Authors: Iris, Liu Honglin
Since 2024, RWA (Real-World Assets) has become a hot topic in the field of Web3 and traditional financial digitization. From real estate tokens, bills, supply chain finance, to bonds and fund share tokenization, more and more project parties and capital are beginning to look for channels for compliance implementation around the world.
On March 17, 2025, the Dubai Financial Services Authority (DFSA) released the "Tokenisation Regulatory Sandbox Guide", which for the first time clearly included tokenization in the regulatory focus and launched the Innovative Testing License (ITL) mechanism, releasing a realistic, clear and practical compliance path.
Currently, the application window for intention is open, which is only from March 17 to April 24, 2025. Therefore, for RWA project parties planning to go overseas, this path is an important option that deserves special attention and grasp at the current stage.
What signals does the DFSA tokenization sandbox send?
The guidance clearly states that the DFSA will include Tokenised Investments in the regulatory system and specifically distinguish tokens into:
Security Token
Derivative Token
In this way, tokenized assets will no longer be in a regulatory gray area, and RWA projects in the Dubai market, especially the tokenization of traditional assets such as real estate, supply chain finance, bills, bonds, etc., will also have clearer compliance basis and regulatory guidance.
At the same time, DFSA’s setting of sandbox application objects provides practical operating space for different types of RWA project parties. According to DFSA guidelines, the company entities that can currently apply to participate in the sandbox include:
Companies that issue, trade, hold or settle tokenized investments such as shares, bonds, sukuk and units in collective investment funds;
Financial institutions that already hold DFSA licenses and plan to expand tokenization business;
A firm team with a deep understanding of the applicable legal and regulatory framework.
In other words, whether it is a traditional financial institution with a certain financial background that hopes to expand its tokenization business, or a startup project that is in the model exploration stage and focuses on the digitization of RWA assets, they can all apply for entry with the help of the DFSA sandbox mechanism and obtain a low-threshold compliance trial opportunity.
Especially for small and medium-sized RWA startup teams, the phased regulatory exemptions and supportive policies provided in the sandbox can help the team verify the business model at a lower cost in the early stage, while clarifying the future compliance licensing path.
What is more noteworthy is that the DFSA has launched an innovative testing license mechanism called ITL Tokenisation Cohort, which allows RWA project parties to enter the market in advance without fully meeting all capital requirements and risk control obligations, and to test products and models in a real environment with low thresholds, and then transition to the licensing stage.
The overall process is divided into three stages:
1. Expression of intention stage
Project parties are required to submit an expression of interest form to indicate their plans to conduct tokenisation business in DIFC (Dubai International Financial Centre). DFSA will conduct a preliminary assessment based on background, governance, technical solutions, etc.
2. ITL testing phase
After passing the initial review, the project can enjoy partial exemptions from capital, prudential obligations, and reporting requirements within a 6-12 month window period, access the real market environment at low cost, and test the business model. However, the DFSA also clearly pointed out that participating projects are still subject to continuous supervision, and the project parties must ensure that key risk points such as information disclosure, DLT system security, and custody arrangements meet regulatory requirements.
3. License conversion stage
After the testing period, the project must choose to apply for a full DFSA license or to exit the business according to the exit mechanism. The DFSA will strictly implement market exit for projects that fail to meet the "graduation" standards.
It should be noted that this sandbox only serves the tokenization of traditional financial assets and real-world assets. Therefore, other pure cryptocurrency projects (Crypto Tokens) and fiat stablecoins (Fiat Crypto Tokens) are not applicable.
Why is the DFSA Tokenization Sandbox worth paying attention to?
It can be seen that although both Dubai DFSA and Hong Kong HKMA are actively promoting the clarification of tokenization supervision, the two mechanisms show significant differences in participation thresholds and applicable entities.
For RWA entrepreneurs, the ITL sandbox mechanism launched by DFSA has several practical advantages that deserve special attention:
1. Suitable for start-ups and small and medium-sized teams, flexible and independent application
The overall design of Hong Kong's Ensemble Sandbox focuses on the participation of the traditional financial system, and is dominated by licensed institutions such as banks and securities firms. Startup projects often need to rely on partners to participate, and the application chain is relatively complex.
In contrast, the DFSA's ITL mechanism allows project parties to apply directly as independent entities without relying on the background of existing financial institutions. For RWA projects with limited resources and in the model exploration stage, it has greater autonomy and operational flexibility.
2. Phased exemptions during the testing period to reduce compliance testing costs
The DFSA explicitly provides a 6-12 month testing window, during which capital requirements and prudent risk control obligations are phased in, especially allowing projects to quickly verify business models in a real market environment, while significantly reducing early trial costs and operational burdens. Therefore, the DFSA ITL mechanism is a rare practice case that provides independent application channels, phased exemptions, and a full-chain path for graduation and formalization for RWA entrepreneurial projects under the current global multi-regulatory system.
The overall compliance threshold of the Hong Kong route is relatively high, especially the SFC licensing system has strict requirements on capital, governance structure, etc., which poses considerable challenges to start-up teams in the short term.
3. The regulatory framework is clear and RWA assets are formally managed
DFSA has included Security Token and Derivative Token into the current financial regulatory system, eliminating the policy gaps and legal risks previously faced by tokenized assets. Project parties only need to follow the existing DFSA financial product regulatory framework to legally and compliantly carry out issuance, trading and other businesses, and the policy is highly predictable.
In comparison, the Hong Kong Ensemble Sandbox is still in the collaborative pilot stage between banks and financial institutions. Its scope of application is more inclined towards the financial infrastructure level. It is suitable for Web3 project parties, especially entrepreneurial projects, and the direct supervision channel needs to be improved.
It can be seen that the launch of the sandbox by DFSA is not only a simple compliance innovation, but also reflects Dubai’s policy intention to strive for first-mover advantage in the RWA track as a fintech center in the Middle East.
Attorney Mankiw recommends
Whether choosing Hong Kong or Dubai, the key to RWA projects is always how to find the most suitable compliance path for the current stage of the project based on its own stage, resources and strategic planning.
The tokenized regulatory sandbox launched by the DFSA provides a realistic opportunity with a moderate threshold, clear regulatory framework and controllable costs for RWA project parties that are in the exploration stage and hope to quickly verify the model.
But it is worth noting that this window is not open for a long time. Project parties must not only grasp the time, but also complete compliance preparations in advance before they can be truly the first to be implemented.
In this regard, Attorney Mankiw recommends focusing on the following points:
Complete DIFC registration and legal structure design as soon as possible. Only by establishing a registered entity in DIFC can you enter the DFSA regulatory system. It is recommended to plan the equity structure and tax arrangements in advance to avoid missing the application window due to insufficient compliance preparation.
Prepare technical solutions and risk control materials in advance. DFSA has detailed requirements for DLT system design, custody mechanism, and compliance process. It is recommended to hire a compliance team to assist in preparing relevant materials to ensure that the ITL application is passed in one fell swoop.
Plan the path to licensing after ITL graduation. The sandbox period is only a phased convenience, and the ultimate goal should be to obtain a full DFSA license. It is recommended to prepare long-term plans such as capital replenishment and governance document improvement to avoid operational interruption after the sandbox period ends.
It is foreseeable that the DFSA sandbox will attract an influx of global projects, but the teams that can truly take the lead in landing and completing graduation and formalization will still be those teams that have made early arrangements in governance, risk control, and compliance preparation.
The regulatory window has already opened, and the market often leaves little time for actors to take action.
Next step, are you ready?
