Hong Kong Seizes the RWA Trend: Infrastructure, Ecosystem Scale, and Industrial Chain

After a series of favorable policies for the development of digital assets were successively announced, how to gradually improve the infrastructure and product ecosystem has become an issue facing Hong Kong.

"The (industry) attention is very high, especially after the Hong Kong government issued the declaration. I used to use up one box of business cards a year, but now I can distribute three boxes in a month." On July 23, a person in the Hong Kong asset management industry told Jiemian News.

The latest wave was set off by the "Policy Declaration on the Development of Digital Assets in Hong Kong 2.0" (hereinafter referred to as "Declaration 2.0") announced at the end of June. Compared with the first declaration issued three years ago, the latest policy clearly proposes to promote the tokenization of real-world assets (RWA) and the development of stablecoins, and build Hong Kong into a global innovation center in the field of digital assets.

The so-called RWA tokenization, namely Real-World Asset Tokenization, refers to the conversion of real-world assets into digital tokens through blockchain technology for operations such as holding, trading, splitting, or mortgaging on the chain.

Currently, RWA is becoming the core component of the development of on-chain finance. Whether it is bonds, real estate, accounts receivable, or commodity bills, more and more traditional assets are being introduced into the on-chain system in the form of tokenization, opening up a new round of growth channels for institutional investors.

According to the estimated figures released by Boston Consulting Group (BCG), by 2030, the global tokenization market is expected to reach a scale of US$16 trillion, which is roughly equivalent to three times the current market value of gold.

Due to advantages such as low tax rates, Hong Kong has been one of the important trading centers since the rise of virtual currency trading in 2015. The Web3 wave driven by blockchain is gradually reshaping the global financial landscape, breaking the boundary between real assets and digital assets. With the transformation in the virtual asset field, the Hong Kong Special Administrative Region Government has started to use the term "digital assets" instead of "virtual assets" in the latest declaration.

The aforementioned person in the asset management industry mentioned that traditional securities firms are currently paying attention to Web3 because there have always been many pain points in the trading process. For example, it takes a certain period for fund subscription and redemption. For traditional platforms, the greater significance of Web3 lies in solving the efficiency problems in the trading process through technological innovation. In the future, there are two extended directions. One is to improve turnover efficiency and allocation efficiency, and the other is to incubate the next generation of customers. Many new customers may not invest in fixed-income, inventory, etc. like traditional customers, but hope to quickly seize the future market.

"From a structural perspective, the development of RWA is closely related to three factors. First is technology, including wallets and the underlying tokenization technology, and there are no problems in these aspects; second is infrastructure such as distribution channels, which is currently an obvious pain point; and finally, application scenarios." The person said.

Cai Hua, CEO of Xinglu Technology, pointed out in an interview with Jiemian News that from an industry perspective, the infrastructure is still in its infancy and is generally lacking. "The Hong Kong government is pushing hard, and there isn't much time left for the industry. Currently, there are mainly two types of institutions in the market. One type is asset providers, including asset management companies and customers with considerable assets. The other type is distributors, namely various securities companies and banks. They are eager to access this market but find that the infrastructure is completely different from that of traditional finance."

Xinglu Technology is a one-stop wealth technology platform independently incubated by Fosun Wealth Holdings under Fosun. Its partners cover financial institutions such as securities firms, banks, family offices, and financial management institutions. In April this year, it became one of the key enterprises introduced by the Office for Attracting Strategic Enterprises in Hong Kong. On July 23, the company launched a one-stop RWA technology, issuance, and distribution platform - FinRWA Platform 1.0, aiming to solve the infrastructure problems.

"When institutions enter the market, they need to perform a series of actions, including binding wallets, address verification, going on the chain, and in-market and off-market KYT verification. These are all functions that traditional financial institutions' infrastructure does not have at all, and our system can solve these pain points." Cai Hua mentioned that the platform system can provide asset providers with RWA issuance guidelines and technical support compliant with Hong Kong regulations, and provide services for various types of financial institutions to access the distribution and trading of the RWA and stablecoin markets. In addition to quickly entering the market, it can also solve compliance problems.

"The demand for distribution channels is huge. Ultimately, a sales network needs to be built to bring RWA products to customers. Web3 is a decentralized chain, while Web2 is a centralized trading platform. Institutions hope to have a distribution system between the two. When RWA products are launched, they can know how many financial institutions have accessed and distributed them." Cai Hua pointed out that FinRWA Platform 1.0 connects the Web2 and Web3 systems, and the breakthrough lies in its ability to interact with traditional assets. "If customers want to combine virtual assets with stocks, we have completed the system joint debugging and connection with several suppliers and can meet this demand; if it involves traditional banking services and they want to independently operate wallet services, we also have independent deployments."

Currently, most RWA products in the market are money market funds. Money market funds play a role in liquidity management and risk management in traditional finance. This standardized product and application scenario provide a starting point for tokenization.

"Declaration 2.0" further proposes to expand the types of tokenized products and intensify efforts to develop tokenization solutions: promote the tokenization of a wider range of assets and financial instruments, demonstrating the diverse applications of this technology in different sectors, including precious metals (such as gold), non-ferrous metals, and renewable energy (such as solar panels); encourage innovative application scenarios, including tokenized traditional financial products (such as money market funds and other funds) and the revenue streams of real-world assets (such as electric vehicle charging stations).

