Digital Development Global Research Report | RWA: What is the key to breaking Canaan’s $1 dilemma?

Global Research Report on Digital Development, Volume 3, Issue 20 (2025/5/12-2025/5/18)

This issue briefly analyzes the relevant content of Bitcoin mining RWA for reference.

1. Canaan Inc.'s stock price fell below $1

According to PRNewswire, Canaan Inc. announced that it received a written notice from Nasdaq on May 13, 2025, stating that the company did not comply with Nasdaq Listing Rule 5550(a)(2) because the closing price of its American Depositary Shares ("ADS") was less than $1.00 per share for the past 30 consecutive business days. Nasdaq's notice letter has no direct impact on the listing or trading of the company's securities on Nasdaq.

What exactly caused Canaan's stock price to be so sluggish? First of all, the business structure is relatively simple. Canaan's core revenue depends on the sales of mining machines and self-operated mining. This single structure makes the company vulnerable to factors such as Bitcoin price fluctuations, global computing power competition and electricity costs. For example, after the Bitcoin halving in 2024, miners' profit margins will be compressed, and the demand for mining machines may decline, which will in turn impact the company's performance and stock price. Second, the industry risk is high. Bitcoin mining is an "asset-heavy" industry with high R&D and production investment, but its profitability is constrained by a variety of external factors. At the same time, the supervision of high-energy-consuming mining industries around the world is becoming stricter. Canaan faces the challenge of green mining transformation. Investors are concerned about its future development, which is also reflected in the stock price. Third, the market competition is fierce. The competition in the field of Bitcoin mining machine manufacturing is fierce, and rivals such as Bitmain are strong. Canaan faces fierce competition in market share, technology research and development, etc. If it cannot maintain its advantage, it will affect the market's confidence in it and lead to pressure on its stock price.

Second, can RWA help Canaan?

There are many strategies to solve the sluggish business of Canaan. For example, business diversification, reuse mining machine chip design capabilities, develop AI training dedicated ASIC (refer to Bitmain's transformation path), cooperate with new energy companies, issue "carbon neutral computing power tokens" to attract ESG funds; such as financial restructuring, repurchase outstanding shares at the current low stock price to reduce the equity base. If the stock price is lower than $1 for a long time, it can maintain the Nasdaq listing qualification through stock consolidation (such as 10-in-1), introduce strategic funds or crypto-friendly investment institutions to inject capital, and optimize the shareholder structure; such as brand reshaping, regularly release mining machine research and development progress, mining field energy efficiency data and RWA asset audit reports, and rebuild the trust of the capital market.

RWA is another path for it to choose. The core value of RWA is compatible with Canaan Technology's business. First, it can revitalize existing assets. Canaan's mining machine inventory, mining field computing power and other heavy assets can be converted into liquid assets through tokenization to alleviate cash flow pressure. Second, it can improve the valuation logic, from "hardware manufacturer" to "computing power financial service provider", benchmarking Bitdeer (BTDR price-to-sales ratio is 3.5 times, higher than Canaan's 0.8 times). Third, it can attract incremental funds. RWA tokens can attract crypto native capital (such as DAO funds, DeFi protocols) and traditional financial institutions (such as asset management companies). If RWA operations are carried out simultaneously with other strategic adjustments, Canaan Technology is expected to achieve cash flow improvement in a relatively short period of time, that is, release $500 million to $1 billion in asset liquidity through tokenization; valuation repair, effective improvement in price-to-sales ratio (benchmarking the industry average), and stock price at least return to the $2-3 range; business structure optimization, non-mining machine sales revenue ratio increased to more than 30%, reducing cyclical dependence.

RWA has successful cases in the industry. According to public information, Bitdeer (BTDR) went public through SPAC + computing power leasing tokenization, and its revenue in Q3 2023 increased by 35% month-on-month, with a market value of more than US$600 million; Hut 8 (HUT) through mergers and acquisitions (merger with US Bitcoin Corp) and Bitcoin pledge lending, the stock price is significantly resistant to the bear market in 2023.

Third, thinking on the basic model of Bitcoin mining RWA

Bitcoin mining RWA operations need to be analyzed in combination with specific models, jurisdictions and regulatory frameworks. The following is a summary of three model mechanisms combined with relevant public market information, briefly describing the basic mechanism, legal risks and compliance strategies.

(I) RWA with computing power support

The basic mechanism is that miners use their own computing power as collateral and issue corresponding tokens through smart contracts (e.g. 1 TH/s computing power corresponds to 1 token). After purchasing tokens, investors can obtain the Bitcoin mining income corresponding to the computing power in proportion.

Its characteristics are: first, direct income distribution, that is, the income is automatically distributed through smart contracts, which is transparent and does not require trust in intermediaries; second, tokens can be traded in the secondary market, which reduces the exit threshold of traditional computing power investment. The risk point is that it depends on the miners' ability to perform their contracts. If the computing power is interrupted or the mining company shuts down, the value of the token may be damaged.

