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What is the fundamental strength of Hyperliquid, the top choice for "Insider Bros" and whales when placing large orders?
Original Article Title: Taking a Step Back: Hyperliquid Fundamentals
Original Author: vikramcantsingh, Director at the University of Pennsylvania Blockchain Association
Original Translation: DeepSeek
Editor's Note: The article analyzes how Hyperliquid is breaking traditional market inequality through its on-chain order book, providing a fair trading environment. It also explores its technical innovation, potential use cases (such as non-custodial BTC transactions), and challenges (such as regulatory pressure). The article also values Hyperliquid's native token HYPE, predicts its future revenue growth, and believes that Hyperliquid has the potential to become a disruptive on-chain liquidity hub.
The following is the original content (slightly reorganized for better readability):
Amidst the turmoil in the stock market and cryptocurrency market within a precarious macro environment, I believe taking a step back to examine the fundamentals is crucial. Price declines weed out traders and present entry opportunities for new first principle investors. This is especially felt in assets like HYPE, where the majority of holders are perpetual futures traders (due to the airdrop distribution nature). Therefore, a downward market trend leads to these perpetual traders being liquidated, forcing them to sell HYPE to replenish collateral, resulting in a widespread HYPE sell-off. Conversely, volatile market conditions typically lead to higher volumes and subsequently higher fees, making HYPE more attractive to fundamental investors.
We will discuss:
· Why I am excited about Hyperliquid today?
· Long-term outlook on Hyperliquid
· Potential hurdles
· Comparative valuation model for HYPE
Why I Am Excited About Hyperliquid Today?
I believe a high-performance on-chain order book will bring a transformative improvement to the existing paradigm. The market should be a place where investors meet on equal footing, but today's market is inherently skewed towards institutions and high-frequency trading firms at a foundational design level. The on-chain order book changes this, and Hyperliquid provides the means to achieve this goal.
In traditional finance, high-frequency trading firms spend millions of dollars to colocate servers near stock market servers, while retail users need to spend thousands of dollars on setting up and maintaining personal custodial servers. Similarly, centralized cryptocurrency exchanges create an unequal market through in-house market-making agreements and prioritized server hosting. Through the on-chain order book, Hyperliquid enables anyone to establish their Citadel and Jane Street at almost zero cost. Furthermore, Hyperliquid's robust and user-friendly SDK provides a smooth entry point for non-native crypto users to explore various strategies.
While users may not be able to surpass Wintermute in the market, they at least have an equal opportunity, a paradigm that didn't even let them play. Additionally, users can utilize Hyperliquid's native liquidity pool HLP to earn around a 10-20% annual percentage yield.
Through the above means, Hyperliquid has created an equitable market. I am particularly excited about the following developments in Hyperliquid's future:
1. Unhosted BTC/SOL/ETH and related applications: People want an on-chain venue to trade and lend out their BTC. Through @hyperunit, Hyperliquid offers one of the most seamless ways to bridge BTC to an on-chain venue. By providing spot and perpetual contracts on the same platform, Hyperliquid enables low-latency trading strategy settlements. Therefore, I look forward to seeing use cases such as on-chain spot-futures basis trading, spot Delta hedging, and real-time settlement of options positions.
2. Stocks and other RWA + Hyperliquid backend/TradFi frontend: The Unit team is reportedly building a solution to bring stocks and RWAs into the Hyperliquid order book. While I anticipate on-chain demand for this, I am more excited to see Hyperliquid serve as a blockchain and liquidity channel, bringing opportunities previously out of reach to emerging markets. For example, imagine offering AAPL stocks to non-US markets through an interface using the Hyperliquid order book backend while hiding the "blockchain" part on the frontend; this is not unrealistic.
3. BTC and HYPE as collateral: Currently, Hyperliquid only allows USDC as collateral for perpetual contracts. With BTC and HYPE being used as collateral for perpetual contracts, traders will liquidate assets due to margin calls. Providing BTC and HYPE can reduce selling pressure and improve capital efficiency.
4. Native USDC: Hyperliquid currently offers USDC bridged from Arbitrum. Therefore, without bridging it back to Arbitrum, it cannot be redeemed for USD as it is locked in a smart contract. Additionally, bridged USDC is incompatible with CCTP. Therefore, with the deployment of native USDC, Hyperliquid will unlock more capital efficiency.
