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From "World Computer" to "Settlement Layer Asset"? Ethereum's L2 Strategy Self-rescue Manual
Original Title: Ethereum Reimagined: Restoring Control and Value to ETH
Original Author: Momir, IOSG Ventures
TL;DR
The Web3 vision saw a decline in hype in 2021, and Ethereum is facing significant challenges. Not only has the market's perception of Web3.0 shifted, but Ethereum is also facing fierce competition for remaining market share from emerging platforms like Solana. Key issues such as Layer 2 fragmentation, value erosion, dilution of ecosystem ownership, and lack of leadership have further weakened Ethereum's user experience and economic value. With the rise of Layer 2 network governance, Ethereum's influence has been shaken. These factors ultimately led to one of the most significant price pullbacks in ETH's history.
However, there is still hope: by driving L2 interoperability, prioritizing the improvement of ETH-centric infrastructure, and adopting decisive, performance-driven leadership, Ethereum still has a chance to regain its glory. Ethereum's robust underlying architecture and vibrant developer ecosystem remain its enduring strengths, but to restore ETH's prominent position, strategic actions must be taken swiftly.
From the cognitive shift from the Web3.0 utopia to the harsh reality, the market has been forced to re-examine Ethereum's core value proposition. The once hopeful ideal of a "user-governed decentralized internet" has now been replaced by a more ironic narrative: the cryptocurrency space is either a store of value game for Bitcoin or a digital casino. This reversal of sentiment has had a particularly significant impact on Ethereum: it prided itself as the cornerstone of a new internet paradigm but now must face growing skepticism.
Moreso, Ethereum is no longer the sole advocate of the Web 3.0 vision. Regardless of one's optimism or pessimism about the industry's future, it is clear that platforms like Solana are becoming the new hubs of crypto-native activities. In this context, this article aims to dissect Ethereum's most urgent strategic challenges and propose viable solutions to help it regain an advantage in the ever-evolving landscape.
Core Challenges
Ethereum faces many challenges, but this analysis focuses on the four most pressing issues—L2 network fragmentation, declining value capture ability, ecosystem ownership dilution, and lack of strategic leadership.
L2 Network Fragmentation and User Experience Segmentation
The most significant crisis is undoubtedly Layer 2 network fragmentation. Introducing multiple competing execution layers has fractured the user experience and on-chain liquidity, eroding Ethereum's once-proud composability advantage, a strength that remains clearly visible in single-chain blockchains like Solana.
For users, they must navigate various protocol, standards, and cross-chain bridge inconsistencies, making the seamless interaction that Ethereum initially promised challenging to achieve. Developers must bear the burden of maintaining multiple versions of protocols across multiple L2s, and startup teams face complex go-to-market strategies in a fragmented ecosystem. As a result, many consumer-facing applications choose to migrate to Solana, where users and entrepreneurs can focus on entertainment and innovation without being entangled in fragmented infrastructure.
Ecosystem Control Dilution: An Increasingly Severe Threat
More critically, Ethereum has outsourced its scaling roadmap to L2, a decision that is steadily weakening its control over its ecosystem. General-purpose L2 Rollups generate strong network effects as they build their respective ecosystems, gradually evolving into insurmountable moats. Over time, these execution layers' influence over Ethereum's settlement layer has been growing, potentially leading the community to overlook the importance of the mainnet settlement layer. Once assets begin to exist natively on the execution layer, Ethereum's potential for value capture and influence will be significantly diminished, reducing the settlement layer to a commodified service.
Value Attribution Erosion: A Structural Challenge
The rise of L2 significantly impacts ETH's value capture, with these platforms increasingly capturing MEV and transaction fee income, leading to a substantial reduction in the value flowing back to the Ethereum mainnet. This shift redirects the economic benefits from ETH holders to L2 token holders, weakening the intrinsic motivation to hold ETH as an investment asset. While this trend poses an inevitable challenge to any Layer 1 token, whether a modular Ethereum or a single-chain integrated blockchain, Ethereum has experienced this phenomenon earlier and more notably due to its early adoption of a centralized L2 approach.
It can be foreseen that as application-layer dominated MEV capture becomes the norm, both standalone blockchains and even L2s themselves will face a value capture crisis. While this is not a unique predicament to Ethereum, devising precise strategies to address this structural challenge remains a critical proposition.
Leadership Crisis: An Idealism Paradox
While addressing the above challenges, Ethereum has also exposed profound strategic leadership deficiencies. The community has long been stuck in a recurring balance between efficiency goals and egalitarian values, stalling crucial progress. Meanwhile, the commitment to "trustless neutrality" governance, initially aimed at reducing regulatory and state crackdown risks, has often become a constraint on strategic decision-making. Additionally, ETH holders lack a mechanism to directly influence significant strategic choices, with their sole means of expressing discontent often being token sales.
In hindsight, while these issues may be easily defined, to some extent, they may stem from considerations of regulatory pressure and national-level risks rather than a lack of governance and leadership insight.