Legal risks. If the token is identified as a "security" (such as meeting the US Howey Test), it must comply with the securities issuance registration or exemption terms (such as Reg D/S), otherwise it may face SEC penalties. The legal effect of smart contracts may be affected by jurisdictional differences (such as some countries or regions do not recognize the legal status of smart contracts). Token income may be regarded as income or capital gains and must be reported for tax purposes (such as the US IRS's tax rules on cryptocurrencies). If the token can be traded anonymously, it may violate the FATF "Traveler Rule" (the identity of both parties to the transaction must be verified).

Compliance operation strategy. Including designing a token economic model to avoid the "investment return expectation" feature (such as only a right of use certificate rather than a dividend tool). Clarify the ownership of the property rights and income distribution terms of the computing power mortgage, and supplement the judicial applicability of the smart contract through off-chain agreements. KYC/AML compliance, access to compliant trading platforms, perform user identity verification (KYC) and large transaction monitoring. Provide investors with tax reporting templates to clarify the type of income (such as mining income or capital appreciation).

(II) Computing power leasing RWA

The basic mechanism is that the platform packages the mining power into tokens. Users purchase tokens to lease computing power and obtain a corresponding proportion of mining output. Tokens usually represent the right to use computing power for a fixed period (such as 1 year).

Its characteristics are: first, low threshold participation, that is, investors do not need to manage mining machines, and can participate in mining by holding tokens. Second, flexible terms, tokens can be designed for short-term or long-term leases to meet different needs. However, its risk point is that it relies on the platform's credit. If the platform is poorly operated or there is fraud or even running away, it may lead to capital losses.

Legal risks. If the platform promises fixed income or guaranteed returns, it may be deemed to have illegally absorbed public deposits without permission or license; if the platform conceals risks such as computing power fluctuations and mining machine failures, it may constitute fraud or false advertising (such as the US FTC (Federal Trade Commission) investigation of cloud mining platforms). The computing power provider, platform operator and users belong to different countries and need to meet the regulatory requirements of multiple countries (such as the EU MiCA regulations for the license requirements of crypto asset service providers).

Compliance operation strategy. First, the business model is de-committed, that is, avoid promoting "fixed income" and clearly link the income with variables such as Bitcoin price and computing power difficulty. Second, disclose computing power fluctuations, mining machine operation and maintenance costs and platform service fee structure in the user agreement to ensure information disclosure compliance. Third, separate the computing power provider, token issuer and trading platform to reduce the legal risks of a single entity (such as the Singapore VASP license for separate supervision), and apply for relevant licenses in areas where users are concentrated (such as the US MSB license and Hong Kong VASP system).

(III) DeFi+Computing Power RWA

The basic mechanism is to combine computing power assets with decentralized finance (DeFi) to generate composable financial derivatives through liquidity pools, pledge mining or splitting of income rights.

Its characteristics are: first, income reinvestment, that is, users can pledge computing power income to DeFi protocols to obtain additional interest or liquidity rewards. Second, financial innovation, such as splitting computing power income rights into "principal tokens" and "interest tokens", or trading computing power futures on DEX. Its risk points lie in the superposition of smart contract vulnerabilities, market volatility and liquidity risks.

Legal risks. If the computing power income rights are split into "principal tokens" and "interest tokens", it may be regarded as a derivative transaction and must comply with CFTC (U.S. Commodity Futures Trading Commission) or ESMA (European Securities and Markets Authority) rules. When code vulnerabilities cause user losses, the attribution of responsibility is unclear (such as The DAO incident). The anonymity of DeFi protocols may be used to evade capital gains tax or value-added tax (such as the EU DAC8's strengthening of crypto taxation).

Compliance operation strategy. First, pay attention to the application of derivative brand licenses. If it involves the splitting of income rights or futures contracts, you need to apply for a derivative trading license (such as the DCO license of the U.S. CFTC). Second, reduce technical risks through third-party audits and smart contract insurance. Third, use compliance oracles to monitor suspicious transactions, or deploy "regulatory modules" that can freeze assets. Fourth, cooperate with tax tools to automatically generate transaction records and tax reports.

In short,in areas where sandbox trials are allowed (such as Abu Dhabi ADGM, UK FCA Sandbox, Hong Kong RWA Sandbox), pilot businesses obtain temporary exemptions, and formulate differentiated service terms for users in different regions (such as EU GDPR data protection terms, California CCPA privacy terms). If the computing power asset holders, token issuers and operators are located in different jurisdictions (such as the Cayman Foundation, Singapore, Estonia, Dubai), they need to comply with the laws of the corresponding regions respectively, and reserve part of the income as a risk reserve to deal with computing power fluctuations or legal disputes. By taking multiple measures, relevant participants can explore compliant and innovative paths for computing power tokenization while implementing systematic compliance requirements and controlling legal risks.