"Currently, many RWA projects are still just wrapped in a layer of blockchain shell, relying on traditional cross-border financing or project private placement financing, and they are still narratives between traditional institutions and qualified investors."
Article author: Cai Pengcheng
Source: Titanium Media
In June of this year, a violin that once belonged to Russian Empress Catherine the Great, valued at approximately $9 million, was used as collateral by its holder to borrow millions of dollars from Galaxy Digital, one of the largest crypto asset management companies globally, which then realized its 'tokenization.'
This legendary violin has gained a 'digital twin,' which can be traded and managed on the blockchain.
Previously, Rolex watches had also been 'tokenized,' allowing the owners to borrow funds after collateralizing the watches. During this process, the watches were divided into several pieces, allowing some people to 'co-own' them.
Similar logic is also applied in real estate, stocks, bonds, and many other fields. For example, on the real estate tokenization platform RealT, digital tokens have already replaced traditional paper contracts. Users can even own a piece of real estate starting at around $50 and receive rent weekly.
Since 2024, real-world assets (RWA) have developed rapidly. RWA refers to the tokenization of a certain asset off-chain, followed by its issuance on-chain. CoinGecko's report on the cryptocurrency industry in the second quarter of 2024 pointed out that MemeCoin, artificial intelligence, and RWA have become the hottest categories, accounting for 77.5% of web traffic.
Some companies have gone further, attempting to use this model to provide a new financing channel for real enterprises. In August of this year, Ant Group issued the first domestic new energy entity asset RWA in Hong Kong. By linking the encrypted assets issued on the blockchain to the operational data performance of charging piles in the primary market, mainland technology energy company Langxin Group obtained financing of about 100 million RMB.
Some practitioners told Titanium Media that since August, the Langxin case has generated strong interest among many practitioners in mainland China and Hong Kong for this new model, with several similar projects already in progress, especially among new energy companies. "Using offshore funds to serve mainland projects is currently the most appealing aspect for Chinese entrepreneurs."
However, at the same time, several practitioners believe that the underlying technology, business model, and regulatory framework surrounding this innovative model need to be improved. One respondent stated, "The case of Langxin has made a good start, but currently, the project's experimental significance outweighs its commercial significance."
How national bonds are traded on-chain
If RWA is likened to a bridge connecting the real and virtual worlds, then currently, the main assets traversing this bridge are financial assets from the real world.
Among them, U.S. Treasury bonds are particularly prominent. Currently, the market value of RWA with government bonds and commodities as underlying assets is the largest, approximately $2.66 billion and $1.95 billion, respectively.
U.S. Treasury RWA is currently also the main battlefield for traditional financial institutions, with nearly half of the products in this market issued by just BlackRock and Franklin Templeton.
BlackRock's BUIDL fund is a typical example. In March 2024, BlackRock teamed up with U.S. tokenization platform Securitize to launch the BUIDL tokenized fund—by the end of September 2024, the fund's size had reached $520 million.
In this collaboration, the token platform is responsible for transforming the on-chain operations of the fund into regulatory-compliant document data, managing the shares of the tokenized fund, while handling subscriptions and redemptions of the fund. BlackRock focuses on the investment strategy of the fund. The BUIDL fund mainly invests in cash, U.S. Treasury bonds, and repurchase agreements, ensuring that each BUIDL token maintains a stable value of $1. The profits are distributed monthly, with interest airdropped to investors' wallets in the form of new tokens.
Unlike traditional financial products, the shares of the BUIDL fund directly enter investors' wallets in the form of tokens, allowing investors to check shares, net value, and transaction records anytime through the blockchain.
Almost simultaneously, HSBC also launched the first RWA product 'HSBC Gold Token' aimed at retail investors in Hong Kong. The so-called gold token refers to the ownership of physical gold stored in digital form on the blockchain. Each HSBC Gold Token represents a portion of ownership record of 0.001 ounces of local London gold designated by the London Bullion Market Association.
This product is also the first retail gold token approved by the Hong Kong Securities and Futures Commission.
In a report on October 29, Boston Consulting Group (BCG) referred to RWA tokenization as the 'third revolution in asset management,' predicting that within seven years, the managed assets of tokenized funds may reach 1% of the global mutual fund and ETF managed assets, which means that by 2030, managed assets will exceed $600 billion.
The TVL (Total Value Locked) of RWA scenarios has grown rapidly since the past year.
Regarding the rise of U.S. Treasury RWA, Guosheng Securities pointed out in a recent research report that it is mainly due to U.S. Treasury yields once significantly exceeding those of the DeFi market, leading investors to turn to RWA products linked to U.S. Treasury bonds for arbitrage.
