Original title: (Why has RWA become popular recently, yet shows signs of an overwhelming trend?)
Author of the original text: Ye Kai (WeChat/Twitter: YekaiMeta)
In the past month, I have mainly been running around organizing meetings and implementing projects. RWA is becoming increasingly popular. Recent discussions in Hong Kong's compliant RWA, several meetings in Shanghai in the mainland, and FinTech in Hong Kong have made RWA a hot topic. Internationally, the new Singapore FinTech in November and Singapore Token2049 in September also highlighted regulatory policies and projects related to RWA. Next, the FinTech in Abu Dhabi and Blockchain Week in Dubai in December are expected to make RWA a focal point.
The leading exchanges are the same. OKX star has repeatedly emphasized RWA and stablecoins on Twitter, ByBit launched cryptocurrency investment products for global stock indices, Binance introduced its child project Usual after promoting the RWA concept project MANTRA, and Xiao Han's Matrixport is also using the new platform Matrixdock to launch gold RWA products after short-term US Treasury RWA products.
Compared to two years ago when no one paid attention to RWA, now everyone is jumping out to shout RWA.
Looking at the compliant RWA market in Hong Kong, with the attention of the mainland market, the compliant market seems to be heating up like an offshore market. Currently, compliant RWA in Hong Kong is still primarily issued in the form of traditional bonds for fund registration, followed by private placements and tokenization. It has not yet reached listing on licensed exchanges and PI customer trading, while the secondary market for retail investors is still quite distant. The current regulatory provisions are insufficient or lack clear guidance. In other words, the current compliant RWA in Hong Kong is still just a private placement issuance without a primary and secondary market for RWA. Of course, as regulations mature and advance, it will gradually proceed to listings and PI trading, and the secondary market may be cautiously opened in the future.
However, several recent voices are worth reflecting on.
One aspect is that in the Hong Kong FinTech space, discussions around RWA have surprisingly focused on consortium chains. A few years ago, Wall Street institutions that promoted the R3 consortium chain have now begun using Ethereum or Polygon, Base, and other public chains or Layer 2 for tokenized funds, yet Hong Kong's RWA is pushing consortium chains? This is a clear signal of regression!
If we look at RWA in Hong Kong again, although it is still just private placement, it has not truly realized the asset and industrial scenarios brought by RWA tokenization on-chain. It does not consider subsequent secondary markets and Layer 2 derivative applications, but is overly financialized, emphasizing private placements and their connection to the stock market. This means it does not emphasize 2.5 and has almost regressed to 2.0?
Additionally, stablecoins on RWA in FinTech are also a hot topic. The two institutions in Hong Kong planning to issue stablecoins have also gained significant attention. However, as Bitcoin quickly becomes a reserve asset for the United States and many countries globally, the stablecoin framework in Hong Kong can only use Hong Kong dollars as reserve assets. Where is its application scenario and its value in resisting economic cycles and inflation?
One aspect is in mainland Shanghai, with the recent Bund Conference in September and the Digital Exchange Summit in November. At the recent Digital Exchange Summit, the so-called first RWA project in the country—the 'Malou Grape RWA' project—was announced. Essentially, it involves using non-standard agricultural products like grapes, with their digital agricultural planting and/or sales data as underlying assets, raising equity for agricultural companies, and following the old routine of property trading exchanges or gold exchanges, disguised as RWA. It is unclear whether it will adopt Hong Kong's Fund structure or directly issue and trade assets on the mainland's Digital Exchange.
The current situation of the RWA market in Hong Kong.
The development of the compliant RWA market in Hong Kong mainly depends on the attitudes of three individuals: one is the Monetary Authority, with President Yu very actively promoting the sandbox project with a group of bank subordinates; the other is the SFC, led by Chairman Liang, whose style is relatively conservative, and the regulation of RWA/STO tokenized securities products is relatively slow; finally, there is the Hong Kong Stock Exchange, where the new President Ms. Chen places great importance on virtual assets, successfully bringing a virtual asset ETF to the Hong Kong Stock Exchange instead of letting it fall to the virtual asset exchange that was originally meant to host virtual asset trading indices.
The Monetary Authority's Ensemble sandbox project focuses on four major themes of RWA: fixed income and investment funds, liquidity management, green and sustainable finance, trade and supply chain financing.