5. Launch of the lending market: This will bring more activity as HYPE airdrop holders can now lend out their HYPE and become more active market participants. I look forward to seeing lending protocols like @felixprotocol go live.
6. Direct Onboarding: Solutions such as @HanaNetwork allow you to deposit and withdraw directly from Apple Pay, PayPal, Wise, and debit cards. Reducing onboarding friction will increase activity.
7. Bringing Non-Crypto Users Onto the Chain: Hyperliquid is the first crypto application some of my non-crypto friends have started using. Most of them were onboarded through @pvp_dot_trade, where we had a trading competition. Even after the rewards program ended, they remained sticky users.
Long-Term Outlook
Based on the factors above, I believe Hyperliquid will become a powerful liquidity magnet. As we have seen many times in the crypto space, liquidity begets liquidity. Therefore, I see Hyperliquid becoming the leading trading and liquidity hub for all on-chain activity.
As mentioned, native non-custodial BTC will unlock a range of new opportunities at the intersection of high-performance CLOB and BTC liquidity. This will bring deeper liquidity to the CLOB itself, AMMs on EVM, and lending pools. To some extent, we may also see spot ETH/SOL + other altcoin migration to Hyperliquid. This will take market share away from DEXs on other chains, depleting their order books and liquidity pools.
I also believe Hyperliquid will compete with CEXs for token listings. This has been evidenced by projects like Swell and Plume buying code on Hyperliquid. Purchasing code on Hyperliquid grants you access to Hyperliquid's liquidity. As code auctions occur every 31 hours, there are only about 282 auctions per year. As Hyperliquid becomes the de facto on-chain trading venue, the "code space" will become increasingly expensive but may still be cheaper than giving 5% of your token supply to Binance. If Hyperliquid successfully becomes a liquidity hub, I believe we can expect the average code auction price to be around $500,000.
Lastly, as mentioned above, I believe Hyperliquid's backend/retail frontend application will bring financial opportunities to non-U.S. markets that were previously untapped and unlock liquidity from user groups currently untouched by crypto.
Potential Obstacles
1. Regulatory Pressure: Hyperliquid does not ally with MAGA, while several other chains have been catering to Washington politicians. The World Liberty Finance token purchase is a clear example of this. Additionally, some VCs are investors in competing chains and DEXs. Since its inception, Hyperliquid has been taking liquidity and mindshare away from these chains and DEXs, and they have strongly opposed the regulatory legitimacy of Hyperliquid. As Hyperliquid lacks advocates in the U.S. like they do, some regulatory pressure should naturally be expected in this regard.
2. EVM Rollout: The quality of the Hyperliquid EVM alpha version is not as good as HyperCore. Issues such as low Gas limit, occasional slow block times, and lack of native USDC have led to slow application deployment on HypeEVM. Therefore, improvements are needed and are expected to be rolled out soon. Additionally, if EVM applications fail to bring new applications or have low TVL/transaction volume, we may see a loss of mindshare, leading to TVL flowing to other L1/L2 solutions such as Monad and MegaETH. However, based on my conversations with developers, the Hyperliquid team is actively collaborating with applications to gather feedback on HyperEVM and implement improvements at a rapid pace.
3. Validator Network: While Hyperliquid is moving towards a permissionless validator system, the details of what validators specifically do are obscured by an opaque binary file. To become a secure liquidity hub through true decentralization over time, Hyperliquid needs to become more transparent.
HYPE Comparative Valuation Model
Below, I attempt to provide a simple price-earnings ratio analysis for Hyperliquid's native token, HYPE, over the next four years.
I believe it is crucial to perform this analysis with an understanding of the Impact Fund Buyback. Inspired by @Keisan_Crypto's analysis, we introduce the concept of Adjusted FDV, where Adjusted FDV = Price * Adjusted Fully Diluted Supply. Here, we define the next year's Adjusted Fully Diluted Supply as the previous year's Fully Diluted Supply - AF Buyback - Burn.