The diversification of tokenized products is regarded as an irreversible trend by the industry. For example, AntChain under Ant Group completed the first new energy RWA last year, and Derin Holdings announced the RWA tokenization in the real estate field in July this year, with the total asset value of up to HK$500 million. The first batch of tokenized targets are certain interests in Derin Building in Hong Kong.

"RWA solves several problems. For categories in the real world that are difficult to be financialized and securitized, through the Internet and the on-chain ecosystem, the previously difficult-to-monitor data can be put on the chain, thus providing a basis for investment decisions." Cai Hua took charging piles as an example. Previously, no one invested in them because it was difficult to monitor their revenue. By putting the charging pile data on the chain, using each single-point data of the charging pile as the data support behind the token, and with the non-tamperable feature, the operation status can be monitored on the chain, including the number of charging people and the revenue scale.

However, Cai Hua also believes that non-standardized assets such as real estate and charging piles will not become mainstream in the short term. The biggest problem with non-standard assets is the lack of information transparency. Real estate targets are highly regional and more inclined to be investments within a certain circle, and the recognized group is relatively small. Currently, the company's platform mainly features fund, bill, and bond products, with very few non-standard products.

Against the background of the Hong Kong government's promotion of ecological diversification, Cai Hua mentioned that the asset categories most welcomed by issuers and users are still money market funds, which have high safety and stability; the second is tokenized bonds. Bonds can serve as the underlying assets for future stablecoins or be the first choice for customer allocation, and give rise to bond funds, funds with good risk ratings, and bill products.

"Now we are also developing some structured bill products. Stock tokenization solves the globalization problem, that is, users are no longer limited to being users of NASDAQ, the Hong Kong Stock Exchange, or the Tokyo Stock Exchange." Cai Hua mentioned that as the RWA ecosystem is gradually improved, the types of physical assets and non-standard assets will increase.

On July 23, Xinglu Technology, in cooperation with Fosun Wealth Holdings and China Asset Management (Hong Kong), launched the world's most comprehensive series of tokenized money market funds - China AMC Hong Kong Dollar Digital Currency Fund, China AMC Renminbi Digital Currency Fund, and China AMC US Dollar Digital Currency Fund. Among them, Xinglu Technology is an important distribution system provider and distributor for these three tokenized funds, and Fosun Wealth Holdings has also become the first technology securities firm in Hong Kong to successfully launch these three tokenized funds at the same time.

Gan Tian, the CEO of China Asset Management (Hong Kong), mentioned at the press conference that the company's tokenized funds mainly serve two directions. The first direction is to connect with the upcoming launch of stablecoins at the end of the year, and money market fund products will become interest-bearing tools in the stablecoin world; the second is to improve the efficiency of the financial market. "We hope to build a 24/7 service. It may take five to ten years. Web3 blockchain technology combined with smart contracts will put traditional financial products on the chain. In the end, it is not just about low cost and high efficiency, but more about bringing revolutionary changes to the middle and back offices. By then, the pain points of investors in the traditional fiat currency world settlement such as T+1 and T+2 may no longer exist."

For Hong Kong, which is currently "attracting enterprises", a more complete fintech ecosystem will bring more investment and employment opportunities to the local area. The Hong Kong Investment Promotion Agency recently announced that it has attracted over HK$160 billion in investment and created more than 19,000 new jobs, achieving the performance indicators set in the 2022 Policy Address ahead of schedule. In terms of industry distribution, the top three industries for attracting enterprises are financial services and fintech (283 enterprises, accounting for 22%), innovation and technology (275 enterprises, accounting for 21%), and family offices (179 enterprises, accounting for 14%).

Ren Jingxin, the director of the Office for Attracting Strategic Enterprises in Hong Kong, told Jiemian News that when attracting key enterprises to settle in Hong Kong, the focus is on the construction of the overall economic ecosystem in Hong Kong, especially in the field of digital finance.

"Since 2023, a total of 84 key enterprises in four batches have settled in Hong Kong, bringing about 20,000 new jobs and HK$50 billion in investment. Currently, preparations are underway for the settlement of the fifth batch of key enterprises, which will be announced in the next few months, covering industries such as digital finance, biohealth technology, artificial intelligence, data science, advanced manufacturing, new energy, and the newly added cultural and creative industry." Ren Jingxin said.

Cyberport is an important base for the development of tokenization projects in Hong Kong. "Declaration 2.0" mentions that Cyberport will cooperate with relevant stakeholders in the digital asset industry and use its incubation ecosystem to provide support, including business matching opportunities, technical support, guidance from industry experts, and participation in accelerator programs related to digital assets and Web3.

On July 23, Chen Ximing, the chairman of the Hong Kong Cyberport Management Company Limited, said that against the background of the release of "Declaration 2.0", Cyberport will also launch a pilot funding program for blockchain and digital assets to further promote the application of agents and blockchain technology. The program covers multiple fields, including RWA tokenization, stablecoins and payment solutions, decentralization, Web3 security, distributed artificial intelligence, and machine learning. On the same day, Xinglu Technology moved into Cyberport.

Chen Ximing pointed out that Cyberport has become the largest fintech community and blockchain digital economy ecosystem in Hong Kong, gathering more than 440 fintech enterprises, covering wealth management, digital assets, virtual banks and insurance, compliance supervision, green finance, network security, etc., as well as two licensed virtual banks, three licensed virtual insurance institutions, and three licensed virtual asset trading platforms. The Web3 base at Cyberport has more than 280 blockchain and digital asset enterprises from the Chinese mainland and 19 other regions and countries around the world.

This article is from "Jiemian News", Reporter: Zhang Xilong. Republished by 36Kr with permission.