Digital asset finance is a historic opportunity that Hong Kong cannot afford to miss.
Since the formal announcement of the virtual asset policy declaration on October 31, 2022, Hong Kong has become one of the most determined and proactive jurisdictions embracing Web3 and digital assets among global international financial centers. From the government’s clear and solemn policy commitments to the institutional support from the Securities and Futures Commission and the Monetary Authority, Hong Kong is making great strides toward the innovative frontier of digital asset finance.
Among these, the tokenization of real-world assets (RWA) is a key part of the Hong Kong government's digital asset financial strategy. Notably, on August 28, 2024, the Hong Kong Monetary Authority officially launched the 'Ensemble' sandbox program, which will use experimental tokenized currency to facilitate interbank settlements and focus on the study of tokenized asset trading, marking the government's forward-looking layout in the field of tokenized assets and demonstrating Hong Kong's determination to become a global RWA tokenization center.
According to the latest data from RWA research platform rwa.xyz, the total market size of RWA currently exceeds $13 billion. BlackRock is even optimistic in predicting that by 2030, the market value of tokenized assets is expected to reach $10 trillion, which means that the potential growth space for RWA in the next 7 years could exceed 75 times!
Source: rwa.xyz
Such a huge incremental space lays the market foundation for Hong Kong to become a global RWA tokenization hub. In light of this market opportunity, during the Hong Kong FinTech Week, the licensed digital asset trading platform OSL announced its collaboration with Huaxia Fund to launch tokenized fund projects aimed at Hong Kong retail investors within the framework of the Ensemble project, and partnered with Franklin Templeton for the conceptual verification of distributing on-chain financial products (including money market fund tokens).
This article will provide an initial understanding of the 'Ensemble' project and analyze the layout and potential of retail RWA products such as the tokenized fund projects explored by OSL in the Hong Kong market, as well as whether Hong Kong could leverage this to achieve a global leading position in digital asset finance.
'Ensemble' represents Hong Kong's ambitious crypto aspirations.
'Ensemble' is not a fleeting endeavor in Hong Kong's digital asset finance sector; rather, it is a profound strategy to consolidate its position as an international financial center while laying out its digital asset finance ticket.
As early as March 2024, the Hong Kong Monetary Authority officially announced the 'Ensemble' project, clearly expressing support for the development of Hong Kong's tokenization market, initially focusing on tokenized deposits (i.e., digital forms of commercial bank deposits issued and provided to the public by commercial banks).
Subsequently, the 'Ensemble' sandbox will further study and test tokenization use cases, including the settlement of tokenized real-world assets (such as green bonds, voluntary emission reductions, aircraft, electric vehicle charging stations, electronic bills of lading, and treasury management), which may further develop into new financial market infrastructure, acting as a bridge between tokenized real-world assets and tokenized currency in transactions.
Source: Hong Kong Monetary Authority
In fact, the Hong Kong government and financial regulatory agencies have been loosening policies for the digital asset industry over the years and promoting innovative development in the industry. The emergence of the 'Ensemble' project is precisely the digital asset financial testing platform created by Hong Kong in this context, which not only helps Hong Kong establish a compliance-oriented testing system but also provides opportunities for trial runs of future digital asset innovation businesses.
It is well known that RWA tokenization refers to the tokenization of physical assets (such as bonds, gold, real estate, and other commodities) into digital assets on the blockchain, thereby bringing exclusive advantages that both on-chain native assets and traditional financial assets cannot match:
● Improved cost-effectiveness: First, tokenization eliminates the necessity of intermediary brokers, significantly reducing transaction costs and improving efficiency.
● Better accessibility: Secondly, tokenization allows traditional assets to be divided into smaller shares, thereby improving accessibility and liquidity.
This means that RWA can become the main driving force for the incremental growth of on-chain digital assets, allowing Web3 to effectively tap into the vast asset pools of traditional markets, such as the global bond market ($133 trillion) and the gold market ($13.5 trillion). Under the framework of tokenization, these physical assets can not only enter the on-chain trading ecosystem but can also generate DeFi yields through lending and staking, introducing real yield asset support to the digital asset market and enhancing its value foundation.
