Written by Ye Kai (WeChat / Twitter: YekaiMeta)
In the past month or so, I have been running around organizing meetings and implementing projects. RWA is becoming more and more popular. Recently, RWA is a hot topic in Hong Kong's compliant RWA, several Shanghai conferences in the mainland, and Hong Kong's FinTech. Outside, Singapore FinTech in November and Singapore Token2049 in September, RWA-related regulatory policies and projects are also hot topics. Next, there will be Abu Dhabi FinTech and Dubai Blockchain Week in December, and RWA is expected to become the focus of attention.
The same is true for the leading exchanges. OKX star sent several tweets in a row to emphasize RWA and stablecoins. ByBit launched a cryptocurrency investment product for stock indexes in countries around the world. Binance launched its own project Usual after promoting the RWA concept project MANTRA. Xiaohan’s Matrixport also used the new platform Matrixdock to launch gold RWA products after the short-term US Treasury bond RWA products.
Compared to two years ago when no one paid attention to the promotion of RWA, now everyone is shouting about RWA.
Looking at the Hong Kong compliant RWA market, with the attention of the mainland market, the compliant market has become a bit as hot as the offshore market. At present, Hong Kong compliant RWA basically still needs to issue funds in the form of traditional bonds for filing, and then private placement and tokenization. It has not yet been carried out to the listing of coins on licensed exchanges and PI customer transactions, and the secondary market for retail investors is still relatively far away. The current regulations are not sufficiently supported or have no clear guidance. In other words, at this stage, Hong Kong's compliant RWA is still only a private placement issuance, without a primary market and a secondary market; of course, with the maturity and advancement of supervision, it will gradually be promoted to the listing and PI transactions, and the secondary market may be prudently opened in the future.
But several recent voices are worth reflecting on.
One is that in Hong Kong FinTech, around the hot topic of RWA, the mainstream voice is actually pushing the alliance chain. A few years ago, Wall Street institutions that promoted the R3 alliance chain, and now tokenized funds, etc. have begun to adopt public chains or L2 such as Ethereum or Polygon and Base, but Hong Kong's RWA has begun to promote the alliance chain? This is an obvious sign of regression!
If we look at Hong Kong's RWA, although it is currently only a private placement, it has not truly realized the real chain of assets and industrial scenarios brought by the tokenization of RWA, nor has it considered the subsequent secondary market and second-layer derivative applications. Instead, it is over-financialized and highlights the linkage between private placement and the stock market. In other words, it does not emphasize 2.5 and is almost regressing to 2.0?
In addition, RWA stablecoins are also a hot topic in FinTech, and two institutions in Hong Kong that plan to issue stablecoins have also received a lot of attention. However, Bitcoin is about to become a reserve asset in the United States and many countries around the world, but Hong Kong's stablecoin framework can only use Hong Kong dollars as a reserve asset. What are its application scenarios and value in resisting economic cycles and inflation?
One is in Shanghai, the Bund Conference in September and the Digital Exchange Summit in November. At the Digital Exchange Summit two days ago, the so-called first RWA project in China, the "Malu Grape RWA" project, was released. Simply put, it uses non-standard agricultural product grapes, and its digital agricultural planting and/or sales data as the underlying assets. It finances the equity of agricultural companies and follows the old routine of property rights exchanges/finance exchanges. It is covered with the cloak of RWA. It is not clear whether it will use the Hong Kong Fund structure or directly list assets and trade on the digital exchanges in the mainland?
Current status of Hong Kong RWA market
The development of Hong Kong's compliant RWA market depends mainly on the attitudes of three people: one is the HKMA. After the renewal, President Yu is actively promoting the sandbox project with a group of bank subordinates; one is the SFC. Chairman Liang has a relatively stable and conservative style, and the supervision of RWA/STO tokenized securities products is relatively slow; and one is the Hong Kong Stock Exchange. In March, the new president, Ms. Chen, attached great importance to virtual assets and managed to bring the virtual asset ETF to the Hong Kong Stock Exchange instead of letting it fall to the virtual asset exchange where the virtual asset trading index should be located.
The HKMA’s Ensemble sandbox project focuses on four major RWA themes: fixed income and investment funds, liquidity management, green and sustainable finance, and trade and supply chain financing.