Strategic Response: Challenges and Solutions
L2 Network Fragmentation: Self-Correction Mechanism
Two paths to resolve the L2 fragmentation crisis:
Firstly, relying on market mechanisms (natural selection) to achieve organic integration of the ecosystem, ultimately forming 2-3 universally active L2 dominant markets. The remaining projects will either exit the competition or transition into Rollup service providers targeted at vertical scenarios;
Secondly, by establishing highly binding interoperability standards, dissipating friction within the Rollup ecosystem, preventing a single execution layer from building a monopolistic moat.
Ethereum should seize the current window of influence on L2, driving the implementation of the second approach. It is necessary to realize that this dominance is gradually eroding by the day, and the slower the action, the weaker the strategic impact. By constructing a unified L2 ecosystem, Ethereum is expected to regain the composability advantage of the mainnet era, competing head-to-head with single-chain solutions like Solana in terms of user experience.
However, solely relying on market-driven integration will dim the future prospects of ETH. Once a power-law distribution emerges around 2-3 dominant execution layers, Ethereum's influence on these layers may significantly diminish; in this scenario, each layer will often prioritize the value attribution of its native token, marginalizing ETH and weakening Ethereum's economic model. To avoid this situation, Ethereum must take decisive action, shaping its L2 ecosystem to ensure that value and control always remain tied to the mainnet and ETH.
Value Recapture Mechanism
Mere reliance on the "productive asset" narrative is not a sustainable long-term strategy for ETH (and even all Layer1 tokens). The time window for Layer1 to capture MEV as the dominant revenue stream lasts at most five years, with the continuous migration of value capture levels upstream in the application stack being an established trend. Meanwhile, Bitcoin has firmly established itself in the "store of value" narrative, potentially leading the market to view ETH as the "poor man's Bitcoin" if it attempts to compete with BTC in this area, akin to silver relative to gold in history. Even if ETH can demonstrate a significant advantage in the store of value aspect in the future, this transformation may take at least a decade, and Ethereum cannot afford to wait for such a long cycle. Therefore, during this period, Ethereum must carve out a unique narrative path to maintain its market relevance.
Positioning ETH as the "native internet money" and the highest-quality on-chain collateral sets the most promising direction for the next decade. While stablecoins dominate as a means of payment in on-chain finance, they still rely on off-chain ledgers; the true role of an internet-native, unstoppable currency is yet to be substantially filled, and ETH uniquely holds this first-mover advantage. However, to achieve this goal, Ethereum must regain control of the ecosystem's base trust layer and drive ETH adoption to the forefront, rather than allowing the widespread adoption of the Wrapped ETH standard.
Regaining Ecosystem Dominance
Re-establishing ecosystem ownership can be achieved through two key avenues: first, by enhancing Ethereum L1 performance to match that of centralized chains, ensuring consumer applications and DeFi experiences are seamless; second, by introducing Ethereum-native Rollups, focusing all business development and adoption efforts on this. By focusing ecosystem activity on the infrastructure controlled by ETH, Ethereum can strengthen ETH's core position in the ecosystem. This requires Ethereum to shift from the outdated "ETH-compatible" paradigm to an "ETH-first" ecosystem model, prioritizing direct control over core resources and maximizing ETH value capture.
However, whether regaining ecosystem control or strengthening ETH adoption, these are tricky decisions that could alienate key contributors such as Rollup and liquidity staking providers. Ethereum must carefully balance the need for control reinforcement with the risk of community fragmentation to ensure ETH successfully establishes its new narrative as the cornerstone of the ecosystem.
Leadership Innovation
Ultimately, Ethereum's leadership must innovate to address governance and strategic challenges. Ethereum leaders need to adopt a performance-driven mindset, a greater sense of urgency, and a pragmatic approach to drive ecosystem development. This shift requires abandoning the previous excessive adherence to "trust neutrality," especially when making decisions about product roadmaps and ETH asset positioning, necessitating more decisive actions.
Meanwhile, the market has expressed dissatisfaction with Ethereum's practice of outsourcing key infrastructure—from Rollups to staking—to decentralized entities. To reverse this trend, Ethereum must move away from the old "alignment with ETH" model toward a new "ETH-led" model, ensuring core infrastructure is unified under a single token system ($ETH). This will further solidify ETH's core position and restore market confidence in Ethereum's strategic direction.
Marketing Challenges and Narrative Potential
Despite facing many challenges, Ethereum still has a strong advantage to support its status in the cryptocurrency field—a advantage that is often downplayed by its leadership, leading negative criticism to overshadow its core narrative. Systematically outlining these advantages helps establish an objective understanding of Ethereum's potential.
Proven Infrastructure
On par with Bitcoin, Ethereum provides unparalleled decentralized security, meeting the strict requirements of sovereign entities and large financial institutions. The security provided by the consensus mechanism far surpasses that of other smart contract platforms, ensuring true censorship resistance—a crucial aspect for infrastructure hosting hundreds of billions of dollars in value. The Ethereum DeFi ecosystem has securely handled around $76.32 trillion in value locked (TVL x days), with very few major security incidents, deepening its time-tested security moat.
