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a16z: Behind the Scenes of Everything Getting "Palantir-ized," a Show Doomed to Fail
Original Title: The Palantirization of everything
Original Author: Marc Andrusko, a16z Partner
Original Translation: Deep Tide TechFlow
Abstract: Silicon Valley is undergoing a wave of "Palantirization" – AI startups are following Palantir's lead by deploying engineers on-site, providing highly customized services, and closing seven-figure deals.
a16z Partner Marc Andrusko poured cold water on this trend: the vast majority of companies are merely scratching the surface and will ultimately devolve into consulting firms disguised as SaaS providers. This article breaks down what aspects of the Palantir model are truly replicable and which ones are merely beautiful illusions.
Body:
There's a popular phrase in startups' business plans nowadays: "We're basically the Palantir of the X industry."
Founders are eager to talk about deploying "Forward-Deployed Engineers" (FDEs) on-site with clients, building deep custom workflows, and operating more like a special forces unit than a traditional software company. This year, the number of job postings for "Forward-Deployed Engineers" has skyrocketed by several hundred percentage points, as everyone is copying Palantir's model pioneered in the early 2010s.
I understand why this approach is attractive. Enterprise customers are currently overwhelmed by the question of "what software to buy" - everything claims to be AI, making it harder than ever to discern signal from noise. Palantir's sales pitch is quite enticing: air-drop a small team into a chaotic environment, connect various bespoke, siloed systems, and deliver a customized work platform within a few months. For a startup aiming to land its first seven-figure deal, the promise of "we'll send engineers into your organization to get things done" is a highly compelling offer.
However, I am skeptical whether "Palantirization" can be promoted as a universal methodology. Palantir is a "Category of One" - just look at how its stock trades! Most companies mimicking its superficial aspects will end up as expensive service providers, holding software valuations multiples but lacking any compounding competitive advantage. This reminds me of how every startup in the 2010s claimed to be a "platform," yet very few were actual platform companies because it's too hard to build.
This article aims to clarify what aspects of the Palantir model are truly portable and which are so unique that they cannot be replicated, providing a more practical roadmap for founders looking to combine enterprise software with high-touch services.
What Does It Really Mean to "Palantirize"
“Palantirization” has come to refer to several interrelated things:
Frontline Embedded Engineering
Frontline Deployment Engineers (internally called “Delta” and “Echo” at Palantir) embed themselves in the customer’s organization (often for months at a time), understand the business context, connect various systems, and build custom workflows on the Foundry platform (or the Gotham platform in high-security environments). Since pricing is a fixed fee and there are traditionally no “SKUs,” engineers are responsible for building and maintaining these capabilities.
Highly Opinionated Integration Platform
Palantir’s product is fundamentally not a loose toolkit but a platform with a clear point of view, used for data integration, governance, and operational analytics—closer to an “operating system” for organizational data. The goal is to turn fragmented data into real-time, high-fidelity decision-making.
High-Touch, High-Advocacy Sales Model
“Palantirization” also describes a sales style: a lengthy, high-touch sales cycle targeting mission-critical environments (e.g., defense, law enforcement, intelligence). Regulatory complexity and stakes are features, not bugs.
Selling Outcomes, Not Licenses
Revenue comes from multi-year, outcome-linked contracts blending software, services, and ongoing optimization. Individual customer contracts can reach tens of millions of dollars annually.
A recent analysis defined Palantir as a “one-of-a-kind category” because it excels at three things simultaneously: (a) building an integrated product platform, (b) embedding top-tier engineers in customer operations, (c) proving itself in high-stakes government and defense settings. Most companies can do one or two but not all three at once.
However, by 2025, everyone wants to emulate this model's success.
Why Everyone Now Wants to Mimic Palantir
Three forces are converging:
1. The “Implementation” Challenge of Enterprise AI
A significant portion of AI projects get stuck before entering production, usually due to messy data, integration headaches, and a lack of internal champion. While the buying intent remains strong (there is top-down pressure from the board and C-Suite to “buy AI”), actual deployment and ROI often require a significant amount of hand-holding.
2. Frontline Deployment Engineers Seem to Be the Missing Link
Media coverage and hiring data show an explosive growth in FDE roles this year—different sources cite growth rates between 800% and 1000%—as AI startups are enabling deployments through embedded engineers to truly land.
3. Rapid Growth Is Now the Norm (Signing a Seven-Figure Deal Is Easier to Scale Than a Five-Figure One)
If flying engineers on-site to win a Fortune 500 or government agency order over $1M is the cost, many early-stage companies are willing to trade margin for momentum. Investors are also increasingly accepting lower gross margins because new AI experiences often come with significant inference costs. The bet is: can you win a seat at the client’s management table, deliver “outcomes,” and then price from there.
So the narrative becomes: “We'll do what Palantir did. We'll send in an elite squad, create magic, and then turn it into a platform over time.”
This story holds in very specific circumstances. But there are hard constraints that founders often gloss over.