As the first RWA project, the cross-border RWA financing project of Langxin Technology's charging piles is a pilot project in the sandbox project. This project is a cross-border financing achieved by a mainland listed company in Hong Kong through RWA. After the issuance in late August, the market value of Langxin Technology's GEM increased by 1 billion, and then followed the general rise of the A-shares at the end of September. In the end, the market value increased by several billion in a few months. This pilot project has promoted the mainland market's awareness and demand for RWA, and has also stimulated Hong Kong's original step-by-step RWA projects to speed up their pace. All licensed institutions began to use issuance as a KPI, regardless of the subsequent primary and secondary markets, whether to go on a licensed exchange, whether there is a primary market for PI, and when to open a retail market? No matter what, just issue it first and talk about it first, and talk about it first.
The Hong Kong Monetary Authority is also promoting tokenized deposits and cross-border payments. In fact, in recent years, financial institutions in the United States and Europe and international clearing institutions have been continuously experimenting and implementing the tokenization of commercial bank deposits and cross-border payment tokenization of interbank settlements. The Hong Kong Monetary Authority's sandbox is also in this direction. After all, the Hong Kong Monetary Authority has a large number of bank subordinates. But the key issue is that there is no place for Hong Kong in the Western financial system. It is meaningless to blindly follow the strategy. What Hong Kong needs is reform and innovation based on its new position.
The focus is on domestic assets RWA financing path
Hong Kong’s core advantage remains its role as a super intermediary between mainland assets/funds and overseas offshore funds.
From this perspective, the core of Hong Kong is to promote cross-border RWA financing of high-quality mainland assets, rather than cross-border payments. The sharp decline in exports in the past two years is an indisputable fact. For Hong Kong RWA, the core is still the mainland's RA/FA assets, including mainland institutional clients and funds (especially the Hong Kong branches of mainland institutions), 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 number of large consumer assets or equity, new material assets or equity, which are all targets of overseas funds or funds. In the case of normal investment failure, investment and profit exit can be carried out through Hong Kong's compliant exchanges and RWA financial products.
In the Mainland, we use "controllable assets and trusted asset management" to explain RWA.
Many friends asked: Can my assets be issued as RWA? What assets are suitable for issuing RWA?
One misunderstanding is that it is an asset, and the other misunderstanding is that once it is issued, funds will come. The elements of RWA are relatively complex, including market structure, market participants (2B and 2C), native tokens, and liquidity. The market structure also includes the asset side, the capital side, market participants, whether they are Hodl or traders, investment, speculation and arbitrage, etc., and even the conversion problem between institutions and retail investors. The issuance process of Hong Kong RWA involves funds, securities firms, exchange listing, underwriting, market makers, liquidity, information disclosure, payment and liquidation, etc. This is a slightly professional market.
Of course, most Chinese people like to ask: Are there any successful cases? In the early stage, every RWA case is innovative, and the compliance RWA cycle is long. If you wait for a successful case to be launched on the secondary market a year later, there will be no place for you.
From this perspective, we need to ask a few questions: Where are the assets? Where is the capital? Where is the liquidity?
It is irresponsible to only issue RWA without caring about transactions and liquidity.
Compliance RWA uses the form of a financial product as a shell and is tokenized through a fund. Its essence is still corporate financing with high-quality assets or operating cash flow. Because large-scale assets are in the hands of enterprises or their platforms, the RWA market will inevitably first enter the institutional market and then the retail market.
The early compliant RWA market requires a guiding framework, guiding funds, a multi-level infrastructure framework, and diversified market participants, not just project parties raising funds, but also liquidity LPs, arbitrage investment funds, etc. This requires a framework and fund guidance.
Hong Kong RWA is like Hong Kong stocks 20 years ago. It can be considered as the "Hong Kong stocks" in the era of cryptocurrency. It is also a high-quality mainland asset listed in Hong Kong. It also needs to rely on Hong Kong's legal and financial professionals and resources, and it also needs to do red chip structure SPV, etc., and it also needs to face global financing. So we and our partners jointly submitted a proposal for encrypted Hong Kong stocks to the Hong Kong Stock Exchange, hoping to promote the design and implementation of the "encrypted board" under the main board and GEM. Encrypted Hong Kong stocks are more borderless and more retail-oriented, but the core essence remains unchanged, and it is still mainly corporate financing and institutional markets.