Currently, the stablecoin scale hosted on Ethereum has exceeded $120 billion, with these funds primarily accumulated during an era when regulatory frameworks were unclear and institutional adoption was not widespread. As the regulatory environment gradually clarifies and institutional demand drives further stablecoin growth, it is expected that within the next decade, the stablecoin scale hosted on Ethereum will exceed $1 trillion. This growth stems from both new issuances and market trust in its security and composability, potentially solidifying its position as a foundational platform in the global financial system.
Forward-Thinking Design
Ethereum's architecture exhibits significant forward thinking. Compared to Bitcoin, it offers a more robust quantum attack resistance transition plan, and its continuously evolving technical culture drives innovation. Unlike the potential security budget constraints that $BTC may face in the future, Ethereum's flexible monetary policy allows it to adapt to market conditions while maintaining strong security incentives, ensuring long-term resilience.
Unrivaled Developer Ecosystem
Ethereum boasts the blockchain field's largest and most diverse developer community, with nearly a decade of accumulated knowledge and best practices. This intellectual capital, combined with social capital, has built another layer of a moat for the EVM ecosystem, keeping it consistently ahead in terms of innovation speed and application scale.
Modular Pathway: The Only Solution for a Scalable Decentralized System
Ethereum's modular design has made significant progress in balancing decentralization, scalability, and security. Over time, it has become increasingly clear that for a monolithic chain to achieve global financial-grade scale, it must inevitably sacrifice decentralization; Ethereum's modular strategy is the only viable solution to achieve sustainable expansion while maintaining a trust-minimized and decentralized premise. The correctness of this strategic choice will become increasingly evident over time.
The Most Customizable Technology Stack
The Ethereum L2 ecosystem provides unparalleled customizability, making it the preferred platform for vertical-specific applications and institutional adoption. Institutions can build their own L2 on top of Ethereum L1, utilizing technologies such as Fully Homomorphic Encryption (FHE) to achieve privacy protection; companies like Robinhood can replicate traditional finance's order flow payment mechanism on their proprietary L2 through a "sequencer pays" model. These L2s, anchored to Ethereum L1—the world's most secure public ledger—form a unique security redundancy: even if an L2 experiences a failure, users can still settle back to L1 in a trustless manner, creating the "ultimate security net," a unique value proposition of the Ethereum ecosystem.
Market Signal: ETH Enters Historic Oversold Territory
ETH's recent price action has made it an unpopular asset in investors' eyes, with ETH holders expressing their lack of confidence in recent developments through their selling behavior. This drastic decline has only occurred six times in ETH's ten-year history, with five of those times happening in its early stages. For Ethereum, now in its tenth year of development, to face such a significant revaluation in its mature stage is undoubtedly a warning signal to the entire ecosystem. Historical data shows that after similar pullback events, there have been strong rebounds in the following six months, injecting a glimmer of hope into the current dilemma.
However, whether ETH can replicate historical patterns or continue its steep downward trajectory will directly depend on the strategic signals released by the Ethereum leadership in the short term and the strategic execution over the next twelve months. Despite the challenges, the current situation is not irreparable, and with the formulation and implementation of viable strategies, a strong recovery is still possible.
To reclaim its industry leadership and restore market confidence in ETH, Ethereum must immediately address the following core challenges: first, it needs to enforce robust L2 interoperability standards to mitigate fragmentation and maintain the seamless composability the mainnet once defined; second, it must transition from the "aligned with ETH" old model to an "ETH-driven" ecosystem model, prioritizing L1 scalability and Ethereum native Rollups to re-establish control and maximize ETH's value capture; lastly, the leadership must evolve to a performance-driven decision-making approach, moving away from being "trust neutral" and unifying critical infrastructure under the $ETH token system.
If decisive action is not taken, Ethereum faces the risk of being eroded by competitors like Solana and becoming a commoditized settlement layer.
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China's Central Bank and Eight Other Departments' Latest Regulatory Focus: Key Attention to RWA Tokenized Asset Risk
Foreword: Today, the People's Bank of China's website published the "Notice of the People's Bank of China, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, State Administration for Market Regulation, China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission, State Administration of Foreign Exchange on Further Preventing and Dealing with Risks Related to Virtual Currency and Others (Yinfa [2026] No. 42)", the latest regulatory requirements from the eight departments including the central bank, which are basically consistent with the regulatory requirements of recent years. The main focus of the regulation is on speculative activities such as virtual currency trading, exchanges, ICOs, overseas platform services, and this time, regulatory oversight of RWA has been added, explicitly prohibiting RWA tokenization, stablecoins (especially those pegged to the RMB). The following is the full text:
To the people's governments of all provinces, autonomous regions, and municipalities directly under the Central Government, the Xinjiang Production and Construction Corps:
Recently, there have been speculative activities related to virtual currency and Real-World Assets (RWA) tokenization, disrupting the economic and financial order and jeopardizing the property security of the people. In order to further prevent and address the risks related to virtual currency and Real-World Assets tokenization, effectively safeguard national security and social stability, in accordance with the "Law of the People's Republic of China on the People's Bank of China," "Law of the People's Republic of China on Commercial Banks," "Securities Law of the People's Republic of China," "Law of the People's Republic of China on Securities Investment Funds," "Law of the People's Republic of China on Futures and Derivatives," "Cybersecurity Law of the People's Republic of China," "Regulations of the People's Republic of China on the Administration of Renminbi," "Regulations on Prevention and Disposal of Illegal Fundraising," "Regulations of the People's Republic of China on Foreign Exchange Administration," "Telecommunications Regulations of the People's Republic of China," and other provisions, after reaching consensus with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, and with the approval of the State Council, the relevant matters are notified as follows:
(I) Virtual currency does not possess the legal status equivalent to fiat currency. Virtual currencies such as Bitcoin, Ether, Tether, etc., have the main characteristics of being issued by non-monetary authorities, using encryption technology and distributed ledger or similar technology, existing in digital form, etc. They do not have legal tender status, should not and cannot be circulated and used as currency in the market.