As the first RWA project, the cross-border RWA financing project by Langxin Technology for charging piles serves as a pilot within the sandbox project. This project is a cross-border financing achieved in Hong Kong by a mainland listed company through RWA. After its issuance in late August, the market capitalization of Langxin Technology on the ChiNext rose by 1 billion, and subsequently, it connected to a general rise in the A-share market at the end of September, ultimately increasing its market capitalization by several billion in a few months. This pilot project has promoted the mainland market's understanding and demand for RWA and has rapidly accelerated the pace of Hong Kong's originally methodical RWA projects. Various licensed institutions have begun to treat issuance as a KPI, ignoring the subsequent primary and secondary markets, whether to list on licensed exchanges, whether there is a primary market for PI, and when to open the retail market. It is no longer a concern; the priority is to issue first and discuss R-share linkage later.
The Hong Kong Monetary Authority is also promoting tokenized deposits and cross-border payments. In fact, in recent years, financial institutions in the US and Europe, as well as international clearing institutions, have been continuously experimenting and implementing tokenization of commercial bank deposits and cross-border payment tokenization among banks. The direction of the HKMA's sandbox is also in this vein, as it has a large group of bank subordinates. However, a critical problem is that there is no longer a place for Hong Kong in the Western financial system, and blindly following strategies is meaningless. Hong Kong needs reforms and innovations based on its new position.
The focus is on the financing path of domestic assets through RWA.
Hong Kong's core advantage still lies in being a super intermediary for mainland assets/funds and offshore funds.
From this perspective, promoting cross-border RWA financing of high-quality mainland assets is Hong Kong's core focus, rather than cross-border payments. The significant decline in exports in recent years is an undeniable fact. For Hong Kong RWA, the core is still mainland RA/FA assets, including mainland institutional clients and funds (especially mainland institutions' branches in Hong Kong), as well as overseas funds or assets. Mainland institutions should continue to promote the investment and financing of RWA assets to overseas funds through Hong Kong's new RWA channel. In addition to new energy and infrastructure, there are also a large amount of consumer-related assets or equities and new materials assets or equities, which are all targets of interest for overseas funds or capital. Under conditions where normal investments are not possible, investments and profitable exits can be made through compliant exchanges and RWA financial products in Hong Kong.
In the mainland, we use 'controllable assets, credible asset management' to explain RWA.
Many friends come up and ask: Can my asset be issued as RWA? What kind of assets are suitable for issuing RWA?
One misconception is about the assets, and another is the assumption that funding will come once issued. The elements of RWA are relatively complex, including market structure, market participants (2B and 2C), native tokens, and liquidity. The market structure includes both the asset side and the funding side, with market participants being hodlers or traders, investors, speculators, etc., and there is even the issue of conversion between institutions and retail investors. The issuance process of RWA in Hong Kong involves funds, brokerages, exchange listing, underwriting, market makers, and liquidity, information disclosure, redemption, and settlement. This is a somewhat professional market.
Of course, most Chinese people like to ask: Are there any successful cases? In the early stages, every RWA case is a form of innovation, and the compliance cycle of RWA is long. If you wait for a year to see a successful case in the secondary market before getting involved, your position will have long been gone.
From this perspective, it is necessary to ask a few questions: Where are the assets? Where is the funding? Where is the liquidity?
Issuing RWA without considering trading and liquidity is irresponsible.
Compliant RWA is tokenized in the form of financial products for a shell through a Fund. Essentially, it is still corporate financing with high-quality assets or operating cash flows. Since large-scale assets are in the hands of enterprises or their platforms, the RWA market will inevitably first cater to institutional markets before retail investors.
The early compliant RWA market needs a guiding framework, guiding funds, a multi-level infrastructure framework, and diversified market participants. It's not just about project parties raising funds; it also requires liquidity LPs and arbitrage investment funds, which necessitates the existence of frameworks and guiding funds.
Hong Kong's RWA is like Hong Kong stocks twenty years ago; it can be considered the 'Hong Kong stocks' of the cryptocurrency era, representing the listing of high-quality mainland assets in Hong Kong. It also needs to leverage Hong Kong's legal, financial, and professional talents and resources, as well as establish red-chip SPVs, and so on. It also aims for global capital flow. Therefore, we, along with our partners, have jointly submitted a proposal for crypto Hong Kong stocks to the Hong Kong Stock Exchange, hoping to promote the design and implementation of a 'crypto board' under the main board and ChiNext. Crypto Hong Kong stocks will be more borderless and more retail-oriented, but the core essence remains unchanged: it is still primarily corporate financing and institutional markets.
