RWA Development Legal Compliance Framework and Oracle Machine Technology Engine

Author: Jie Hui

“RWA does not create new legal relationships; it merely transfers existing rights and obligations using blockchain technology. A historical building becoming an NFT is still a building; a U.S. Treasury bond becoming a token is still a bond. The core of RWA compliance is to ensure that there exists an unbreakable and legally enforceable mapping relationship between the tokens on the chain and the legal relationships off the chain.”

1. Compliance Issues of RWA Architecture

Generally speaking, when designing the RWA architecture, it is necessary to systematically examine the compliance issues in the following four areas.

1.1 Asset Compliance

(1) Financial Assets

Such assets can easily be classified as securities. Once classified as securities, they must comply with a series of regulations under the Securities Law regarding issuance, information disclosure, fundraising, custody, and more.

(II) Physical Assets

The core is the confirmation and transfer of ownership. For example, how to link the transfer of on-chain tokens with the effectiveness of property rights on the real estate registry, currently almost no country recognizes that on-chain transfers directly result in property rights effectiveness. In practice, a typical and commonly used solution is to establish a special purpose vehicle (SPV), which holds the ownership of the property, and then tokenizes the equity or income rights of the SPV. Token holders are essentially shareholders or beneficiaries of the SPV.

(3) Accounts Receivable

The core is the validity of the debt and the notice of transfer, and it is necessary to examine the authenticity and legality of the underlying debt contract. Does the transfer of debt need to notify the debtor to take effect? If so, how should this statutory procedure be fulfilled in the tokenization process? Otherwise, the debtor may still repay the original creditor, resulting in the rights of the token holders being nullified.

1.2 Compliance in Issuance and Trading

(1) Issuance and Financing Stage

1. Anti-fraud: Any statements regarding underlying assets, expected returns, or team background in the white paper and project documentation must be true, accurate, and complete, otherwise, there will be risks of liability for false statements under the Securities Law and fraud under the Criminal Law.

2. Public Promotion and Investor Suitability: It is strictly prohibited to publicly raise funds and promote to the general public, and it must be strictly limited to qualified investors.

(2) Secondary Market Trading Stage

1. Qualification of the trading platform: If centralized quoting and trading services are provided for security tokens, the platform may be required to hold a securities trading venue license (such as ATS). A regular Virtual Asset Trading Platform (VATP) license may not be sufficient to cover the trading of security tokens.

2. Qualifications for Market Makers: Market makers providing liquidity services for security tokens may require the appropriate brokerage licenses.

3. Continuous information disclosure: As a securities issuer, there is an obligation to conduct continuous information disclosure (such as annual reports and major event reports), which is similar to listed companies.

1.3 Stablecoins and Payment Compliance

If the RWA project involves the generation of stablecoins backed by assets such as U.S. Treasury bonds, it falls under the strong regulatory scope of the payment sector. The core issue is to determine whether it constitutes “electronic money” or “payment instruments”; if so, the issuer may need to apply for an electronic money issuer license, comply with strict reserve management regulations, ensure sufficient, high-quality, and custodial reserves held by regulated institutions, and undergo regular audits and public disclosures by top auditing firms. Compliance with anti-money laundering regulations and KYC for token holders is required.

1.4 Compliance Obligations

1. Anti-Money Laundering and Counter-Terrorism Financing

According to the principle of “whoever contacts the customer is responsible”, clarify which entity in the project (issuer, trading platform, custodian) bears the AML/CFT responsibilities. Establish a comprehensive KYC (Know Your Customer), KYB (Know Your Business), and CDD (Customer Due Diligence) procedures. Implement transaction monitoring, screen for suspicious transactions, and report them.

2. Tax Treatment

The issuance, trading, distribution of dividends, and redemption of tokens may involve income tax, capital gains tax, stamp duty, value-added tax, etc. It is necessary to clarify the tax obligations and reporting methods for customers at each stage.

3. Data Privacy and Protection

The conflict between on-chain data transparency and the Personal Information Protection Law. How to handle and store investors' KYC information? Must comply with the requirements of regulations such as GDPR and PIPL.

The biggest risk in the design of RWA architecture is the rupture of the legal mapping relationship. This means that token holders cannot effectively exercise ownership or recourse rights over the underlying assets in judicial practice; the biggest compliance challenge is regulatory uncertainty, with global regulatory approaches differing and cross-border projects facing jurisdictional conflicts. Successful RWA projects depend on skillfully designed legal frameworks that “translate” innovative tokenization models into logic that regulators can understand and accept.

From the perspective of a technical architect, **oracle technology is the core engine of the development of RWA.

Blockchain is essentially a closed system that can ensure the authenticity and credibility of on-chain data, but it cannot actively obtain data from the off-chain real world. This fundamental limitation has given rise to oracles—trust bridges that connect blockchains to the real-world off-chain.

The oracle mainly implements three core functions:

1. Data Input. Acquire data from external systems (such as APIs, databases, IoT devices, etc.) and input it into the smart contract. For example, obtaining the real-time price of Bitcoin, weather data, flight status, sports match results, etc.