The business activities related to virtual currency are classified as illegal financial activities. The exchange of fiat currency and virtual currency within the territory, exchange of virtual currencies, acting as a central counterparty in buying and selling virtual currencies, providing information intermediary and pricing services for virtual currency transactions, token issuance financing, and trading of virtual currency-related financial products, etc., fall under illegal financial activities, such as suspected illegal issuance of token vouchers, unauthorized public issuance of securities, illegal operation of securities and futures business, illegal fundraising, etc., are strictly prohibited across the board and resolutely banned in accordance with the law. Overseas entities and individuals are not allowed to provide virtual currency-related services to domestic entities in any form.
A stablecoin pegged to a fiat currency indirectly fulfills some functions of the fiat currency in circulation. Without the consent of relevant authorities in accordance with the law and regulations, any domestic or foreign entity or individual is not allowed to issue a RMB-pegged stablecoin overseas.
（II）Tokenization of Real-World Assets refers to the use of encryption technology and distributed ledger or similar technologies to transform ownership rights, income rights, etc., of assets into tokens (tokens) or other interests or bond certificates with token (token) characteristics, and carry out issuance and trading activities.
Engaging in the tokenization of real-world assets domestically, as well as providing related intermediary, information technology services, etc., which are suspected of illegal issuance of token vouchers, unauthorized public offering of securities, illegal operation of securities and futures business, illegal fundraising, and other illegal financial activities, shall be prohibited; except for relevant business activities carried out with the approval of the competent authorities in accordance with the law and regulations and relying on specific financial infrastructures. Overseas entities and individuals are not allowed to illegally provide services related to the tokenization of real-world assets to domestic entities in any form.
(III) Inter-agency Coordination. The People's Bank of China, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other departments, will improve the work mechanism, strengthen coordination with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, coordinate efforts, and overall guide regions to carry out risk prevention and disposal of virtual currency-related illegal financial activities.
The China Securities Regulatory Commission, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the State Administration of Foreign Exchange, and other departments, will improve the work mechanism, strengthen coordination with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, coordinate efforts, and overall guide regions to carry out risk prevention and disposal of illegal financial activities related to the tokenization of real-world assets.
(IV) Strengthening Local Implementation. The people's governments at the provincial level are overall responsible for the prevention and disposal of risks related to virtual currencies and the tokenization of real-world assets in their respective administrative regions. The specific leading department is the local financial regulatory department, with participation from branches and dispatched institutions of the State Council's financial regulatory department, telecommunications regulators, public security, market supervision, and other departments, in coordination with cyberspace departments, courts, and procuratorates, to improve the normalization of the work mechanism, effectively connect with the relevant work mechanisms of central departments, form a cooperative and coordinated working pattern between central and local governments, effectively prevent and properly handle risks related to virtual currencies and the tokenization of real-world assets, and maintain economic and financial order and social stability.
(5) Enhanced Risk Monitoring. The People's Bank of China, China Securities Regulatory Commission, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, State Administration of Foreign Exchange, Cyberspace Administration of China, and other departments continue to improve monitoring techniques and system support, enhance cross-departmental data analysis and sharing, establish sound information sharing and cross-validation mechanisms, promptly grasp the risk situation of activities related to virtual currency and real-world asset tokenization. Local governments at all levels give full play to the role of local monitoring and early warning mechanisms. Local financial regulatory authorities, together with branches and agencies of the State Council's financial regulatory authorities, as well as departments of cyberspace and public security, ensure effective connection between online monitoring, offline investigation, and fund tracking, efficiently and accurately identify activities related to virtual currency and real-world asset tokenization, promptly share risk information, improve early warning information dissemination, verification, and rapid response mechanisms.
(6) Strengthened Oversight of Financial Institutions, Intermediaries, and Technology Service Providers. Financial institutions (including non-bank payment institutions) are prohibited from providing account opening, fund transfer, and clearing services for virtual currency-related business activities, issuing and selling financial products related to virtual currency, including virtual currency and related financial products in the scope of collateral, conducting insurance business related to virtual currency, or including virtual currency in the scope of insurance liability. Financial institutions (including non-bank payment institutions) are prohibited from providing custody, clearing, and settlement services for unauthorized real-world asset tokenization-related business and related financial products. Relevant intermediary institutions and information technology service providers are prohibited from providing intermediary, technical, or other services for unauthorized real-world asset tokenization-related businesses and related financial products.