Therefore, traditional finance does not need to worry; it's not about overturning you, it's still content you are familiar with, only in a renewed form. It needs to embrace Web 3.0 and virtual asset digital currencies. RWA may be the transformation path for financial practitioners in Central Hong Kong.
What if there is no liquidity?
Compliant RWA is not just a single path of compliant RWA in Hong Kong. There can also be licensed compliant STO models in Singapore, offshore models with Fund/SPV+Non-Securities, and even the compliant ATS model of the beautiful country (the RWA model of the beautiful country).
In this way, we can utilize the international interchange and cross-border regulatory arbitrage design of financial products to create liquidity. Treat Hong Kong's RWA private equity or primary market as a tokenization of US Treasury bonds, then pledge and operate the secondary market on licensed exchanges in Singapore or Dubai, with the native tokens derived from pledging going to offshore exchanges. This is a cross-border ATS arbitrage model, which will be elaborated on further.
Native tokens are the core incentive mechanism of RWA. In fact, the RWA tokens of traditional financial products after tokenization are equivalent to 2.5 securities tokens, not true native tokens. In the RWA ecosystem, new tokens generated based on RWA underlying asset pledges or for the governance of RWA underlying assets are the true native tokens. This is the key to liquidity.
The liquidity issue is also an advantage for practitioners in Central Hong Kong. Makers, market makers, discounting parties, Middle Eastern fund managers, etc., various liquidity measures actually have the same goal, differing only in the asset targets being allocated, shifting from stocks to RWA products.
Another key to liquidity is the exchanges.
Hong Kong's licensed exchanges are stable and conservative, suitable for primary markets and compliant capital inflows and outflows; Singapore's licensed exchanges emphasize issuance and underwriting, suitable for primary markets and partial secondary markets; Dubai's licensed exchanges highlight secondary markets and their interconnections with offshore cryptocurrency exchanges.
RWA liquidity will provide a huge market opportunity for vertical exchanges, namely RWA exchanges. A good RWA asset must have scale and depth, relying on a good industrial track. The upgrading of RWA in this industrial track will support a vertical industrial RWA exchange. For instance, the gold industrial track encompasses RWA for gold mining assets, physical gold RWA, RWA for gold trade and supply chain finance, gold lending DeFi, payment and settlement PayFI within the gold industrial chain, gold stablecoins, etc.
There are great opportunities, but one must be able to seize them. Leading exchanges have already begun to focus on RWA, and I am more optimistic about a licensed exchange platform themed around RWA.
The significance of licensed RWA exchanges could be epoch-making. From the perspective of corporate financing, enterprises in different eras correspond to different exchanges: the New York Stock Exchange corresponds to traditional enterprises, and NASDAQ corresponds to internet high-tech. Because the valuation methods, pricing strategies, PE multiples, and trading systems of the New York Stock Exchange cannot reflect the value of internet high-tech, NASDAQ emerged. Similarly, RWA exchanges correspond to emerging and virtual assets, as NASDAQ also struggles to provide appropriate or reasonable valuations and trading systems for carbon assets, virtual assets, etc. Hence, RWA exchanges will inevitably become a new era of exchanges.
Finally, I am reminded of a word: borderline. Recently, the online debates surrounding the former female gymnastics Olympic champion and world champion have raised the question of whether the borderline is a freedom issue or a suppression issue?
Looking back at the current momentum of RWA, in the early stages of development, we need to be cautious of a flood that leads to bad money driving out good money, while also protecting those RWA promoters whose intentions are good but are on the fringes. We are willing to continue moving forward steadily with everyone, issuing a moderate, compromise, and compliant professional voice to guide and promote the development of the 2.5 model of RWA.
#ARAW Always RWA Always Win! To promote the orderly development of the market, Brother Kai plans to recruit disciples and establish research camps to cultivate international RWA investment consultants. Young talents are welcome to contact privately; R01Labs will also gradually launch AMA discussions and workshops on different industrial tracks and themes. You are welcome to add WeChat YekaiMeta to join the RWA entrepreneurship research group to participate in discussions on specific RWA tracks and project products.
This article is from a submission and does not represent BlockBeats' views.