With the Federal Reserve raising interest rates, U.S. Treasury yields have gradually increased. In July this year, the Federal Reserve raised the federal funds rate to 5.50%. In comparison, the current market median DeFi yield (seven-day average) is only around 2%, making RWA products linked to U.S. Treasury bonds particularly attractive, driving capital into the RWA market for arbitrage.
Some analyses also suggest that the bond market, due to its maturity and complexity, coupled with competition among intermediaries, makes it suitable for tokenization via blockchain.
For example, State Street Global Advisors (SSGA) stated in its report that the bond market has matured and is suitable for tokenization; the complexity of these instruments, the repetitiveness of issuance costs, and the intense competition among intermediaries support rapid adoption and provide space for significant impact; blockchain technology can play an important role in markets that emphasize transaction speed (such as repos and swaps).
How charging piles achieve mini-IPOs
Compared to the booming financial assets, the scale of non-financial RWA assets is much smaller. It is understood that real estate is currently a relatively successful non-financial RWA, with a circulation of only $200-300 million, while RWA assets involving real enterprises are even rarer.
Against this backdrop, Ant Group issued the 'first domestic new energy entity asset RWA' in Hong Kong, which can be seen as a pioneering move.
Specifically, this project is being conducted in the Hong Kong Monetary Authority's Ensemble sandbox, underwritten by UBS, with the raised funds used to support Langxin's construction of new energy charging piles and other infrastructure. The tokens issued on the blockchain (Ant Group's 'Ant Chain') will correspond to more than 9,000 charging piles operated by Langxin and represent a portion of the revenue rights from the charging piles.
A report from the National Financial and Development Laboratory mentioned that through tokenization, the profits of each charging pile are transparent, verifiable, and immutable on the blockchain, avoiding the possibility of project parties concealing profits under traditional models. The profit-sharing ratio of charging pile revenues can be fixed in advance in the form of smart contracts, and every time an income is generated, profits are distributed to all stakeholders, ensuring investors' returns, enhancing transparency, and reducing risks.
Completed applications in the Ensemble project, source: Hong Kong Monetary Authority
Ant Group mainly tells the story of technology 'two chains and a bridge'—specifically referring to 'asset chain', 'transaction chain', and 'Ant Chain trusted cross-chain bridge'. The 'asset chain' digitizes and standardizes the real assets of mainland enterprises, making them tradable. The 'transaction chain' focuses on tokenizing funds, especially funds from traditional financial institutions, using blockchain technology to achieve the flow and transaction of funds.
Ant Group's CEO Zhao Wenbiao likens it to a mini-IPO.
A telecommunications industry analyst from a brokerage told Titanium Media App that the essence of this project is asset securitization, and compared to traditional asset securitization, its advantages are: the cost of registration and settlement of assets issued on the blockchain may be lower than traditional methods, thus reducing issuance costs. Secondly, after tokenizing real assets, the information flow and capital flow can be combined through blockchain.
"Copycat" players have emerged, but foreign investment entry is the key threshold.
New concepts attract new funds.
Multiple industry insiders told Titanium Media App that with Langxin Group's successful financing, similar cross-border RWA projects are gradually emerging in Hong Kong.
"Currently, the main focus is on new energy projects, which feel very much like copying homework," one practitioner stated, emphasizing that the path selection also focuses on hardware + internet physical assets, ensuring the digitalization and standardization of asset sources. Just like in the case of Langxin charging piles, Ant Group integrates hardware and IoT devices to connect with real assets like charging piles, achieving source information collection.
"Using offshore funds to serve mainland projects is currently the most attractive aspect for mainland entrepreneurs," said Liu Honglin, director of Shanghai Mankun Law Firm.
In Liu Honglin's view, to successfully replicate Langxin's case, there are two major thresholds.
First, the quality of the project itself is crucial. For the vast majority of project parties hoping to finance through blockchain, Ant Group may not necessarily be a good reference. After all, RWA projects require strong resource integration capabilities, longer cycles, and substantial structural design, which smaller institutions may not be able to handle.
Ant Group already has many long-term and deep partnerships, possessing sufficient influence on both the funding side and the asset side. For example, Langxin Group's financial report shows that Ant Group's senior vice president, Ni Xingjun, has served as a director of Langxin Group since April 2015 and continues to do so today.
At the same time, traditional equity financing requires companies to have a mature business model, stable income expectations, and reliable market data, and these basic requirements do not become irrelevant simply because blockchain technology is used.
A more critical question is how foreign capital can smoothly reach the domestic market.