(7) Enhanced Management of Internet Information Content and Access. Internet enterprises are prohibited from providing online business venues, commercial displays, marketing, advertising, or paid traffic diversion services for virtual currency and real-world asset tokenization-related business activities. Upon discovering clues of illegal activities, they should promptly report to relevant departments and provide technical support and assistance for related investigations and inquiries. Based on the clues transferred by the financial regulatory authorities, the cyberspace administration, telecommunications authorities, and public security departments should promptly close and deal with websites, mobile applications (including mini-programs), and public accounts engaged in virtual currency and real-world asset tokenization-related business activities in accordance with the law.
(8) Strengthened Entity Registration and Advertisement Management. Market supervision departments strengthen entity registration and management, and enterprise and individual business registrations must not contain terms such as "virtual currency," "virtual asset," "cryptocurrency," "crypto asset," "stablecoin," "real-world asset tokenization," or "RWA" in their names or business scopes. Market supervision departments, together with financial regulatory authorities, legally enhance the supervision of advertisements related to virtual currency and real-world asset tokenization, promptly investigating and handling relevant illegal advertisements.
（IX） Continued Rectification of Virtual Currency Mining Activities. The National Development and Reform Commission, together with relevant departments, strictly controls virtual currency mining activities, continuously promotes the rectification of virtual currency mining activities. The people's governments of various provinces take overall responsibility for the rectification of "mining" within their respective administrative regions. In accordance with the requirements of the National Development and Reform Commission and other departments in the "Notice on the Rectification of Virtual Currency Mining Activities" (NDRC Energy-saving Building [2021] No. 1283) and the provisions of the "Guidance Catalog for Industrial Structure Adjustment (2024 Edition)," a comprehensive review, investigation, and closure of existing virtual currency mining projects are conducted, new mining projects are strictly prohibited, and mining machine production enterprises are strictly prohibited from providing mining machine sales and other services within the country.
（X） Severe Crackdown on Related Illegal Financial Activities. Upon discovering clues to illegal financial activities related to virtual currency and the tokenization of real-world assets, local financial regulatory authorities, branches of the State Council's financial regulatory authorities, and other relevant departments promptly investigate, determine, and properly handle the issues in accordance with the law, and seriously hold the relevant entities and individuals legally responsible. Those suspected of crimes are transferred to the judicial authorities for processing according to the law.
（XI） Severe Crackdown on Related Illegal and Criminal Activities. The Ministry of Public Security, the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, as well as judicial and procuratorial organs, in accordance with their respective responsibilities, rigorously crack down on illegal and criminal activities related to virtual currency, the tokenization of real-world assets, such as fraud, money laundering, illegal business operations, pyramid schemes, illegal fundraising, and other illegal and criminal activities carried out under the guise of virtual currency, the tokenization of real-world assets, etc.
（XII） Strengthen Industry Self-discipline. Relevant industry associations should enhance membership management and policy advocacy, based on their own responsibilities, advocate and urge member units to resist illegal financial activities related to virtual currency and the tokenization of real-world assets. Member units that violate regulatory policies and industry self-discipline rules are to be disciplined in accordance with relevant self-regulatory management regulations. By leveraging various industry infrastructure, conduct risk monitoring related to virtual currency, the tokenization of real-world assets, and promptly transfer issue clues to relevant departments.
（XIII） Without the approval of relevant departments in accordance with the law and regulations, domestic entities and foreign entities controlled by them may not issue virtual currency overseas.
（XIV） Domestic entities engaging directly or indirectly in overseas external debt-based tokenization of real-world assets, or conducting asset securitization activities abroad based on domestic ownership rights, income rights, etc. (hereinafter referred to as domestic equity), should be strictly regulated in accordance with the principles of "same business, same risk, same rules." The National Development and Reform Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other relevant departments regulate it according to their respective responsibilities. For other forms of overseas real-world asset tokenization activities based on domestic equity by domestic entities, the China Securities Regulatory Commission, together with relevant departments, supervise according to their division of responsibilities. Without the consent and filing of relevant departments, no unit or individual may engage in the above-mentioned business.
(15) Overseas subsidiaries and branches of domestic financial institutions providing Real World Asset Tokenization-related services overseas shall do so legally and prudently. They shall have professional personnel and systems in place to effectively mitigate business risks, strictly implement customer onboarding, suitability management, anti-money laundering requirements, and incorporate them into the domestic financial institutions' compliance and risk management system. Intermediaries and information technology service providers offering Real World Asset Tokenization services abroad based on domestic equity or conducting Real World Asset Tokenization business in the form of overseas debt for domestic entities directly or indirectly venturing abroad must strictly comply with relevant laws and regulations. They should establish and improve relevant compliance and internal control systems in accordance with relevant normative requirements, strengthen business and risk control, and report the business developments to the relevant regulatory authorities for approval or filing.
