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Ethereum returns to $4,000. Have the fundamentals of the ecosystem really changed?
After the bull market correction phase in the past few days, the price of ETH has once again reached $3,900. Looking back on the development of Ethereum over the past year, there are many complex factors and emotions. On the one hand, the Cancun upgrade was successfully completed and the spot ETF was officially passed, ushering in a new bull market in terms of technology and fundamentals; but on the other hand, as Bitcoin, SOL, and BNB broke through historical highs one after another, the price of ETH is still hovering around the $4,000 mark.
From the above ETH price trend chart this year, it can be seen that Ethereum has gone through three major stages this year, and the rise in the three stages corresponds to different reasons. At the beginning of the year, the Bitcoin spot ETF was passed, and the price of Ethereum followed the market sentiment and rose, breaking through $4,100 at one point, but at the end of March, it also began to fall with the market. Because of the strong rise of SOL and its ecology, the Ethereum ecosystem is facing a large amount of liquidity outflow.
In May, the Ethereum spot ETF was approved, and the price briefly surged, but its demand was not as strong as that of Bitcoin. The market's initial reaction to the launch of the Ethereum ETF was negative, as speculative investors who bought the Grayscale Ethereum Trust and expected it to be converted into an ETF took profits, resulting in a $1 billion outflow of funds, which put downward pressure on the price of Ethereum. In addition, ETH's narrative of leaning towards scientific and technological products is less likely to impress the traditional market than BTC's "digital gold", and the SEC's restriction on Ethereum spot ETFs from engaging in staking functions has objectively weakened its appeal.
After that, the Ethereum Foundation, the re-staking ecosystem, and the roadmap disputes followed one after another, and Ethereum ushered in a dark moment.
In November, the dust settled on the US election, and the pro-crypto Republican Party and Trump brought stronger confidence and liquidity injection to the entire crypto ecosystem, and Ethereum also ushered in the third wave of increases this year. This time the rise is different from the past. Institutions have entered the market openly. The improvement of liquidity fundamentals is the market using funds to tell us what institutions recognize and are optimistic about; and Ethereum is destined to continue its original intention of "world computer".
Improvement of liquidity fundamentals
Since December, Ethereum spot ETF has had a net inflow of more than 2.2 billion US dollars for half a month. Nate Geraci, president of The ETF Store, said on the social platform that consultants and institutional investors have just begun to pay attention to this field.
In the third quarter of this year, banks such as Morgan Stanley, JPMorgan Chase and Goldman Sachs significantly increased their holdings of Bitcoin ETFs, and their holdings almost doubled quarter-on-quarter, but their investment scope is not limited to Bitcoin. According to the latest 13F documents, these institutions have also begun to buy Ethereum spot ETFs since then.
In addition, in the first two quarters, the Wisconsin Investment Committee and the Michigan Retirement System purchased Bitcoin spot ETFs respectively. In the third quarter, Michigan further purchased Ethereum spot ETFs worth more than $13 million. This shows that pension funds, which symbolize low-risk preferences and long-term investments, not only recognize Bitcoin as a digital value store, but also value Ethereum's growth potential.
When the Ethereum spot ETF was first passed, JPMorgan Chase pointed out in a report that the demand for Ethereum spot ETFs would be much lower than that for Bitcoin spot ETFs. However, the report predicts that the spot Ethereum ETF will attract up to $3 billion in net inflows for the rest of the year. If staking is allowed, this figure may be as high as $6 billion.
Jay Jacobs, head of U.S. thematic and active ETFs at BlackRock, said at the "ETFs in Depth" conference that "our current exploration of Bitcoin, especially Ethereum, is just the tip of the iceberg. Only a very small number of clients hold (IBIT and ETHA), so our current focus is on this aspect, rather than launching new altcoin ETFs."
In a Blockworks Research surveyreport, the vast majority (69.2%) of respondents currently hold ETH, of which 78.8% are investment companies or asset management companies, indicating that driven by income generation and network security contributions, the willingness of institutions to participate in ETH staking has reached a critical scale.
Institutions are actively participating in ETH Staking, but the degree of participation and methods vary. Regulatory uncertainty has led to different attitudes from all parties, with some institutions acting cautiously while others are less concerned, and institutional participants are highly aware of the operational aspects and risks associated with staking.