Since 2020, when protocols like Compound ignited the DeFi summer, the digital asset sector has seen substantial growth. As of October 25, 2024, the on-chain Total Value Locked (TVL) reached $88 billion. However, compared to the trillions of dollars worth of tokenizable RWA assets (bonds, gold, stocks, real estate, etc.), this size still seems insignificant. RWA tokenization may bring strong incremental momentum to on-chain assets.
Source: DefiLlama
It is foreseeable that with the gradual popularization of RWA tokenization, the on-chain world will usher in a deeper transformation, the boundaries between traditional finance and digital finance will become increasingly blurred, and the on-chain asset system will not only expand significantly in scale but also achieve breakthroughs in compliance and transparency, bringing more diversified choices to global investors.
This is precisely the significance of the 'Ensemble' project: by building a highly innovative testing platform, Hong Kong is conducting forward-looking explorations for the deep integration of the digital asset financial ecosystem. Its new products and models will serve as a 'rehearsal' for the next stage of digital asset innovation in Hong Kong, providing strong momentum for Hong Kong to become a global RWA tokenization hub.
The collaboration between OSL and Huaxia Fund and Franklin Templeton is precisely aimed at promoting the integration of traditional finance and digital asset finance, enhancing on-chain compliance and transparency, and laying a solid foundation for the future expansion of the digital asset market.
RWA tokenization: A crypto wave that Hong Kong cannot afford to miss?
The demand for RWA tokenization in Hong Kong stems from its deep financial cultural background as an international financial center. First, RWA tokenization provides a new opportunity for the integration of digital assets and traditional finance, allowing funds, bonds, equities, etc., to be tokenized through blockchain technology and digital asset forms, thereby increasing the liquidity and accessibility of assets.
At the same time, the vast and mature asset targets and scale required by the RWA market are precisely Hong Kong's comfort zone as an international financial giant—encompassing a rich variety of financial service types, and possessing years of accumulation and rich experience, a mature risk control system, complete trading infrastructure, and a large customer base.
Therefore, these advantages can help Hong Kong quickly bring RWA assets on-chain, providing compliant and secure trading solutions for the market, and becoming a bridge between Web2 and Web3.
Source: Miles Deutscher
In other words, the connection between on-chain and real-world assets is also a solution that digital asset finance and traditional finance desperately lack and crave. Therefore, under the framework of the 'Ensemble' project, Hong Kong has set four key themes for experimental testing of RWA tokenization—fixed income, investment funds, securitization, and trade financing, with fixed income and investment funds being viewed as preliminary experimental focuses for RWA tokenization.
Taking OSL's collaboration with Franklin Templeton on the tokenization of fund products in the Ensemble project as an example, as a front-line representative of this exploration, this move is expected to promote the on-chaining and transparency of fixed-income products, bringing innovative changes to the asset management sector.
● Compliance and Security: OSL relies on the compliance testing platform of the Hong Kong Monetary Authority to ensure that tokenized funds meet regulatory standards, providing global investors with safe and reliable investment channels.
● Increased liquidity and transparency: Tokenization enables fund products to be traded transparently on the blockchain, allowing assets to be divided into smaller units, thus increasing liquidity and providing investors with the advantages of liquidity and transparency in decentralized markets.
● Efficiency improvement and cost optimization: Tokenization simplifies the management process of traditional funds, reduces intermediary costs, and makes fund products more inclusive, thereby attracting a broader retail investor base.
In short, OSL's collaboration with Franklin Templeton on tokenized investment fund products theoretically not only significantly enhances settlement speed and efficiency, but also lowers the entry threshold by allowing small investments, bringing new sources of liquidity to the market and potentially further promoting the development and popularization of the RWA market.
Source: EY
In the future, RWA tokenization, represented by investment fund products, will bring new sources of liquidity to the Hong Kong market and promote its global popularization.
According to EY's forecast, by 2026, institutional and high-net-worth investors are expected to allocate 5.6% and 8.6% of their portfolios to tokenized assets, which also means that in the three years starting from this year, the incremental growth of institutional and high-net-worth investors' allocations to RWA tokenization investments will generally exceed 100%.
Could retail products be the explosion point for RWA?
What has been the most successful digital asset financial product globally in the past five years?
The answer is not hard to guess; it is neither the on-chain financial innovations that ignited DeFi Summer like Uniswap nor digital artworks that sparked the NFT craze like CryptoPunks, but rather the stablecoins that everyone has long been accustomed to.