(16) Strengthen organizational leadership and overall coordination. All departments and regions should attach great importance to the prevention of risks related to virtual currencies and Real World Asset Tokenization, strengthen organizational leadership, clarify work responsibilities, form a long-term effective working mechanism with centralized coordination, local implementation, and shared responsibilities, maintain high pressure, dynamically monitor risks, effectively prevent and mitigate risks in an orderly and efficient manner, legally protect the property security of the people, and make every effort to maintain economic and financial order and social stability.
(17) Widely carry out publicity and education. All departments, regions, and industry associations should make full use of various media and other communication channels to disseminate information through legal and policy interpretation, analysis of typical cases, and education on investment risks, etc. They should promote the illegality and harm of virtual currencies and Real World Asset Tokenization-related businesses and their manifestations, fully alert to potential risks and hidden dangers, and enhance public awareness and identification capabilities for risk prevention.
(18) Engaging in illegal financial activities related to virtual currencies and Real World Asset Tokenization in violation of this notice, as well as providing services for virtual currencies and Real World Asset Tokenization-related businesses, shall be punished in accordance with relevant regulations. If it constitutes a crime, criminal liability shall be pursued according to the law. For domestic entities and individuals who knowingly or should have known that overseas entities illegally provided virtual currency or Real World Asset Tokenization-related services to domestic entities and still assisted them, relevant responsibilities shall be pursued according to the law. If it constitutes a crime, criminal liability shall be pursued according to the law.
(19) If any unit or individual invests in virtual currencies, Real World Asset Tokens, and related financial products against public order and good customs, the relevant civil legal actions shall be invalid, and any resulting losses shall be borne by them. If there are suspicions of disrupting financial order and jeopardizing financial security, the relevant departments shall deal with them according to the law.
This notice shall enter into force upon the date of its issuance. The People's Bank of China and ten other departments' "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" (Yinfa [2021] No. 237) is hereby repealed.
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Foreword: Today, the People's Bank of China's website published the "Notice of the People's Bank of China, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, State Administration for Market Regulation, China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission, State Administration of Foreign Exchange on Further Preventing and Dealing with Risks Related to Virtual Currency and Others (Yinfa [2026] No. 42)", the latest regulatory requirements from the eight departments including the central bank, which are basically consistent with the regulatory requirements of recent years. The main focus of the regulation is on speculative activities such as virtual currency trading, exchanges, ICOs, overseas platform services, and this time, regulatory oversight of RWA has been added, explicitly prohibiting RWA tokenization, stablecoins (especially those pegged to the RMB). The following is the full text:
To the people's governments of all provinces, autonomous regions, and municipalities directly under the Central Government, the Xinjiang Production and Construction Corps:
Recently, there have been speculative activities related to virtual currency and Real-World Assets (RWA) tokenization, disrupting the economic and financial order and jeopardizing the property security of the people. In order to further prevent and address the risks related to virtual currency and Real-World Assets tokenization, effectively safeguard national security and social stability, in accordance with the "Law of the People's Republic of China on the People's Bank of China," "Law of the People's Republic of China on Commercial Banks," "Securities Law of the People's Republic of China," "Law of the People's Republic of China on Securities Investment Funds," "Law of the People's Republic of China on Futures and Derivatives," "Cybersecurity Law of the People's Republic of China," "Regulations of the People's Republic of China on the Administration of Renminbi," "Regulations on Prevention and Disposal of Illegal Fundraising," "Regulations of the People's Republic of China on Foreign Exchange Administration," "Telecommunications Regulations of the People's Republic of China," and other provisions, after reaching consensus with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, and with the approval of the State Council, the relevant matters are notified as follows:
(I) Virtual currency does not possess the legal status equivalent to fiat currency. Virtual currencies such as Bitcoin, Ether, Tether, etc., have the main characteristics of being issued by non-monetary authorities, using encryption technology and distributed ledger or similar technology, existing in digital form, etc. They do not have legal tender status, should not and cannot be circulated and used as currency in the market.
The business activities related to virtual currency are classified as illegal financial activities. The exchange of fiat currency and virtual currency within the territory, exchange of virtual currencies, acting as a central counterparty in buying and selling virtual currencies, providing information intermediary and pricing services for virtual currency transactions, token issuance financing, and trading of virtual currency-related financial products, etc., fall under illegal financial activities, such as suspected illegal issuance of token vouchers, unauthorized public issuance of securities, illegal operation of securities and futures business, illegal fundraising, etc., are strictly prohibited across the board and resolutely banned in accordance with the law. Overseas entities and individuals are not allowed to provide virtual currency-related services to domestic entities in any form.
A stablecoin pegged to a fiat currency indirectly fulfills some functions of the fiat currency in circulation. Without the consent of relevant authorities in accordance with the law and regulations, any domestic or foreign entity or individual is not allowed to issue a RMB-pegged stablecoin overseas.
