecting trillions of traditional assets with the global liquidity of the blockchain world.

Meanwhile, other global financial centers are accelerating adjustments. Singapore and Hong Kong are continuously refining their guidelines, and the EU’s MiCA regulation has been fully implemented. The future landscape will be “pluralistic coexistence and differentiated competition.” Dubai’s model, with its openness to retail and comprehensive liquidity solutions, may attract specific asset types and projects, complementing New York’s institutional path and Singapore’s refined classification approach.

For entrepreneurs, asset owners, and investors involved, choices become crucial yet challenging. Understanding the essence of Dubai’s model—far from regulatory evasion, it is a more adaptive and forward-looking embrace of regulation—is the first step toward making wise decisions.

In Dubai, the story of RWA is no longer just a theoretical blueprint or niche experiment. From house tokens sold out in minutes to global institutions queuing for VARA licenses, a new market connecting real assets with retail investors, underpinned by clear rules, has already begun to turn from framework to reality.

UAE lawyer Irina Shifer believes that the early silence of securities token offerings (STOs) was due to a lack of clear regulation, viable secondary markets, and liquidity. Now, Dubai’s regulators have directly addressed these failures.

In Dubai, regulated exchanges and broker-dealers are now authorized to distribute and list Asset-Referenced Virtual Asset (ARVA) tokens. This marks the transition of RWA development from theory to execution, from concept to framework.

In the next five years, the bridges connecting traditional finance and the crypto world will increasingly be built in places willing to rebuild the foundation for innovation.