The Tide Reverses
Since the collapse of FTX, Coinbase, Kraken, Ripple and others have been severely cracked down by US regulators such as the SEC, and many crypto projects cannot even open accounts in mainstream US banks. In the last bull market, traditional financial institution investors who entered the market due to DeFi also suffered huge losses. Large funds such as Toma Bravo, Silver Lake, Tiger, and Cotu not only suffered setbacks on FTX, but also invested in some crypto projects at high valuations that did not deliver on their grand promises, and the funds have not yet returned.
In the second half of 2022, many DeFi projects were forced to move outside the United States. According to Alliance DAO founder qw, "Two years ago, about 80% of crypto startups that met the criteria were located in the United States. However, this proportion has continued to decline since then and is currently only about 20%."
But on November 6, Trump won the election, and the green light that the U.S. financial system had been waiting for was on.
Trump Saves the Cryptocurrency
Trump's victory undoubtedly cleared the regulatory clouds for institutional adoption.
After establishing the Department of Government Efficiency, directly gathering a series of Wall Street financial elites such as Musk, Peter Thiel, and Marc Andreessen under his command, and appointing Paul Atkins as the chairman of the SEC, Trump also appointed PayPal co-founder David Sacks as the "White House Director of Artificial Intelligence and Cryptocurrency Affairs." A series of measures show that Trump will create a government with loose crypto regulation.
Related reading: "The White House will usher in an era of crypto-friendly: a detailed account of the "crypto-team" under Trump's leadership"
Analysts at JPMorgan Chase said that several stalled cryptocurrency bills after Trump took office may be quickly approved, including the 21st Century Financial Innovation and Technology Act (FIT21), which may provide much-needed regulatory clarity for the crypto industry by clarifying the regulatory responsibilities of the SEC and CFTC. And said that as the regulatory framework becomes clearer, the SEC's strategy of increasing enforcement may evolve into a more collaborative approach, and its "Staff Accounting Bulletin No. 121" (SAB 121) that restricts banks from holding digital assets may be repealed.
High-profile lawsuits against companies like Coinbase could also be mitigated, settled or even dropped. Regulatory notices to companies like Robinhood and Uniswap could be reconsidered, reducing litigation risk for the broader crypto industry,
In addition to department and bill reforms, the Trump team is considering drastically cutting, merging or even eliminating major banking regulators in Washington. People familiar with the matter said that when interviewing potential bank regulators, Trump advisers asked some people in the Department of Government Efficiency whether the Federal Deposit Insurance Corporation (FDIC) could be abolished. Trump advisers also asked potential candidates for the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. In addition, it has proposed plans to merge or overhaul the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Federal Reserve.
As policy dividends are gradually released, larger institutional funds in the US market are expected to return to the crypto market.
DeFi revival in progress
Family offices, endowment funds, pension plans and other more stable capital will not only deploy Ethereum spot ETFs, but will also re-enter the DeFi field that has been verified in the previous cycle.
Compared with 2021, the total supply of stablecoins has reached its highest level, and in the more than one month since Trump's victory, the total amount of stablecoins has been issued by nearly $25 billion, and the current total market value of stablecoins is $202.2 billion.
As the leader of US crypto listed companies, Coinbase has made achievements in the DeFi field this year in addition to its political contributions. On the one hand, it is the largest crypto ETF custodian, and on the other hand, it has launched cbBTC.
Since cbBTC faces the same custody and counterparty risks as most Bitcoin ETFs, some traditional financial institutions may reevaluate whether to continue paying fees to hold Bitcoin ETFs and instead turn to participating in the DeFi ecosystem at almost zero cost. This shift may bring inflows of funds to market-tested DeFi protocols, especially when the yields offered by DeFi are more attractive than those of traditional finance.
Another major DeFi sector in this cycle is RWA. In March this year, BlackRock issued the tokenized fund BUIDL (BlackRock USD Institutional Digital Liquidity Fund) in cooperation with the US tokenization platform Securitize, and officially entered the RWA track with a rather high-profile attitude. Capital giants such as Apollo and Blackstone, which have huge pools of funds, are also beginning to prepare to enter this market and bring in a large amount of liquidity injection.