（II）Tokenization of Real-World Assets refers to the use of encryption technology and distributed ledger or similar technologies to transform ownership rights, income rights, etc., of assets into tokens (tokens) or other interests or bond certificates with token (token) characteristics, and carry out issuance and trading activities.
Engaging in the tokenization of real-world assets domestically, as well as providing related intermediary, information technology services, etc., which are suspected of illegal issuance of token vouchers, unauthorized public offering of securities, illegal operation of securities and futures business, illegal fundraising, and other illegal financial activities, shall be prohibited; except for relevant business activities carried out with the approval of the competent authorities in accordance with the law and regulations and relying on specific financial infrastructures. Overseas entities and individuals are not allowed to illegally provide services related to the tokenization of real-world assets to domestic entities in any form.
(III) Inter-agency Coordination. The People's Bank of China, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other departments, will improve the work mechanism, strengthen coordination with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, coordinate efforts, and overall guide regions to carry out risk prevention and disposal of virtual currency-related illegal financial activities.
The China Securities Regulatory Commission, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the State Administration of Foreign Exchange, and other departments, will improve the work mechanism, strengthen coordination with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, coordinate efforts, and overall guide regions to carry out risk prevention and disposal of illegal financial activities related to the tokenization of real-world assets.
(IV) Strengthening Local Implementation. The people's governments at the provincial level are overall responsible for the prevention and disposal of risks related to virtual currencies and the tokenization of real-world assets in their respective administrative regions. The specific leading department is the local financial regulatory department, with participation from branches and dispatched institutions of the State Council's financial regulatory department, telecommunications regulators, public security, market supervision, and other departments, in coordination with cyberspace departments, courts, and procuratorates, to improve the normalization of the work mechanism, effectively connect with the relevant work mechanisms of central departments, form a cooperative and coordinated working pattern between central and local governments, effectively prevent and properly handle risks related to virtual currencies and the tokenization of real-world assets, and maintain economic and financial order and social stability.
(5) Enhanced Risk Monitoring. The People's Bank of China, China Securities Regulatory Commission, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, State Administration of Foreign Exchange, Cyberspace Administration of China, and other departments continue to improve monitoring techniques and system support, enhance cross-departmental data analysis and sharing, establish sound information sharing and cross-validation mechanisms, promptly grasp the risk situation of activities related to virtual currency and real-world asset tokenization. Local governments at all levels give full play to the role of local monitoring and early warning mechanisms. Local financial regulatory authorities, together with branches and agencies of the State Council's financial regulatory authorities, as well as departments of cyberspace and public security, ensure effective connection between online monitoring, offline investigation, and fund tracking, efficiently and accurately identify activities related to virtual currency and real-world asset tokenization, promptly share risk information, improve early warning information dissemination, verification, and rapid response mechanisms.
(6) Strengthened Oversight of Financial Institutions, Intermediaries, and Technology Service Providers. Financial institutions (including non-bank payment institutions) are prohibited from providing account opening, fund transfer, and clearing services for virtual currency-related business activities, issuing and selling financial products related to virtual currency, including virtual currency and related financial products in the scope of collateral, conducting insurance business related to virtual currency, or including virtual currency in the scope of insurance liability. Financial institutions (including non-bank payment institutions) are prohibited from providing custody, clearing, and settlement services for unauthorized real-world asset tokenization-related business and related financial products. Relevant intermediary institutions and information technology service providers are prohibited from providing intermediary, technical, or other services for unauthorized real-world asset tokenization-related businesses and related financial products.
(7) Enhanced Management of Internet Information Content and Access. Internet enterprises are prohibited from providing online business venues, commercial displays, marketing, advertising, or paid traffic diversion services for virtual currency and real-world asset tokenization-related business activities. Upon discovering clues of illegal activities, they should promptly report to relevant departments and provide technical support and assistance for related investigations and inquiries. Based on the clues transferred by the financial regulatory authorities, the cyberspace administration, telecommunications authorities, and public security departments should promptly close and deal with websites, mobile applications (including mini-programs), and public accounts engaged in virtual currency and real-world asset tokenization-related business activities in accordance with the law.
(8) Strengthened Entity Registration and Advertisement Management. Market supervision departments strengthen entity registration and management, and enterprise and individual business registrations must not contain terms such as "virtual currency," "virtual asset," "cryptocurrency," "crypto asset," "stablecoin," "real-world asset tokenization," or "RWA" in their names or business scopes. Market supervision departments, together with financial regulatory authorities, legally enhance the supervision of advertisements related to virtual currency and real-world asset tokenization, promptly investigating and handling relevant illegal advertisements.
（IX） Continued Rectification of Virtual Currency Mining Activities. The National Development and Reform Commission, together with relevant departments, strictly controls virtual currency mining activities, continuously promotes the rectification of virtual currency mining activities. The people's governments of various provinces take overall responsibility for the rectification of "mining" within their respective administrative regions. In accordance with the requirements of the National Development and Reform Commission and other departments in the "Notice on the Rectification of Virtual Currency Mining Activities" (NDRC Energy-saving Building [2021] No. 1283) and the provisions of the "Guidance Catalog for Industrial Structure Adjustment (2024 Edition)," a comprehensive review, investigation, and closure of existing virtual currency mining projects are conducted, new mining projects are strictly prohibited, and mining machine production enterprises are strictly prohibited from providing mining machine sales and other services within the country.
