Looking for a new angle on RWA? Listen to what Hong Kong's "regular soldiers" say

This sharing invited three guests from well-known Hong Kong virtual asset No. 9 institutions, they are:

• Chief Executive Officer of Pandu Fund - Junfei
• CSOP Quantitative Investment Team Director - Wang Yi
• MaiCapital Managing Partner- Marco Lim

**1. How should RWA be regulated in Hong Kong? Can it be opened like retail investors? **

RWA is the abbreviation of Real World Asset (real world asset), and the concept of the previous generation is STO (Security Tokenization Offering tokenized securities). There is no doubt that RWA is a very popular concept in the current market. Not only are many capital and venture capital institutions actively deploying it, but some regulatory authorities are also paying attention.

On July 6 this year, officials of the Hong Kong Securities Regulatory Commission mentioned that the current regulatory perception of RWA is constantly changing. In the past, people thought that all tokenized things were virtual assets and should be regulated as virtual assets; but now they think that RWA and STO should be regulated in the same way as the underlying assets. This is indeed very exciting news, because if the bottom layer of RWA or STO is stocks, and will be regulated according to the model of its underlying assets, does it mean that this type of RWA can be opened to retail investors?

Wang Yi: The regulatory principle in Hong Kong is "Same Principle, Same Practice". My personal understanding of its attitude towards RWA is that it is actually fulfilling its own regulatory principles. As for whether RWA will be subject to additional supervision after becoming a Token on the virtual side, you may also need to refer to the supervision on the virtual asset side, and then nest it.

Of course, if the underlying assets of RWA are deposits, bonds, stocks or even a building, there may be corresponding supervision in real assets. This just tells us where to find them (corresponding regulatory provisions), and does not It is not that it must be provided to retail investors in a strict sense or to whom.

Marco: I agree. For example, Hong Kong issued a green bond a while ago. This green bond can actually be retailed, but it has been tokenized. So if the original asset can be purchased by retail investors, then after it is turned into tokenization, retail investors can actually buy it.

So it is actually the same principle, that is, if the product is only open to professional investors in the traditional market, then only professional investors can buy it after it is tokenized; but if the product is already open to retail investors in the traditional market , then even if it is tokenized, retail investors can buy it immediately. **

Junfei: In fact, the term RWA did not exist until last year, including from the data on the chain. In fact, the market share related to Tokenization was quite small 22 years ago. Since this year, the share has suddenly increased.

I think it also depends on the underlying assets, be it Tokenization or Real World Asset, it depends on what kind of asset is recorded at the bottom? Is it tangible or intangible?

If it is an asset like USDT, real estate, or some collection-type NFT, the supervision may not be sure whether it should be managed. But in terms of tangible assets, for example, a physical asset, or some traditional types of equity assets such as stocks and bonds, if they are tokenized, it is very clearly within the scope of supervision, It must meet the regulatory requirements of Hong Kong.

Chen: In the field of regulatory compliance in Hong Kong, the licensed institutions are the closest to the regulation, and they are also the most restrictive of all investment behaviors with regulatory requirements, so their views are the most we should refer to. The three guests all gave a very clear guideline: they think that the thinking of the regulators is relatively clear, and the most important thing about the regulation of virtual assets is to look at the bottom layer of the **** in reality Which regulatory principle **** should **** be applied in the world. If the underlying asset is real estate, it may not be supervised by the China Securities Regulatory Commission; if the asset is to be securitized, there may be some disputes, such as whether it is a security; if the underlying asset is originally a stock or bond supervised by the China Securities Regulatory Commission In theory, a class of assets such as funds and funds should be regulated according to their original principles.

**Second, why are ordinary users willing to buy RWA? **

For ordinary investors, there are normal channels and a large number of issued coins to buy stocks, bonds, funds and other assets. To purchase tokenized assets, it needs to involve exchanging legal currency for stable currency (such as USDT and USDT). Hypothetical digital Hong Kong dollar, etc.), the friction cost of this process alone is not low, and it is not a smooth channel for ordinary users. So why do ordinary users choose to buy such assets?

Wang Yi: In traditional financial investment, most people invest in something that must have corresponding returns and risks. Actually, this point is the same whether investing in the virtual world or investing in traditional finance. **Then why is RWA popular? In fact, you may seldom consider: what is the most stable and safest income in virtual assets? In terms of currency standard, the safest investment in currency standard is definitely not DeFi, but Staking (mining).