Ant Group also revealed that the previous Langxin RWA case used offshore RMB for settlement, targeting issuance only to the primary market, involving an amount of about 100 million RMB. However, the specific details of currency conversion and fund circulation between domestic and overseas in this cross-border RWA project have not been disclosed by Ant Group, Langxin, or the underwriting party, UBS.
Liu Honglin stated that he does not have specific knowledge of the inflow and outflow of funds in the Langxin RWA case. He is currently aware that other cross-border RWA projects mainly have two means of fund inflow: commonly, there are two locality fund pools clashing, which may not necessarily go through underground money houses; it could just happen that a certain business segment owns fund pools in both locations.
Another common method is for foreign capital to directly invest in the mainland, but this approach has strict scrutiny regarding the cleanliness of the entire funding chain, and the tokenization of capital flow increases the difficulty of scrutiny.
He mentioned that under China's current foreign exchange management regulations, cross-border capital flows must be monitored by the State Administration of Foreign Exchange. Therefore, project parties need to pay special attention to compliance with foreign exchange management to ensure that they do not violate relevant laws during project financing and avoid restrictions on capital flows.
In addition, funds brought in by enterprises from abroad often need to be stored in special purpose accounts (such as foreign exchange capital accounts) and used according to approved purposes. The usage of funds may need to be reported regularly to the foreign exchange administration to ensure compliance.
Experimental value outweighs commercial value; the market expects stablecoins.
Returning to the core advantages of RWA, its main function is to enhance the liquidity of assets and transparency of transactions through asset securitization and tokenization. However, currently, cross-border RWA projects are still a considerable distance from ideal conditions in both aspects.
First, blockchain + IoT devices cannot completely solve the trust issue.
Supporters state that the Langxin case resolves the credibility of operational data from its inception, achieving true records of operational data, allowing investors to have a clearer understanding of the operational details of the company, which to some degree addresses the issue of enterprises fabricating data.
However, some voices argue that unlike public chains, trust in consortium chains is based on existing relationships and agreements between participants, and the participating nodes are limited and known entities. It cannot be ruled out that certain nodes within the consortium may be untrustworthy or encounter problems.
The aforementioned brokerage analysts told Titanium Media App that in the Langxin case, Ant Group almost played the role of a pure trust intermediary, but for other RWA projects, whether their trust intermediaries are reliable remains unknown.
As for the form of the transaction chain, Ant Group's chief scientist Yan Ying told Titanium Media App that 'under regulatory compliance, the choice of chain is open. If everyone trusts Ant Chain, it effectively allows Ant Chain's technology to provide a safe and compliant value transfer platform for everyone.'
Secondly, current cross-border RWA projects lack liquidity.
For example, in the Langxin case, UBS, as the underwriter, was limited to primary market sales. A legal professional told Titanium Media App that due to regulatory requirements, current participation in RWA projects is mainly limited to qualified investors rather than retail investors, resulting in a small base of participants in the investment. Therefore, compliant RWAs on the market in Hong Kong currently lack liquidity.
The aforementioned individuals noted that currently, some projects have two options to improve liquidity: one is to collateralize a certain amount of token assets into cash or USDT (Tether), and the second is to transfer to more regulatory-friendly regions for token 'fragmentation,' splitting token ownership. However, this approach is not compliant in Hong Kong.
Others in the industry believe that the underlying assets of RWA are real assets (including real estate or corporate assets, etc.), and the price fluctuations of real-world assets are generally small. Even if a secondary market is formed and small investments are realized, it is still difficult to generate sufficient trading volume.
The aforementioned individuals mentioned that to alleviate concerns about liquidity and the quality of underlying assets to some extent, current RWA projects typically set a guaranteed return (usually at 5% or 6%), but since the projects are just beginning to launch, investors have not yet received any returns.
In his view, 'Currently, many RWA projects are still just wrapped in a layer of blockchain shell, relying on traditional cross-border financing or project private placement financing, and they are still narratives between traditional institutions and qualified investors.'
Regarding the long-term development of RWA, many market participants express expectations for the issuance of compliant stablecoins in Hong Kong.
In an ideal situation, once compliant stablecoins are issued, investors' returns can be settled in real-time automatically through the blockchain network, promoting the automation and intelligence of investment return settlements. Furthermore, it can also facilitate 24/7 trading of tokens in the secondary market—currently, return settlements still rely on manual processes.
As a result, industry insiders widely told Titanium Media App that Langxin's financing case has successfully opened the door for cross-border RWA, but as an emerging concept, cross-border RWA still has a long way to go.