Where the Analogy Breaks Down
Sell “Outcomes” from Day One
Palantir’s flagship product Foundry is a combination of hundreds of microservices working together towards an outcome. These microservices constitute productized, opinionated solutions to common problems across various industries. In the past two years, I’ve met hundreds of AI app founders, and I can tell you where the analogy breaks down: startups come in pitching lofty outcome-based goals from day one, whereas Palantir deliberately built microservices that form the bedrock of its core capabilities. This is the key difference between Palantir and your run-of-the-mill consulting firm (and a reason it traded at 77x next year’s revenue).
Palantir has a suite of core products:
· Palantir Gotham: Defense and Intelligence Platform that helps military, intelligence, and law enforcement agencies integrate and analyze distributed data for mission planning and investigation.
· Palantir Apollo: Software deployment and management platform that autonomously and securely delivers updates and new capabilities to any environment (multi-cloud, on-premises, air-gapped).
· Palantir Foundry: Cross-Industry Data Operations Platform that integrates data, models, and analysis to drive enterprise operational decision-making.
· Palantir Ontology: Dynamic actionable digital model of real-world entities, relationships, and logic to power applications and decisions within Foundry.
· Palantir AI Platform (AIP): Connects AI models (like large language models) to an organization's data and operations through Ontology, creating scalable AI-driven workflows and agents.
Quoting the Everest report: "Palantir engagements start small. An initial engagement could be a short training camp and limited license. If the value is proven, more use cases, workflows, and data domains are stacked on. Over time, the revenue mix tilts from services to software subscriptions. Unlike consultancies, services are a means to drive product adoption, not a primary revenue stream. Unlike most software vendors, Palantir is willing to invest its engineering time upfront to land meaningful customers."
On one hand, AI application companies I see today can often jump straight to seven-figure contracts. But on the other hand, this is largely because they are in full-customization mode—they are addressing any early client issues in the hope of discovering themes to build core capabilities or "SKU" from.
Not every problem is a "Palantir-level" problem
In the areas Palantir early deployed, the alternative was "nothing works": counterterrorism, fraud detection, battlefield logistics, high-risk medical operations. The value of solving a problem is measured in billions of dollars, number of lives saved, or geopolitical consequences, not incremental efficiency.
If you sell to a mid-sized SaaS company to help optimize their sales process by 8%, you can't afford an equally deep customization deployment. The ROI space simply doesn't support months of on-site engineering.
Most customers don't want to be your R&D lab forever
Palantir's customers by default accept co-evolution with it; they tolerate a lot because the stakes are high and alternatives are limited.
Most enterprises, especially those outside of defense and regulated industries, do not want to feel like they are in a long-running consulting engagement. What they want is predictable implementation, interoperability with existing software tools, and quick time-to-value.
Talent Density and Culture Are Un-generalizable
Palantir has spent over a decade recruiting and training exceptionally versatile engineers who can write production-grade code, navigate bureaucracies with ease, and hold their own in a room with colonels, CIOs, and regulators. Those who have left this position have formed an entire "Palantir Mafia" of founders and executives. Many of these individuals are unicorn-level because they are highly technical and extremely effective in front of clients.
Most startups cannot assume they can hire hundreds of such people. In practice, "we'll build a Palantir-style FDE team" often devolves into:
· Pre-Sales Solution Engineers renamed to "FDEs"
· Junior generalists tasked with product, implementation, and customer management simultaneously
· Leadership that has never seen a Palantir deployment up close, but likes the vibe
It must be made clear that there are many incredibly talented individuals out there, and tools like Cursor are enabling non-technical employees to code. However, scaling the Palantir model broadly requires an extremely rare fusion of business and technical talent, and having a stint at Palantir would be helpful because it is a very unique company. But the number of people in this group is limited!
The Service Trap is Real
Palantir works because beneath the bespoke work there is a truly platform. If you only copy the embedded engineer part, you will end up with thousands of bespoke deployments that are unmanageable or upgradable. Even in a world where AI tools allow companies to achieve software-level gross margins in this model, companies that overly lean into frontline deployments without a strong product backbone may not generate incremental scale benefits and lasting moats.
Undiscriminating investors may see hockey stick growth from 0 to $10M contract value and rush in. But the question I have always asked is: What happens when dozens (or even hundreds) of such $10M startup companies start crashing into each other with the exact same pitch?
By that time, you are not the "Palantir of X." You are the "Accenture of X," just with nicer frontend.
What Palantir Gets Right
If we strip away the myth, there are several elements worth careful study:
1. Platform First, Not Project First
Palantir's frontline deployment teams build on top of a small set of reusable primitives (data model, access control, workflow engine, visualization components) instead of crafting fully bespoke systems for each customer.
2. Clear Views on How Work "Should" Be Done
The company doesn't just automate existing processes; it frequently pushes clients toward new ways of working, with the software itself embodying these views. This takes rare courage for a vendor and enables reusability.
3. Long-Term Vision and Capital
Becoming Palantir-like requires enduring long periods of negative sentiment, political controversy, and unclear near-term monetization as the platform and sales motion mature.
4. Highly Specific Market Fit
The early bet on intelligence and defense wasn't a bug; it was a feature: high willingness to pay, high switching costs, high stakes, and very few ultra-large customers. Not to mention a set of antiquated incumbents who have faced little competition for decades.