Therefore, traditional finance does not need to worry. It is not going to subvert you. It is still the content you are familiar with, but in a new form. It needs to embrace Web3.0 and virtual assets and digital currencies. RWA may be the transformation path for financial practitioners in Central, Hong Kong.
What to do if there is no liquidity?
Compliant RWA is not limited to Hong Kong compliant RWA. There can also be the licensed and compliant Singapore STO model, the offshore model of Fund/SPV+Non-Securitie, and the ATS model (United States RWA model) compliant with the United States SEC.
In this way, we can design liquidity by taking advantage of the international interoperability and cross-border regulatory arbitrage of financial products. We can regard the private placement or primary of RWA in Hong Kong as the tokenization of US debt, and then do pledge and secondary market in the regulated licensed exchanges in Singapore or Dubai. The native tokens derived from the second layer after pledge will go to offshore exchanges. This is a cross-border ATS arbitrage model, which will be explained in detail later.
The native token is the core incentive mechanism of RWA. In fact, the RWA token after the tokenization of traditional financial products is equivalent to 2.5 securities tokens, not native tokens. In the RWA ecosystem, new tokens based on the pledge of RWA underlying assets or generated for the governance of RWA underlying assets are the real native tokens. This is the key to liquidity.
The issue of liquidity is also the advantage of practitioners in Central, Hong Kong. Makers, market makers, 50% off parties, Middle Eastern fund managers, etc., all kinds of liquidity measures actually have the same goal. The only difference is the asset targets of the allocation, from stocks to RWA products.
Another key to liquidity is the exchange.
Hong Kong's licensed exchanges are stable and conservative, suitable for the primary market and compliant deposits and withdrawals; Singapore's licensed exchanges emphasize issuance and underwriting, suitable for the primary market and partial secondary markets; Dubai's licensed exchanges highlight the secondary market and linkage with offshore cryptocurrency exchanges.
RWA liquidity will provide a huge market opportunity for vertical exchanges, that is, RWA exchanges. A good RWA asset must have scale and depth, and must rely on a good industry track. The RWA upgrade of this industry track will support a vertical industry RWA exchange. For example, in the gold industry track, there are gold mine asset RWA, gold physical RWA, etc. in the gold industry chain, gold trade and supply chain finance RWA, gold lending Defi, etc., payment settlement PayFI within the gold industry chain, gold stablecoins, etc.
The opportunity is huge, but we must be able to seize it. The leading exchanges have begun to pay attention to RWA, and I am more optimistic about a licensed exchange platform with RWA as the theme.
The significance of the RWA licensed exchange may be epoch-making. From the perspective of corporate financing, different eras of enterprises correspond to different exchanges. The New York Stock Exchange corresponds to traditional enterprises, and Nasdaq corresponds to Internet high-tech. Because the valuation method, pricing strategy, PE multiples and trading system of the New York Stock Exchange are difficult to reflect the value of Internet high-tech, Nasdaq has emerged; while the RWA exchange corresponds to emerging assets and virtual assets. It is also difficult for Nasdaq to give a suitable or reasonable valuation and trading system for carbon assets and virtual assets, so the RWA exchange will inevitably become an exchange of a new era.
Finally, I think of a word: edge. Recently, there has been a debate online about the edge of former women's gymnastics Olympic champions and world champions. Is edge a question of freedom or a question of repression?
Looking back at the current momentum of RWA, in the early stages of development, we must be cautious about the proliferation of bad money driving out good money, and we must also protect those RWA promoters who have good intentions but are walking on the edge. We are willing to continue to move forward steadily with everyone, and make moderate, compromising, and compliant professional voices to guide and promote the development of RWA in the 2.5 model.
#ARAW Always RWA Always Win! In order to promote the orderly development of the market, Kai Ge plans to recruit disciples, open research camps, and cultivate international RWA investment consultants. Young talents are welcome to contact us privately; R01Labs will also gradually launch AMA discussions and workshops on different industry tracks and themes. Welcome to add WeChat YekaiMeta to join the RWA Entrepreneurship Seminar Group to participate in specific RWA tracks and project product discussions.
