November 10, 2023
RWA Tokens under Japanese Law
So Saito
Kazuki Imanari
So & Sato Law Offices
Ⅰ Introduction
Recently, Web3 companies often ask us whether they can issue and sell tokens linked toownership or value of real world assets (“RWA tokens”) in Japan. The types of linked real
assets include artwork, real estate, whiskey, vintage cars, government bonds, securities, gold,etc.
Applicable Japanese regulations to RWA tokens vary depending on the types of tokenizedassets and the scheme. We will provide an overview of the applicable regulations to RWAtokens and then substantive legal issues of RWA tokens.
Ⅱ Crypto Regulation
Japanese law differentiates crypto assets, which are regulated, and NFTs, which are notregulated, and most RWA tokens are structured as NFTs.
If RWA tokens fall under the category of crypto assets, selling and purchasing the tokens as
a business requires a crypto asset exchange license. For example, Zipang Coins, which are
RWA tokens representing gold and issued by a Japanese major trading company group, arestructured as crypto assets, and only licensed exchanges can sell them as a business.
On the other hand, most RWA tokens are structured as NFTs. From the legal viewpoint,
the difference between crypto assets and NFTs is whether they can be used as a payment
method. FSA has submitted a guideline and answers to public comments and stated that iftokens satisfy the following requirements, they are not crypto assets and are not regulated
under the Payment Service Act.
Required Factors to be considered as not regulated Crypto Asset but non-regulated NFTs(i) the use as a means of payment to unspecified persons is prohibited, and (ii-a) thenumber of issued tokens is less than 1 million, or (ii-b) the transaction price is more than
JPY 1,000.
Ⅲ Fund Regulation
If RWA tokens are considered securities, to sell and purchase the tokens as a business
requires a financial instruments business operator license. If the token holder has the right toreceive a dividend or more than 100% principal redemption, they are generally considered1securities. The definition of the collective investment scheme (fund) in Japan is as follows. Asthe definition covers “all rights” that can receive a dividend or more than 100% principal
redemption, you should carefully analyze whether the tokens are considered securities when
its structure includes a profit distribution element.
Definition of the Funds under Japanese law(A) (i) partnership contracts, (ii) silent partnership agreements, (iii) limited partnershipagreements for investment, (iv) limited liability partnership agreements, (v) membershiprights in incorporated associations, and (vi) other rights (excluding those under foreignlaws and regulations).
(B) The Investor(s) receives the right to receive dividends of income or distribution ofproperties that arise from a business conducted by using money (including crypto assets)
invested or contributed by the investor(s).
(C) None of the following(a) the case where all of the investors are involved in the business subject to theinvestment (in the way specified by a Cabinet Order)(b) the case where the investor(s) shall not receive dividends or principal redemption
more than their investment(D) Funds under Foreign Law (rights under foreign laws that are similar to the aboverights)
Ⅳ Goods Deposit Transaction Regulation
Another regulation that is related to RWA tokens is the Goods Deposit Transaction
regulation. In Japan, there have been some controversial transactions in which (i) a merchantsells some goods to buyers, (ii) the merchant accepts deposits of the sold goods from thebuyers for more than 3 months, and (iii) the merchant promises to pay some fee such as arental fee to the buyers or promises to buy-back the sold products more than the sales price.
These kinds of transactions were often used as financial investments without regulation. The
Goods Deposit Transaction regulation now regulates these kinds of transactions. The
regulation requires an explanation to buyers if the transaction involves the above (ii) and (iii)elements and requires approval from the government if the transaction involves the above (i),(ii), and (iii) elements. Please note that there has been no case the approval was obtained yet,and, thus, no one knows the difficulty of obtaining the approval.
We are often asked the way to give economic benefit to RWA token holders. Simply giving
2the economic in principle causes the issues of both or either of fund regulations and goods
deposit transaction regulation and makes token issuance not feasible.
Ⅴ Prepaid Payment Instruments
There are RWA tokens that give a right to acquire products or use products such as hotel
rooms, etc. Issuance of tokens linked to the right to acquire or use real assets is, in principle,
subject to prepaid payment instrument regulation under the Payment Services Act. Some
RWA tokens give those rights to holders and are subject to the regulation. For example, Not
A Hotel NFT, which gives a holder to stay in a luxury residence, is subject to the regulation.
There are two types of prepaid payment instruments. The first type is the private-typeprepaid payment instrument, which can be used only against the issuer or its closely relatedpersons. The issuer of the private prepaid instrument shall file a notification to the Finance
Bureau and deposit half amount of the unused amount, except for the case when the issuer
only issues instruments that have less than 6 months’ expiration date or the unused balance
at a certain reference date is 10 million yen or less.
The second type is the third-party type prepaid payment instrument, which can be usedagainst other than the issuer or its closely related persons. The issuer of the third-party typeprepaid payment instruments shall register with the Finance Bureau, except for the case when
the issuer only issues instruments that have less than 6 months’ expiration date.
Ⅵ Secondhand Goods Business Regulation
A business that sells, purchases, or exchanges once-used goods such as used cars, used bags,used jewelry, and published artwork is, in principle, subject to the secondhand goods businessregulation. A person who conducts the secondhand goods sales and purchase business shallfile a notification to the police agency and shall conduct KYC of its customers. It is conceivable,
however, that this regulation would not apply to the division and sale of the right ofsecondhand goods, and thus RWA tokens, which related to the divided right of real goods, areexempted from the regulation.
Ⅶ Other Regulation
In addition to the above, sales, etc., of assets might require consideration of asset-specificregulations. For example, to sell alcohol needs an alcohol sale license, and the seller of RWA
tokens UniCask, which relates to a barrel of whiskey, takes the alcohol sale license.
Ⅷ Substantive Legal Issues
Compared to a simple sale of real world assets, RWA tokens require more careful3

consideration of what rights will be transferred and how to perfect the transfer. Holding RWA
tokens does not necessarily mean having ownership of real assets, and transferring RWA
tokens does not necessarily mean automatically transferring the ownership of the real assets.
For example, when you transfer real estate, you need to file a real estate transfer registration,
and without it, you cannot insist that you are the owner of the real estate to third parties, andjust transferring tokens on a blockchain may not suffice this requirement. To transfer tangible
property in Japan might be possible just by transferring tokens, but careful consideration isnecessary. The law regarding the transfer and perfection of real assets may vary in different
jurisdictions, and generally, the laws in the country where the real asset is located apply.
Disclaimer
The content of this article has not been confirmed by the relevant authorities or organizations
mentioned in the article but merely reflects a reasonable interpretation of their statements.
The interpretation of the laws and regulations reflects our current understanding and may,therefore, change in the future. This article does not recommend investment in RWA tokens.
This article provides merely a summary for discussion purposes. If you need legal advice on a
specific topic, please feel free to contact us.

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