Navigating the Real World Assets Legal Labyrinth

Imagine owning a tiny piece of Sydney’s Opera House or trading a fraction of a famous painting online. That’s the promise of Real World Assets.

Blockchain technology—the same tech behind Bitcoin—is now being used to digitize real things like buildings, artwork, and even carbon credits. This process, called tokenization, breaks expensive assets into affordable digital pieces anyone can buy.

Why does this matter? It means regular Australians might soon invest in things that were once only available to the super-rich.

Australia stands at a crossroads. With our strong tech scene and financial markets, we could lead this revolution—but only if we create smart rules that protect investors while encouraging innovation.

The big question is whether our laws can keep up with this fast-changing technology. Will Australia embrace this digital future or get left behind?

What are Real World Digital Assets?

Real World Digital Assets are digital representations of assets that exist in the physical or financial world. Using blockchain technology (the same innovation behind cryptocurrencies), these assets are converted into digital tokens that can be bought, sold, and traded online.

These digital tokens can represent:

Tangible assets: Real estate, precious metals, artwork, physical commodities, or equipment

Intangible assets: Intellectual property, carbon credits, loan agreements, company shares, or revenue streams

The key advantage of RWAs is that blockchain technology makes these digital versions secure, transparent, and divisible into smaller units. This means investments that traditionally required significant capital—like commercial property—become accessible to a wider range of investors through fractional ownership.

How Tokenization Works

Tokenization is the process of converting rights to an asset into digital tokens on a blockchain.

Here’s how tokenization typically works:

Create a legal structure: Developers establish a legal entity (often a Special Purpose Vehicle or trust) to hold the actual asset, providing a clear legal framework.

Prepare legal contracts: Comprehensive agreements specify exactly what rights token holders receive—whether that’s partial ownership, income rights, or other benefits.

Token creation: Digital tokens are generated on a blockchain platform, with each token representing a standardized portion of the underlying asset’s value.

Smart contract implementation: Programmable code is deployed that automates key functions such as:

• Verifying investor identity and eligibility
• Distributing income payments to current token holders
• Enabling governance voting
• Managing restrictions or time-based rules

Distribution and management: Tokens are sold to investors, and ongoing verification ensures the underlying asset continues to support the token’s value.

This tokenization process delivers several benefits:

• Enhanced liquidity for traditionally illiquid assets
• Lower investment barriers through fractional ownership
• Increased transparency of ownership and transactions
• Reduced costs by automating processes and removing intermediaries
• Potential for broader market access across geographic boundaries

Australia’s Legal Framework for Digital Assets: Adapting with Purpose

The Current Regulatory Landscape

Australia applies existing legal frameworks to Real World Assets rather than creating entirely new regulations. This approach provides market stability while accommodating innovation.
Financial Regulation (ASIC).  Under the Corporations Act 2001, RWA issuers must determine if their tokens qualify as “financial products,” which can include:

Securities (shares, debentures)

Units in a Managed Investment Scheme (MIS) – particularly relevant for tokenized real estate or art funds where investor contributions are pooled and managed by a promoter.
Derivatives – when token value derives from an underlying asset.
Non-cash payment facilities – when tokens function primarily as payment mechanisms.

When classified as financial products, several requirements apply:

• Australian Financial Services License (AFSL): Required for issuers, advisors, and platforms
• Product Disclosure Statement (PDS): Comprehensive disclosure document for investors
• Design and Distribution Obligations (DDO): Ensuring products reach appropriate target markets
• Ongoing compliance with conduct and disclosure rules

ASIC’s Information Sheet 225 (INFO 225) provides crucial guidance, focusing on substance over form when evaluating digital assets. The Consultation Paper 381 proposes updates to this guidance, reflecting market evolution.

The ASIC Act 2001 provides additional consumer protections, prohibiting misleading conduct in financial services. ASIC can issue stop orders and pursue penalties for violations related to RWAs.

Consumer Credit

The National Consumer Credit Protection Act 2009 (Cth) (NCCP Act) applies when RWAs involve consumer credit arrangements, requiring:

• Australian Credit License (ACL) for credit providers
• Responsible lending assessments
• Specific disclosures and fee limitations

Property Law Considerations

For tokenized real estate, state-based Torrens title systems remain the definitive record of ownership. Most token structures establish contractual or beneficial rights through trusts rather than direct legal title.

The Personal Property Securities Act 2009 (Cth) (PPSA) governs security interests for most other assets, though securing tokenized assets raises complex questions about registration requirements and how security interests follow tokens when transferred.

Additional Requirements

Anti-Money Laundering: Platforms must register with AUSTRAC, implement Know Your Customer (KYC) procedures, monitor transactions, and report suspicious activities.

Australian Consumer Law (ACL): All promotions and representations must be accurate and not misleading, regardless of financial product status.

Trust Law: Rights of token holders often depend on trust deed terms and fiduciary obligations.

Taxation: Various implications including Capital Gains Tax, income tax, and potential GST or stamp duty considerations.

Challenges and the Path Forward

Despite Australia’s pragmatic approach, several challenges remain for a thriving RWA ecosystem:

Classification Uncertainty

The ambiguity around whether specific RWAs constitute financial products creates compliance risks and costs. While ASIC’s Consultation Paper 381 aims to provide greater clarity, questions remain whether guidance alone—without legislative reform—provides sufficient certainty.

Property Law Disconnect

Perhaps the most fundamental structural challenge is how poorly existing property laws align with blockchain-based ownership models. Australia’s Torrens title systems and the PPSA were not designed with digital tokenization in mind, creating critical questions about title perfection and enforcement of security interests.

Regulatory Proportionality

Applying full financial services regulations to all forms of RWAs represents a significant barrier to entry, particularly for smaller innovators. A more proportionate, risk-based approach would better serve market development while maintaining appropriate investor protections.

International Comparison

Australia occupies a middle ground globally. While more progressive than jurisdictions taking prohibition-based approaches, Australia lags behind leaders like Singapore’s VARA framework, the EU’s Markets in Crypto-Assets (MiCA) regulation, and Switzerland’s clear token classification system separating payment, utility, and asset tokens with proportionate regulations for each.
The UK’s Financial Conduct Authority has also made substantial progress in creating tailored regulatory sandboxes for digital asset experimentation, allowing innovation while maintaining oversight.

Australia’s measured approach balances established legal principles with technological innovation. With continued refinement addressing these core challenges, Australia has the potential to become a leading jurisdiction for legitimate RWA projects that deliver real benefits to the economy.