For those unfamiliar with the Impact Fund, fees collected on Hyperliquid flow into an Impact Fund, which buys back HYPE from the open market, reducing the supply. In this analysis, we assume that HYPE bought back by the Impact Fund will never re-enter the open market, similar to being burned.
Hyperliquid has three main revenue streams: transaction fees, EVM fees, and auction fees.
Note: We assume a HYPE token price of $15 in the calculations below.
Transaction fees are collected when users open and close perpetual contracts. To predict Hyperliquid's annual transaction fees, I first obtained 12 months of weekly revenue from December 23 to March 10. Then we annualize the four-week rolling average revenue in eight instances to estimate the annualized transaction fee. Therefore, I estimate that Hyperliquid should collect approximately $6 billion in transaction fees in 2025.
However, while this can serve as a nice proxy for 2025, it is difficult to infer the year-over-year growth rate from this approach for 2025-2028. Therefore, we referred to the smoothed historical perpetual trading volume on CEX and assumed that Hyperliquid would occupy a certain percentage of the CEX total trading volume. This allows us to better capture the cyclicality of crypto trading volume. We then assumed that Hyperliquid's percentage share would be within a certain range each year. Simply assuming a 5% market share in a particular year could lead to generalized conclusions. Therefore, we assume that in 2025, Hyperliquid will account for 3-6% of the trading volume, and frame the captured volume as 3% + [(6%-3%) * RAND()]. This range-based analysis provides a more realistic monthly trading volume capture scenario. Furthermore, assuming an average fee of 0.025% of the trading volume for Hyperliquid, we can conclude that Hyperliquid will earn approximately $600 million in transaction fees in 2025. We observe that this figure is close to our previous 4-week rolling average method, thereby reinforcing our findings.
Continuing the trading volume capture analysis, we assume that Hyperliquid's market share increases year by year. Therefore, we assume that Hyperliquid will hold 3-6% in 2025, 6-8% in 2026, 8-10% in 2027, and 10-12% in 2028. We summarize our findings below.
We estimate EVM fees as a function of the annual revenue of other L2 solutions (such as Base). Given the novel nature of HypeEVM and its inherently low Gas costs, I expect HypeEVM to capture 50% of Base's annual revenue in 2024. Therefore, I estimate that Hyperliquid should collect approximately $54 million in EVM fees in 2025.
Finally, as mentioned earlier, Hyperliquid conducts a code auction for its spot market. To estimate the revenue from code sales, we first need to consider the distribution of the code prices themselves. By analyzing previous data and based on our prior code space theory, I believe a normal distribution is sufficient to map out the auction prices for a year. The following graph describes the distribution and the revenue at each price range. Therefore, I estimate that Hyperliquid should collect approximately $40 million in auction fees in 2025.
This means that only in 2025, Hyperliquid will collect approximately $700 million in fees. Considering that the majority of fees are expected to flow to the Aid Fund for HYPE buybacks, this alone brings $700 million in buying pressure to HYPE from the Aid Fund.
Assuming the HYPE held by the Aid Fund is effectively burned (never to re-enter the market), along with the projected 176,113 HYPE burned from HyperCore transaction fees, around 46 million HYPE tokens will be taken out of circulation in 2025.
Therefore, with fee increases and a decrease in supply, HYPE's price-earnings ratio decreases annually, making it a more valuable asset. Furthermore, this periodic removal of HYPE from supply also helps better absorb token unlocks from the Hyper Foundation, team, future emissions, and community rewards.
We will assume that EVM and auction fees roughly follow the same year-over-year growth rate as transaction fees. This allows us to compile the final financial statements as shown below:
Finally, we will compare HYPE's price-earnings ratio with its FDV price-earnings ratio and market value price-earnings ratio, as well as with existing projects like Solana and Ethereum, related stocks like Coinbase and Robinhood, and TradFi assets like Apple, Nvidia, and the S&P 500.
PS: A Note About the Hyperliquid Community
I often write about the Hyperliquid community on Twitter, so I won't go into too much detail here as it deviates from the main purpose of this article. However, I'd like to share a passage from one of my previous tweets that truly captures the Hyperliquid community for me:
"Whether making money or losing money, I will gain new friendships. Hyperliquid is the first crypto app that has allowed me to do this—a very important feature for me."
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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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