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The legal frameworks governing real-world assets (RWAs) and stablecoins ¨C crypto-assets designed to maintain a stable value ¨C are shaped by their blockchain-based issuance and trading mechanisms. This creates a complex interplay between procedural law such as jurisdiction and litigation, and substantive law including property rights and contractual obligations. This article examines the issue through three critical lenses: technological evolution; risk isolation; and the primacy of procedural law.

Technological evolution

The evolution of stablecoins has seen initial versions using algorithmic hashing for value pegging, and later iterations incorporating asset-backed reserves and smart contract compliance, with generations 3.0 and 4.0 focusing on auditability and regulatory alignment ¨C all while maintaining the core 1:1 peg to fiat currency.

Under China¡¯s civil law, the entitlements of virtual assets (creation, possession, use, benefit and disposal) rely on digital signatures and blockchain records and are recognised as property. Since virtual assets are not legal tender, the Contract Law, Trust Law and Property Law also apply to define rights and obligations. Such characteristics are evident in the context of RWAs.

In the case of By Bit Fintech Ltd v Ho Kai Xin and others (2023), the Singapore High Court recognised Tether (USDT) ¨C a virtual currency pegged to the US dollar ¨C as property capable of being held on trust, citing it as identifiable, transferable and stable.

The case, which involved an improper transfer by a ByBit employee, established the company¡¯s right to a constructive trust as a legal remedy. This underscored the asset-like nature of stablecoins, affirming a substantive right of recovery for the aggrieved party.

Notwithstanding origins in the decentralised architecture of blockchain, the entitlements of virtual assets still require formal legal recognition and constructive mechanisms. Without a legal framework to provide remedial safeguards, these assets are prone to provoking subsequent disputes.

From a procedural standpoint, such cases invariably first confront the question of jurisdiction. In the ByBit case, for instance, a key rationale for the Singapore court¡¯s exercise of jurisdiction was that the asset transfer occurred on a local trading platform.

This highlights the cross-border challenges of a globally dispersed network. Once any underlying asset is tokenised on-chain, the borderless nature of RWAs and stablecoins demands that procedural issues like jurisdiction be resolved first. This is essential to ensure that substantive laws of different jurisdictions can be applied, despite widely varying national capital control regimes.

Risk isolation

RWAs and stablecoins must be backed by underlying assets such as bank deposits or bonds, with risk isolation via contractual terms, independent audits, offshore structures like VIEs, or fiduciary duties.

The collapse of the algorithmic stablecoin Terra UST in 2022 demonstrated how technology divorced from robust legal and institutional frameworks can lead to a catastrophic detachment from underlying value.

Reserve-backed stablecoins also show vulnerabilities. A series of US legal actions against USDT issuer Tether serve as a stark warning of the necessity for both reserve transparency and effective risk isolation.

In 2021, Tether and the crypto exchange Bitfinex were fined USD42.5 million by the US Commodity Futures Trading Commission for falsely claiming that USDT was ¡°fully backed by US dollar reserves¡±. Separately, the New York Attorney General fined Bitfinex USD18.5 million for misusing Tether¡¯s reserves to cover losses, resulting in a settlement that forced its exit from the New York market.

In a 2025 development, the crypto lender Celsius initiated a breach of contract suit against Tether, alleging the improper liquidation of 40,000 mortgaged Bitcoins (valued at more than USD4 billion). A US bankruptcy court affirmed the case¡¯s validity, underscoring the preferential transfer of substantive legal obligations in such disputes.

Effective risk isolation needs the support of civil contracts and fiduciary duties. Without this legal underpinning, the technology itself cannot adequately protect creditors.

Procedural law, such as establishing jurisdiction, is what enables the enforcement of substantive rights. This was demonstrated in the Celsius case, where the court first had to determine the feasibility of exercising jurisdiction over Tether ¨C a British Virgin Islands entity ¨C in the US, a necessary procedural step governed by principles of private international law.

Primacy of procedural law

Much like the blockchain networks they operate on, the inherently global and decentralised nature of RWAs and stablecoins necessitates that procedural hurdles ¨C particularly jurisdictional conflicts ¨C are resolved upfront. This is a prerequisite for the effective application of substantive law across different legal domains.

In the case of True Coin LLC v Techteryx Ltd (2024), the Singapore court issued an anti-suit injunction to prevent investment firm Techteryx from pursuing litigation against True Coin, the issuer of stablecoin True USD, in Hong Kong courts, instead compelling arbitration to proceed in Singapore.

This ruling directly engaged with procedural conflicts over jurisdiction. It affirms that arbitration clauses in stablecoin-related contracts take precedence over court proceedings, a mechanism designed to ensure the efficient resolution of cross-border disputes involving RWAs and stablecoins.

The case also exemplifies the evolving legal landscape, demonstrating how procedural law facilitates the concurrent application and enforcement of substantive law, such as contractual terms. In contrast, the series of US lawsuits against Tether chronicles the sector¡¯s journey from unregulated expansion to a tightening regulatory environment.

From a procedural standpoint, these cases illustrate the frequent use of long-arm jurisdiction by US courts, where they assert authority based on Tether¡¯s significant impact on US markets, ensuring the application of substantive US laws such as those governing securities and anti-money laundering.

Takeaways

While RWAs and stablecoins are technologically driven, their legal framework requires procedural law ¨C such as establishing jurisdiction ¨C to take precedence, subsequently reinforced by substantive law regarding property trusts and contractual obligations. The demise of algorithmic stablecoins serves as a warning that neglecting this legal sequence can prevent even the most advanced technology from achieving practical adoption.

As jurisdictions formally mandate reserve audits and user protections in moving towards regulatory harmonisation, RWAs and stablecoins hold the potential to more effectively mobilise underlying assets. Nevertheless, the challenge of cross-border jurisdiction remains significant.

Jeffery Quan is a senior partner at ETR Law Firm
Ray Chuen, an assistant intern at the firm, also contributed to this article