After the Trump family launched the DeFi project, compliant DeFi has been a hot topic. Uniswap, Aave, Lido and other Ethereum blue-chip DeFi projects immediately responded to Trump's victory in price, and they all rose and broke through, while rising stars in the DeFi sector such as COW, ENA, ONDO also reached new highs.
At the same time, Trump's encrypted DeFi project WLFI has also frequently traded Ethereum tokens recently. After exchanging 5 million USDC for 1,325 ETH in multiple transactions, its multi-signature address bought $10 million in ETH, $1 million in LINK and $1 million in AAVE respectively. Recently, there have been continuous reports of whales increasing their holdings of ETH, suggesting that both institutions and whale accounts are returning to the Ethereum ecosystem.
WLFI multi-signature address holding information
The recent performance of new and old projects in the DeFi track at the price level is beyond words. At present, the TVL of DeFi is about 100 billion US dollars, and the total value of current cryptocurrencies and related assets is about 4 trillion US dollars. Among them, the funds that are truly active in the DeFi field only account for 2%, which is still small compared to the size of the entire cryptocurrency market. This means that with the warming regulatory wind, DeFi still has huge room for growth.
Aave is a typical beneficiary of this round of "capital repatriation". Its price broke through before Trump won the election, and since then, TVL and revenue have shown explosive growth: TVL broke through the historical high of 22 billion US dollars in October 2021; the token price has risen from the low of 80 USDT this year, breaking through the March high of 140 USDT in early September and accelerating in late November; the protocol's daily total revenue exceeded the secondary peak in September 2021, and the weekly revenue hit a record high.
Although Aave recently upgraded to V4, the driving force of innovation at the technical level may not be enough to support such a large-scale increase. The promotion of supervision and capital is obviously a more important logic, and even this promotion will overflow to the NFT track that was also favored by institutions in the last cycle.
The Future of Ethereum
Ethereum encountered a series of controversies and discussions related to ecological development in the middle of this year. With the rise of Solana, the new old blockchain began to seize Ethereum's developers and user base, and the ecosystem began to waver. Ethereum seemed to have forgotten its original goal. As the first blockchain to build smart contracts, Ethereum successfully made major institutional investors pay for it in the last cycle through its first-mover advantage. Whether it is DeFi, chain games, NFTs, or the metaverse, they cannot escape the Ethereum ecosystem, and its original intention of "world computer" has been deeply rooted in the hearts of the people.
Although the current liquidity fundamentals of Ethereum have optimistic improvements, from the perspective of Ethereum itself, its daily average number of transactions, gas fees, number of active addresses and other on-chain data indicators have not increased significantly. This shows that the activity on the Ethereum chain has not increased synchronously with its price, and block space is still in excess.
Ethereum Gas Fee Level
In the past few years, Ethereum has focused on building the infrastructure of cryptocurrency, providing the market with a large amount of cheap block space. On the one hand, this move has improved the access performance of Dapps to blocks and reduced the transaction costs of L2 expansion solutions. On the other hand, due to insufficient market liquidity and low transaction demand, Ethereum's huge block space has not been fully utilized.
However, this is not a real problem in the long run. As mentioned earlier, institutional funds are gradually returning and even starting to build exclusive blockchain use cases. For Ethereum, which has a secure and flexible architecture, to B is its advantage. It not only has an overwhelming advantage in security, but also is compatible with many EVM projects, providing developers with an almost "impossible to be fired" option.
The long-term value of Ethereum will depend on the scarcity of its block resources, that is, the actual and continuous demand for Ethereum block settlement in the world. As institutions and applications continue to pour in, this scarcity will become more and more prominent, thus laying a more solid value foundation for Ethereum. Ethereum is an institution's world computer. Starting with DeFi, institutions will solve the problems of Ethereum block surplus and roadmap disputes in the future.
In early December, Ethereum researcher Jon Charbonneau wrote a long article analyzing why Ethereum needs a clearer "North Star" goal. He also suggested that the ecological power of Ethereum should be concentrated on the "world computer", just like Bitcoin's "digital gold" and Solana's "Nasdaq on the chain".
Ten years have passed, and Ethereum is no longer in the entrepreneurial stage, and the future of Ethereum in the next decade is already clearly visible.
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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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