Author: Nancy, PANews
Digital asset finance is a historic bus that Hong Kong cannot afford to miss.
Since the formal issuance of the virtual asset policy declaration on October 31, 2022, Hong Kong has become one of the most steadfast and actively embracing jurisdictions for Web3 and digital assets among global international financial centers, with the Hong Kong government's clear and solemn policy commitments and institutional support from regulatory bodies like the Securities and Futures Commission and the Monetary Authority, Hong Kong is rapidly advancing towards the forefront of digital asset finance innovation.
Moreover, among them, the tokenization of real-world assets (RWA) is a key component of the Hong Kong government's digital asset finance strategy, especially since on August 28, 2024, the Hong Kong Monetary Authority officially launched the 'Ensemble' sandbox plan, which will utilize experimental tokenized currency to promote interbank settlement 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 the RWA research platform rwa.xyz, the total market size of RWA currently exceeds $13 billion. BlackRock is even more optimistic, predicting that by 2030, the market value of tokenized assets will reach $10 trillion, which means that the potential growth space for RWA in the next 7 years may 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 this market opportunity, during the Hong Kong FinTech Week, the licensed digital asset trading platform OSL announced its collaboration with Huaxia Fund to launch a tokenized fund project aimed at Hong Kong retail investors within the framework of the Ensemble project, and partnered with Franklin Templeton to conduct concept verification for distributing on-chain wealth management products (including money market fund tokens).
This article will give a preliminary understanding of the 'Ensemble' project and analyze the layout and potential of retail RWA products such as the tokenized fund project explored by OSL in the Hong Kong market, as well as whether Hong Kong has the potential to move towards a global leading position in digital asset finance.
The Hong Kong crypto ambition behind 'Ensemble'
The 'Ensemble' project is not a temporary creation of Hong Kong in the field of digital asset finance, but a far-reaching strategy to enhance its layout of digital asset finance tickets and consolidate its position as an international financial center.
As early as March 2024, the Hong Kong Monetary Authority officially announced the 'Ensemble' project, clearly stating support for the development of the Hong Kong tokenization market, initially focusing on tokenized deposits (i.e., digital form commercial bank deposits issued and provided to the public by commercial banks).
Subsequently, the 'Ensemble' sandbox further studies and tests tokenization use cases, including the settlement of tokenized real-world assets (such as green bonds, voluntary emission reductions, airplanes, electric vehicle charging stations, electronic bills of lading, and treasury management), which is likely to develop into new financial market infrastructure, serving as a bridge between tokenized real-world assets and tokenized currencies 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 for many years and promoting innovative development in the industry. The emergence of the 'Ensemble' project is precisely Hong Kong's digital asset finance experimental platform built against this backdrop, which not only helps Hong Kong establish a compliance-oriented testing system but also provides opportunities for future digital asset innovation businesses to test the waters.
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 some unique advantages that on-chain native assets and traditional financial assets are difficult to match:
● Cost-effectiveness improvement: Firstly, tokenization eliminates the necessity for intermediary brokers, significantly reducing trading costs and improving efficiency;
● Better accessibility: Secondly, tokenization allows traditional assets to be divided into smaller shares, thus improving accessibility and liquidity;
This means that RWA can become a major driving force for the incremental growth of on-chain digital assets, enabling Web3 to effectively reach 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 also obtain DeFi yields through lending and staking, introducing real yield asset support to the digital asset market and enhancing its value basis.
It should be noted that since the financial innovation of protocols like Compound ignited the DeFi summer in 2020, the volume of digital assets has seen significant development. As of October 25, 2024, the on-chain TVL has reached $88 billion. However, compared to the trillions of dollars in tokenizable RWA assets (bonds, gold, stocks, real estate, etc.), this volume still seems negligible. 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 deeper changes, the boundaries between traditional finance and digital finance will become increasingly blurred, and the asset system on-chain will not only expand significantly in scale but also achieve breakthroughs in compliance and transparency, providing global investors with more diversified choices.
This is precisely the significance of the 'Ensemble' project: by building a highly innovative testing platform, Hong Kong is proactively exploring the deep integration of the digital asset financial ecosystem. Its new products and new models will serve as a 'rehearsal' for Hong Kong's next stage of digital asset innovation direction, 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 in promoting the integration of traditional finance and digital asset finance, enhancing on-chain compliance and transparency, laying a solid foundation for the future expansion of the digital asset market.
RWA tokenization, a crypto era bus that Hong Kong cannot miss?
Hong Kong's demand for RWA tokenization stems from its profound financial cultural background as an international financial center. Firstly, RWA tokenization provides a new opportunity for the integration of digital assets and traditional finance, allowing funds, bonds, equity, etc., to be tokenized through blockchain technology and digital asset forms, thereby improving the liquidity and accessibility of assets.
At the same time, the large and mature asset targets and scale required by the RWA market are precisely Hong Kong's comfort zone as an international financial giant, covering a rich variety of financial services 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, becoming a bridge between Web2 and Web3.