In other words, Palantir isn't just a "software company + consulting." It's a "software company + consulting + political project + very patient capital."
This isn't something you can trivially graft onto a vertical SaaS product.
A More Realistic Framework: When "Palantirization" Makes Sense
Instead of asking "how do we become like Palantir," it's better to pose a series of threshold questions:
1. Criticality of the Problem
Is this a "mission-critical" problem (life, national security, billions of dollars) or a "nice-to-have" (10-20% efficiency gains)? The higher the stakes, the more sense a frontline deployment model makes.
2. Customer Concentration
Are you selling to a handful of ultra-large customers or thousands of small ones? Embedded engineering scales better in concentrated, high ACV (Annual Contract Value) customer clusters.
3. Degree of Domain Fragmentation
Is the workflow between clients similar, are the software tools used the same, or is each deployment fundamentally different? If each client is a snowflake, it is challenging to build a consistent platform. Some level of homogeneity is helpful.
4. Regulation and Data Gravity
Are you operating in a highly regulated domain with significant data integration pain points (defense, healthcare, financial crime, critical infrastructure)? That is precisely where Palantir-style integration work can create real value.
If you mostly sit in the lower-left corner of these dimensions (low criticality, fragmented clients, relatively simple integrations), a comprehensive "Palantirization" is almost certainly the wrong pattern. Such a scenario is more suitable for a bottom-up Product-Led Growth (PLG) approach.
What's Worth Learning
While I doubt every early-stage company can successfully deploy the Palantir model, there are several aspects of this approach worth considering:
1. Treat Frontline Deployments as Scaffolding, Not a House
The following practices can be entirely right:
· Have engineers embedded in early design partners
· Get the first 3-5 customers into production at all costs
· Use these collaborations to stress-test your primitives and abstractions
But there need to be clear constraints:
· Time-bound deployments (e.g., "90-day sprint to production")
· Clear ratios (e.g., "how many engineering headcounts per $1M ARR at a single customer maximum")
· Quarterly goal to transform custom code into reusable configurations or templates
Otherwise, "we'll productize it later" will turn into "we never got around to doing it."
2. Build on Powerful Primitives, Not Custom Workflows
The real lesson from Palantir is in product architecture:
· Unified data model and permissioning layer
· Common workflow engine and UI primitives
· Prefer configuration over code wherever possible
The front-line deployment team should spend time on "selecting" and "validating" which primitives to assemble, rather than building entirely new things for each customer. Building entirely new things is left to the engineers.
3. Make FDE Part of the Product, Not Just Delivery
In the Palantir world, front-line deployment engineers are deeply involved in product discovery and iteration, not just implementation. A strong product organization and platform team use what FDEs learn on the front lines as nourishment.
If your FDEs sit in a separate "Professional Services" department, you lose this feedback loop and drift towards being a pure services company.
4. Be Honest About Your Gross Margin Structure
If your pitch assumes an 80%+ software gross margin and 150%+ net revenue retention, but your sales motion actually requires long-term on-site projects, be transparent about the trade-offs—at least internally.
For certain categories, a structurally lower-margin, higher-ACV model is entirely rational. The issue lies in pretending to be SaaS when you are, in fact, a services company with a platform. Investors typically look for a path to maximum absolute gross margin dollar, and one way to achieve this is through larger contracts with more substantial COGS.
How I Pressure Test a "Palantir-ized" Startup
When a founder tells me "We're the Palantir of X," the questions in my notebook probably look something like this:
· Show me a principled platform boundary. Where does the shared product end and customer-specific code begin? How fast does this boundary move?
· Walk me through a deployment timeline. How many engineer-months from contract signing to first production use? What must be bespoke?
· What is the gross margin rate of a mature customer in the third year? Does front-line deployment effort decrease "significantly" over time? If not, why?
· If you sign 50 customers next year, where will it break? Hiring? Onboarding? Product? Support? I want to see where the model cracks.
· How do you decide when to say "no" to customization? The willingness to say "no" to custom work is often key to distinguishing a product company from a "services company with a fancy demo."
If these answers are clear, based on real deployments, and architecturally coherent, some degree of Palantir-style front-line deployment may indeed be a real advantage.
If the answer is vague, or if it's clear that each collaboration is entirely unique, we find it challenging to endorse the potential for repeatability or true scalability.
Conclusion
Palantir's success has created a powerful aura dominating the venture capital startup scene: an elite team of engineers airdropped into a complex environment, connecting disparate data, delivering a system that changes how organizations make decisions.
It's easy to believe that every AI or data startup should look like this. But for most categories, full "Palantirization" is a dangerous fantasy:
· The problem isn't critical enough
· The customer base is too fragmented
· The talent model is not scalable
· The economic equation quietly collapses into a services company
For founders, the more useful question is not "How do we become Palantir," but:
"To bridge the AI adoption gap in our category, how much Palantir-like frontline deployment do we need — and how quickly can we turn it into a true platform business?"
Get this right, and you can borrow the truly crucial parts of this approach without inheriting those that will crush you.
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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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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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