Digital Asset Finance: Historical Opportunities in Hong Kong

Hong Kong is quickly becoming one of the world's most enthusiastic international financial centers in embracing Web3 and digital assets. Since the official release of the virtual asset policy declaration in October 2022, Hong Kong has made significant progress in the field of financial innovation in digital assets, from the government's clear commitments to the institutional support from regulatory agencies.

Real-world asset ( RWA ) tokenization is at the core of Hong Kong's digital asset financial strategy. In August 2024, the Hong Kong Monetary Authority launched the "Ensemble" sandbox program, aiming to facilitate interbank settlement through experimental tokenized currencies and focusing on the study of tokenized asset trading. This marks Hong Kong's forward-looking layout in the field of tokenized assets, demonstrating its determination to become a global center for RWA tokenization.

According to research, the current total market size of RWA exceeds 13 billion US dollars. More optimistic forecasts suggest that by 2030, the market value of tokenized assets could reach 10 trillion US dollars, indicating a potential growth space of over 75 times in the next 7 years.

This enormous incremental space lays the market foundation for Hong Kong to become a global RWA tokenization hub. Notably, during the recent Hong Kong FinTech Week, a digital asset platform announced partnerships with multiple fund companies to launch a tokenized fund project aimed at retail investors in Hong Kong within the framework of the Ensemble project, and to conduct a proof of concept for wealth management products on the distribution chain.

The "Ensemble" project is a far-reaching strategy for Hong Kong to lay out digital asset finance and consolidate its position as an international financial center. This project has established a compliance-oriented testing system for Hong Kong, providing a trial opportunity for future digital asset innovation businesses.

RWA tokenization transforms physical assets into digital assets on the blockchain, offering advantages such as reduced transaction costs, increased efficiency, enhanced accessibility, and liquidity. This enables Web3 to effectively reach the vast asset pools of traditional markets, such as the global bond market and gold market.

With the popularization of RWA tokenization, the on-chain world will usher in profound changes. The boundaries between traditional finance and digital finance will gradually blur, and the on-chain asset system will not only greatly expand in scale but also achieve breakthroughs in compliance and transparency, providing global investors with more diversified choices.

The demand for RWA tokenization in Hong Kong stems from its deep financial cultural background. As an international financial center, Hong Kong has a rich variety of financial services, a mature risk control system, a well-established trading infrastructure, and a large customer base. These advantages help Hong Kong quickly put RWA assets on-chain, providing the market with compliant and secure trading solutions.

Under the "Ensemble" project framework, Hong Kong has set four key themes for the experimental testing of RWA tokenization: fixed income, investment funds, securitization, and trade financing. Among these, fixed income and investment funds are considered the primary focus of the initial experiments.

A certain digital asset platform has collaborated with a fund company to conduct a proof of concept for tokenized fund products, which is expected to promote the on-chain and transparency of fixed income products, bringing innovative changes to the asset management field. This collaboration can not only enhance settlement speed and efficiency but also lowers the entry barrier by allowing small investments, bringing new sources of liquidity to the market.

In the future, RWA tokenization represented by investment fund products will bring new sources of liquidity to the Hong Kong market, promoting its global adoption. It is expected that by 2026, institutional and high-net-worth investors will allocate 5.6% and 8.6% of their portfolios to tokenized assets, indicating that the incremental increase in investment allocation for RWA tokenization will generally exceed 100% within the next three years.

Retail RWA tokenization products have the inclusive advantage of attracting more ordinary investors to participate. Through blockchain technology, these products lower the investment threshold, enhance risk control capabilities, and bring higher trust to investors. In Hong Kong, a number of digital asset companies are promoting compliant RWA innovation and development.

A licensed virtual asset platform played a key role in this process. As the first licensed platform in Hong Kong, it has extensive industry experience and collaborates widely with top traditional financial institutions, providing comprehensive compliance guarantees and insurance coverage, as well as a complete product line and service licenses.

For the exploration of digital asset finance in Hong Kong, RWA tokenization is an anticipated "paradigm shift". If a method can be found to legally combine on-chain digital assets with real-world assets, and if it is promoted in a retail format, it cannot be ruled out that it may become the next "catalyst" for digital asset finance.

As an international financial center, Hong Kong has rich traditional financial resources, a mature risk control system, a complete trading infrastructure, and a large customer base. These advantages support Hong Kong in bringing assets such as funds, stocks, and gold onto the blockchain in the form of RWA, unlocking their liquidity potential. We have reason to expect further breakthroughs and innovations in the digital asset financial field in Hong Kong.