Opportunities and Challenges in the Wave of Tokenization

Recently, Trump announced the issuance of his personal meme coin $Trump, once again attracting the attention of global investors to the crypto market. If he returns to the White House, Trump may usher in a new era of crypto regulation in the U.S., encouraging more institutions to dive into the wave of crypto innovation. A U.S. policy expert recently stated that this is a signal that America is ready to lead the industry, and other countries need to be cautious in keeping up.

The Impact of Traditional Institutions' Participation on the Speed of Tokenization Development

Tokenization is moving from concept to reality, referred to as "the third revolution in asset management," and is expected to achieve explosive growth in the next five years. Research institutions predict that by 2025, non-stablecoin tokenized assets will exceed 30 billion USD.

As a global financial center, Hong Kong is also actively embracing the wave of RWA tokenization. The 2024 Policy Address proposed promoting RWA tokenization and the digital currency ecosystem, with the Monetary Authority launching the "Digital Bond Financing Scheme" to encourage the capital market to adopt tokenization technology. These measures indicate that Hong Kong hopes to reshape its financial competitiveness through tokenization.

However, the main driving force behind global tokenization innovation still comes from the United States. Traditional institutions in the U.S., represented by Wall Street, are accelerating the on-chain process of traditional financial assets and businesses through tokenization. Several well-known financial institutions are initiating the first wave of tokenization, which will have a global impact.

In contrast, Hong Kong has yet to see the emergence of institutions or projects with global influence in the field of tokenization. Despite positive policy encouragement, the participation of traditional financial institutions in Hong Kong is relatively low, and they maintain a cautious attitude towards the Web3 industry, remaining more in a "wait-and-see" state. This has prevented the rich financial resources of Hong Kong from being fully utilized in innovative tokenization.

The conservative attitude of traditional institutions in Hong Kong towards tokenization mainly stems from compliance requirements. Compliance is necessary, but it should not become a barrier to innovation. The core of tokenization lies not only in the technical implementation but also in the participation of institutions. The level of participation of traditional institutions will largely determine the early prosperity of the tokenization market.

In the short term, under circumstances where it is difficult to change the existing model, Hong Kong should attract more traditional institutions to participate in innovative and market-potential frontier practices through a more open tokenization sandbox mechanism. At the same time, stablecoins, DLT, and other related explorations can be collectively included in the sandbox for joint pilot projects, encouraging institutions to freely explore tokenization applications based on their own endowments.

Only with more resource-rich and asset-holding institutions actively participating in tokenization innovation can Hong Kong gain more initiative in the transformation and avoid being quickly distanced in the competition with the United States.

Focus on Standardized Financial Assets, Expand RWA Market Size

In addition to stimulating market innovation, Hong Kong also needs to clarify its development focus in the tokenization of assets. The global exploration of tokenization mainly concentrates on standardized financial assets, and although Hong Kong has made some explorations in fund and bond tokenization, the most attention currently is on the tokenization of non-financial assets such as new energy and agricultural products. While these explorations may help the long-term development of the tokenization ecosystem, it is difficult to establish market advantages in the short term.

The tokenization process of different assets will have a significant time lag: standardized financial assets such as bonds and funds, which have stable returns and considerable scale, are currently the most suitable asset classes for tokenization. Hong Kong should focus on these standardized financial assets in the short term and fully leverage its advantages as an international finance, trade, and shipping center, with a key focus on tokenization applications in trade and cross-border related scenarios, rapidly expanding the market size of RWA tokenization.

While technology is not the key to the success or failure of tokenization, an open technological system is more conducive to innovation. Public chains significantly outperform other technological systems in terms of global liquidity and openness, and have become the preferred platform for most tokenized bonds and funds. Under the premise of compliance, Hong Kong should more actively explore tokenization applications and innovations on public chains, gradually making it a key direction.

RWA tokenization, as a fusion product of two different financial systems, ideally accelerates the migration of real assets onto the chain while not limiting their value to exist only on the chain, ultimately serving and reflecting reality. In the face of active actions by international financial institutions in the field of tokenization, Hong Kong's time window is limited. If it can leverage institutional and market advantages to accelerate the embrace of innovation, while exploring the balance with regulatory compliance and providing traditional institutions with more space for innovation, and relying on the enormous asset support that the mainland can offer, Hong Kong will undoubtedly have an absolute advantage in the field of tokenization with broad prospects. Research estimates that the potential asset scale for tokenization in Hong Kong has reached as high as 36 trillion HKD.

We look forward to Hong Kong making significant progress in the RWA field by 2025.