This stablecoin with RWA attributes, aimed at ordinary users, has already become one of the widely accepted use cases for digital assets—only the TRC20 version of USDT has more than 40 million on-chain accounts, truly achieving the popularization of blockchain, greatly broadening and deepening the user base of Web3 and digital assets.
Major TradFi institutions such as BlackRock, Citibank, Franklin Templeton, and JPMorgan are also focusing on such products, aiming to further expand the application of digital assets in everyday financial life. Currently, the circulating tokenized treasury fund led by Franklin's on-chain U.S. Government Money Fund (FOBXX) and BlackRock's U.S. Dollar Institutional Digital Liquidity Fund (BUIDL) has nearly reached $1 billion, laying a solid foundation for the application of RWA tokenization products in the retail market.
Objectively speaking, retail RWA tokenization products have the inclusive advantage of attracting more ordinary investors to participate: previously, ordinary investors faced high capital thresholds and complicated trading processes to participate in U.S. treasury bonds, real estate, or high-end stocks in traditional financial markets. Now, through RWA tokenization, these assets can be divided into smaller trading units, significantly lowering the investment threshold.
Moreover, retail RWA products enhance risk control capabilities through the transparency characteristics of blockchain, bringing higher trust for investors and promoting further application and popularization of digital assets in everyday financial life. Additionally, a number of digital asset companies in Hong Kong are promoting compliant RWA innovation and marketing.
Among them, OSL, as Hong Kong's first licensed virtual asset platform, plays a key role in this process, especially understanding the strategic significance of retail RWA products for Hong Kong's digital asset ecosystem. Therefore, it is actively committed to bringing tokenized assets into the mass market, including leveraging its policy advantages as a compliant platform to expand partnerships with traditional financial institutions to provide compliant RWA trading services for customers.
● Hong Kong's first licensed platform with rich experience: As the first trading platform in Hong Kong to be granted a virtual asset license, OSL has over six years of rich experience in the digital asset industry.
● Extensive collaboration with top traditional financial institutions: OSL has collaborated with UBS, Huaxia Fund, Harvest Fund, Franklin Templeton, and other financial institutions to jointly promote projects such as digital asset ETFs and investment fund tokenization, establishing a solid cooperative relationship.
● Compliance assurance and insurance coverage: OSL adheres to strict regulatory requirements, providing a compliant and secure cooperation environment for financial institution partners, while obtaining the largest insurance coverage of $1 billion globally, making it the single digital asset custody institution with the highest and longest insurance coverage in the world.
● Full product line and comprehensive service license: OSL initially started from over-the-counter trading operations in Hong Kong and has now obtained full licenses to provide tokenization projects, offering comprehensive solutions that encompass the issuance, custody, trading services, asset distribution, and blockchain technology services of digital securities.
It should be noted that in terms of business models, RWA covers multiple levels from underlying infrastructure to upper-level DeFi. OSL can provide underlying infrastructure services responsible for tokenizing and custodying physical assets on-chain. It can also engage in intermediate layer business, bringing asset yields into the DeFi space, offering investors more yield opportunities.
Overall, OSL's layout not only helps strengthen the connection between Web3 and traditional finance in Hong Kong, but also brings higher trust and a convenient participation experience for investors through compliant asset management and risk control.
Conclusion
For Hong Kong's exploration of digital asset finance, RWA tokenization indeed represents an anticipated 'paradigm shift.' If a legal method of combining on-chain digital assets and real-world assets can be found and promoted by retail forms such as OSL and Huaxia Fund, it may well be the next 'explosion point' in digital asset finance.
From this perspective, the role played by OSL also highlights Hong Kong's advantages in global digital asset financial innovation. As one of the oldest virtual asset companies in the world, OSL possesses profound expertise in digital assets, which provides assurance for the compliance and transparency of RWA tokenization projects, and this is also Hong Kong's unique natural advantage.
It is important to know that Hong Kong, as an international financial center, possesses rich traditional financial resources. Whether it is a mature risk control system, a complete trading infrastructure, or a large customer base, all support its ability to bring assets like funds, stocks, and gold onto the chain in the form of RWA, thus completely releasing their liquidity.
Currently, we are confident in looking forward to its early arrival.