（X） Severe Crackdown on Related Illegal Financial Activities. Upon discovering clues to illegal financial activities related to virtual currency and the tokenization of real-world assets, local financial regulatory authorities, branches of the State Council's financial regulatory authorities, and other relevant departments promptly investigate, determine, and properly handle the issues in accordance with the law, and seriously hold the relevant entities and individuals legally responsible. Those suspected of crimes are transferred to the judicial authorities for processing according to the law.
（XI） Severe Crackdown on Related Illegal and Criminal Activities. The Ministry of Public Security, the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, as well as judicial and procuratorial organs, in accordance with their respective responsibilities, rigorously crack down on illegal and criminal activities related to virtual currency, the tokenization of real-world assets, such as fraud, money laundering, illegal business operations, pyramid schemes, illegal fundraising, and other illegal and criminal activities carried out under the guise of virtual currency, the tokenization of real-world assets, etc.
（XII） Strengthen Industry Self-discipline. Relevant industry associations should enhance membership management and policy advocacy, based on their own responsibilities, advocate and urge member units to resist illegal financial activities related to virtual currency and the tokenization of real-world assets. Member units that violate regulatory policies and industry self-discipline rules are to be disciplined in accordance with relevant self-regulatory management regulations. By leveraging various industry infrastructure, conduct risk monitoring related to virtual currency, the tokenization of real-world assets, and promptly transfer issue clues to relevant departments.
（XIII） Without the approval of relevant departments in accordance with the law and regulations, domestic entities and foreign entities controlled by them may not issue virtual currency overseas.
（XIV） Domestic entities engaging directly or indirectly in overseas external debt-based tokenization of real-world assets, or conducting asset securitization activities abroad based on domestic ownership rights, income rights, etc. (hereinafter referred to as domestic equity), should be strictly regulated in accordance with the principles of "same business, same risk, same rules." The National Development and Reform Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other relevant departments regulate it according to their respective responsibilities. For other forms of overseas real-world asset tokenization activities based on domestic equity by domestic entities, the China Securities Regulatory Commission, together with relevant departments, supervise according to their division of responsibilities. Without the consent and filing of relevant departments, no unit or individual may engage in the above-mentioned business.
(15) Overseas subsidiaries and branches of domestic financial institutions providing Real World Asset Tokenization-related services overseas shall do so legally and prudently. They shall have professional personnel and systems in place to effectively mitigate business risks, strictly implement customer onboarding, suitability management, anti-money laundering requirements, and incorporate them into the domestic financial institutions' compliance and risk management system. Intermediaries and information technology service providers offering Real World Asset Tokenization services abroad based on domestic equity or conducting Real World Asset Tokenization business in the form of overseas debt for domestic entities directly or indirectly venturing abroad must strictly comply with relevant laws and regulations. They should establish and improve relevant compliance and internal control systems in accordance with relevant normative requirements, strengthen business and risk control, and report the business developments to the relevant regulatory authorities for approval or filing.
(16) Strengthen organizational leadership and overall coordination. All departments and regions should attach great importance to the prevention of risks related to virtual currencies and Real World Asset Tokenization, strengthen organizational leadership, clarify work responsibilities, form a long-term effective working mechanism with centralized coordination, local implementation, and shared responsibilities, maintain high pressure, dynamically monitor risks, effectively prevent and mitigate risks in an orderly and efficient manner, legally protect the property security of the people, and make every effort to maintain economic and financial order and social stability.
(17) Widely carry out publicity and education. All departments, regions, and industry associations should make full use of various media and other communication channels to disseminate information through legal and policy interpretation, analysis of typical cases, and education on investment risks, etc. They should promote the illegality and harm of virtual currencies and Real World Asset Tokenization-related businesses and their manifestations, fully alert to potential risks and hidden dangers, and enhance public awareness and identification capabilities for risk prevention.
(18) Engaging in illegal financial activities related to virtual currencies and Real World Asset Tokenization in violation of this notice, as well as providing services for virtual currencies and Real World Asset Tokenization-related businesses, shall be punished in accordance with relevant regulations. If it constitutes a crime, criminal liability shall be pursued according to the law. For domestic entities and individuals who knowingly or should have known that overseas entities illegally provided virtual currency or Real World Asset Tokenization-related services to domestic entities and still assisted them, relevant responsibilities shall be pursued according to the law. If it constitutes a crime, criminal liability shall be pursued according to the law.
(19) If any unit or individual invests in virtual currencies, Real World Asset Tokens, and related financial products against public order and good customs, the relevant civil legal actions shall be invalid, and any resulting losses shall be borne by them. If there are suspicions of disrupting financial order and jeopardizing financial security, the relevant departments shall deal with them according to the law.
This notice shall enter into force upon the date of its issuance. The People's Bank of China and ten other departments' "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" (Yinfa [2021] No. 237) is hereby repealed.
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