Source: Miles Deutscher
In other words, the integration of on-chain and real-world assets is also a solution that is severely lacking and highly sought after in the fusion of digital asset finance and traditional finance. For this reason, under the framework of the 'Ensemble' project, Hong Kong has set four key themes for RWA tokenization experimental testing — fixed income, investment funds, securitization, and trade financing, with fixed income and investment funds being regarded as the preliminary experimental focus for RWA tokenization.
Taking OSL's collaboration with Franklin Templeton in the 'Ensemble' project for a tokenized fund product concept verification as an example, as a forefront representative of this exploration, this move is expected to promote the on-chain and transparency of fixed income products, bringing innovative changes to the asset management field:
● 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 safe and reliable investment channels for global investors;
● Liquidity and transparency enhancement: Tokenization allows fund products to be transparently traded on the blockchain, assets can be split into smaller units, increasing liquidity and allowing investors to enjoy the liquidity and transparency advantages of decentralized markets;
● Efficiency improvement and cost optimization: Tokenization simplifies the management processes of traditional funds, reduces intermediary costs, makes fund products more inclusive, thereby attracting a wider retail investor audience;
In short, the cooperation between OSL and Franklin Templeton on tokenized investment fund products theoretically not only greatly enhances settlement speed and efficiency but also lowers the entry barrier by allowing small investments, thus bringing new sources of liquidity to the market and is expected to further promote 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, promoting its global popularity:
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 the incremental increase in institutional and high-net-worth investors' allocation to RWA tokenization investments is generally expected to exceed 100% within three years starting from this year.
Will retail products be the trigger 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, neither the on-chain financial innovations that ignited DeFi Summer like Uniswap nor the digital artworks that sparked the NFT craze like CryptoPunks, but rather the stablecoins that everyone is already accustomed to.
This stablecoin, which has RWA attributes and is aimed at ordinary users, has already become one of the widely accepted use cases for digital assets — the number of on-chain accounts for the TRC20 version of USDT alone exceeds 40 million, truly achieving the popularization of blockchain and 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 government bond funds led by Franklin's on-chain U.S. Government Money Fund (FOBXX) and BlackRock's USD Institutional Digital Liquidity Fund (BUIDL) have reached nearly $1 billion, laying a solid foundation for the application of RWA tokenized products in the retail market.
Objectively speaking, retail RWA tokenized products possess inclusive advantages that attract more ordinary investors to participate: Previously, ordinary investors faced high financial thresholds and complicated trading processes to participate in traditional financial markets such as U.S. Treasury bonds, real estate, or high-end stocks. 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 of blockchain, bringing higher trust to investors and promoting further application and popularization of digital assets in everyday financial life. In the field of RWA tokenization in Hong Kong, there are also a number of digital asset companies promoting compliant RWA innovation and promotion.
Among them, OSL, as Hong Kong's first licensed virtual asset platform, plays a key role in this process, especially given its understanding of the strategic significance of retail RWA products to Hong Kong's digital asset ecosystem, thus 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 clients with compliant RWA trading services.
● Hong Kong's first licensed platform, experienced: 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 cooperation with top traditional financial institutions: OSL has jointly promoted digital asset ETFs, investment fund tokenization, and other projects with UBS, Huaxia Fund, Harvest Fund, Franklin Templeton, and other financial institutions, establishing solid cooperative relationships;
● Compliance assurance and insurance coverage: OSL follows strict regulatory requirements to provide a compliant and secure collaborative environment for financial institutional partners while obtaining the world’s largest $1 billion insurance coverage, making it the single digital asset custody institution with the highest guaranteed amount and longest coverage period globally;
● Full product line and comprehensive service license: OSL started with over-the-counter trading in Hong Kong and has now obtained a complete license for providing tokenization projects, offering comprehensive solutions — covering the issuance, custody, trading services, asset distribution, and blockchain technology services of digital securities;
It is known that in terms of business models, RWA encompasses multiple levels from underlying infrastructure to upper-layer DeFi, while OSL can provide both bottom-layer infrastructure services, responsible for tokenizing and custodizing physical assets on-chain, and also conduct middle-layer services, bringing asset returns into the DeFi field, providing investors with more yield opportunities.
Overall, this layout by OSL not only helps Hong Kong strengthen the connection between Web3 and traditional finance but also brings higher trust and convenient participation experience to investors through compliant asset management and risk control.
Conclusion
For Hong Kong's exploration of digital asset finance, RWA tokenization is indeed a 'paradigm shift' worth looking forward to. If a legitimate method can be found to combine on-chain digital assets with real-world assets and promoted by retail forms such as OSL and Huaxia Fund, it may well become the next 'trigger point' for 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 digital asset expertise, which guarantees the compliance and transparency of RWA tokenization projects, and this is also Hong Kong's unique natural advantage:
It should be noted that as an international financial center, Hong Kong has rich traditional financial resources, whether it is a mature risk control system, complete trading infrastructure, or a large customer base, all of which support its ability to bring funds, stocks, gold, and other RWAs on-chain, fully releasing their liquidity.
Currently, we are confidently looking forward to its early arrival.