2. Data Output. After the smart contract has been executed, it may be necessary to notify external systems to perform a certain operation. The oracle is responsible for transmitting the execution results from the blockchain. For example, a decentralized insurance contract, upon confirming a claim, instructs the bank system to carry out the payment transfer through the oracle.

3. Calculation. Executing a complex machine learning model to assess credit risk or generate a verifiable random number can be either extremely costly (gas-intensive) or technically infeasible when performed on-chain. Oracles can perform these complex calculations off-chain and only upload the final results to the chain.

Therefore, it can be seen that oracles are crucial. Without oracles, smart contracts can only handle on-chain native data (such as the ETH balance of a certain address), and the application scenarios are extremely limited. With oracles, their application scenarios can grow explosively, especially in the case of RWA. The maturity of oracles directly determines the breadth and depth of interaction between the blockchain ecosystem and the real world.

3 RWA Development Poses Extreme Challenges to Oracle Technology

With the acceleration of the tokenization trend of real-world assets, oracles have evolved from simple data carriers to the core infrastructure for the development of RWA, but they still face severe challenges, mainly including:

(1)Data SourceCredibility

Existing oracles can transmit data, but they cannot fundamentally guarantee the authenticity of the data generation process. IoT sensors may be tampered with, manual inputs may be faked, and oracles lack effective source verification mechanisms. For example, how can we integrate and trust a real estate appraisal agency's data source? How can we ensure that court judgments are accurately transmitted on-chain? This requires the establishment of a certification and reputation system for off-chain data sources.

(2) Privacy and Trade Secrets

Many RWA data (such as company financial data) are sensitive. Oracles need to implement “verifiable computation”, which means proving that a certain computation result is correct without decrypting the original data (such as the application of zero-knowledge proofs).

(3) Data Pollution Issues

Although cryptographic technology can ensure that data is not tampered with during transmission, it is powerless against the data pollution issue of the first time on the chain. The garbage in, garbage out problem still exists.

(4) Real-time Performance

Currently, oracles mainly implement periodic data push and cannot achieve true real-time status synchronization. For RWA application scenarios that require high-frequency updates, such delays can often be fatal.

(5) The Contradiction between Decentralization and Efficiency

Truly decentralized oracle networks have low performance, while high-performance solutions often sacrifice the degree of decentralization.

(6) Cost-Benefit Imbalance

Building a highly secure and trusted data on-chain solution is costly and difficult to promote on a large scale.

(7) Regulatory Uncertainty

The regulatory policies of various countries regarding data on the blockchain are unclear, increasing the legal risks associated with the implementation of technology. Oracles need to meet both technical feasibility and regulatory compliance requirements.

4 Future Development Directions and Trends of Oracles

(1) Vertical and Specialized Oracle Networks

There will be oracles specifically serving certain RWA fields, such as: Real Estate Oracles: specifically interfacing with appraisal agencies, property registration systems, and property management data. Judicial Oracles: specifically interfacing with court announcements and arbitration results. Regulatory Oracles: specifically interfacing with licensing issuance and penalty notifications from regulatory agencies in various countries.

(2) Evolution of Consensus Mechanisms

For key non-financial data, the consensus mechanism of the oracle network will no longer be merely “taking the median”; it may introduce a weighted consensus based on the credibility of data sources, or require a statutory number of authoritative node signatures to confirm a fact.

(3) Integration of Cutting-edge Technologies

1. The introduction of new technologies such as AI has brought new imaginative space for the development of oracles. By detecting abnormal data through machine learning models, it can identify potential attack patterns and enhance system security. AI can also enable the understanding and response to complex events, transforming oracles from passive data providers into active decision-support systems.

2. Hardware-level security solutions provide fundamental trust for data generation through physical layer technologies such as dedicated security chips and hardware security modules.

3. Interdisciplinary technology integration, combining technologies from multiple fields such as the Internet of Things, edge computing, and cryptography to build an end-to-end trusted data pipeline.

4. A new consensus mechanism that develops consensus algorithms specifically for validating real-world data, but needs to break through the existing blockchain paradigm.

5. Integrate regulatory technology, embedding regulatory requirements directly into the technical architecture to achieve compliance by design.

5 Conclusion

Although perspective-independent, compliance and oracle technology are closely intertwined in the practice of RWA, with compliance delineating the runway for technology: laws stipulate “what can be done” and “to what standard it must be done.” For example, securities law requires that valuation data must come from licensed institutions, which directly determines which data sources oracles must integrate and which sources must be eliminated.

Technology provides tools for compliance: Oracles automate and verify legal and compliance requirements (such as information disclosure, KYC, asset monitoring). It does not create compliance itself, but it is the most powerful tool for achieving efficient and transparent compliance.

The grand narrative of RWA will ultimately be driven by the joint development of compliance and technology. From a compliance perspective, the development of RWA is a history of legal evolution, with the core being rules, licenses, and responsibilities. From the perspective of oracle technology, the development of RWA is a history of technological evolution, with the core being data, verification, and trust.

Only when the rules of law and the trust in technology are strong enough can RWA truly be woven into the underlying structure of future global finance from its current pilots and prototypes.