The annualized rate of return for mining Ethereum is actually not as high as the current short-term rate of return for the U.S. dollar. There is a shocking case: there is a project in the current RWA track in the United States that deals with U.S. national debt. After tokenizing the U.S. national debt, it tokenized 1.2 billion U.S. dollars within three months. The return on government bonds holding this Token is only about 3.8, so why are so many people willing to buy it? This is because it can also be used for Staking. To expand, the user purchases a Token on the RWA platform, which is a national bond similar to the "deformed USDT", which will generate income itself; at the same time, the user can also use this Token for mining, that is, the user's income It will be superimposed, so that the lowest risk-free return that such an RWA can generate exceeds the risk-free return of the existing legal currency, so its demand is so great.

In fact, there have been many cases of this approach. For example, FTX has also Tokenized Tesla. Tesla was also very popular at the time, so why did people buy a Tokenized Tesla? Are there any additional benefits? In fact, if there is additional income, and this income is guaranteed, it can become a main factor that attracts investors to enter the virtual side to buy this Token. So from the perspective of risk-free returns, if it can beat things on the market, or even beat the risk-free returns on the virtual side, then it is valuable.

Of course, there are also many people who think that it is necessary to tokenize immobile assets such as real estate, so that everyone can buy fragmented things. This is also a perspective of RWA, but at present, it is difficult to achieve a large RWA case on the market. scale. The crux of the problem is that: when **** invest in ****, they all have to make horizontal comparisons. Among assets with the same attribute ****, they will prefer **** **** **** **** ON *** *** ** DON'T **** *** *** * ****** ** **** IT *** **** *' ** *** ****. The one with the most assets, with such assets, people absolutely have the motivation to move to the virtual side. **

In the past, there was asset securitization, but now it may be asset virtualization. It is hoped that asset virtualization can bring more liquidity on the trading side, with more participants and investors, and more convenience for users. But in principle, the asset scale of the virtual side is far from meeting the needs of the legal currency society, but it has a more convenient aspect. This aspect can turn it into a Real Value within a more rigorous range, and it must be able to prove There is Real Value. Of course, if users are willing to take high risks and earn an annualized return of 20%, 50% or even 100% after DeFi and coin investment, this is another story.

So in fact, I am very optimistic about RWA in some aspects, because it can really do this and attract investors.

Chen: From this point of view, it seems that this model can indeed be applied to many asset classes with different risk levels.

Marco: Exactly. I used to do STO and fragment the funds, hoping to find more investors, but I encountered two problems. One is that users can buy this fund with fiat currency, and the other is that the circulation (such as RWA) is not enough. many. But if its risk-free is slightly higher than that of virtual currency, it can actually attract many investors. As Mr. Wang said, after staking, the return is 4.5. If some DeFi and leverage are added, the return may already reach 7~8. This is actually a very attractive return, so many people hope to pursue such RWA.

So ** we have been looking for **** RWA **** the wrong entry point, **** used to be **** hoping to **** real estate or other similar assets **** fragments *** *****************************************************************************************. ***Put it in the **** coin circle, and the income may be greater. **

Chen: So in fact, the most attractive thing about this thing is that its underlying layer is exposed to a risk-free asset.

Marco: Exactly. No one looked at RWA before, because at that time any coin in the currency circle could rise to a lot, so no one would look at stable and risk-free assets. But now the whole world view has changed. When you invest, you may want to invest more in risk-free assets, and at the same time hope to get the highest return among them, so everyone looks at the relatively stable RWA.

JunFei: I think it depends on the situation, because in fact, the capital is always the smartest, and it will always flow to the **** asset class that **** it **** thinks it has the most value-added potential . **Now after the Federal Reserve raises interest rates, the cost of funds in both Hong Kong dollars and US dollars will become very high. When the cost of borrowing funds becomes very high, in fact, this is to allow users to speculate in stocks while speculating in coins, and users can also invest this money in some asset allocation.

Chen: When the previous generation recognized STO and RWA, it was still about fragmenting some real-world assets or commodity assets. Because these assets may be too large and have poor liquidity when they are transferred and sold, when discussing RWA and STO in the previous generation, they may have paid more attention to how to manage them, how to confirm their rights, and so on. Now that there are more technologies and successful cases of this kind, we find that the bottom layer can be replaced by assets such as stocks and bonds that are already fragmented, and there are more flexible forms. So in fact, **this round of **** RWA's popularity is not just **** speculation, but the structure of the entire market and the current cycle of the economy. * *** Let **** everyone find that this thing has more achievable value. **

JunFei: The main reason is that RWA is now included under Hong Kong compliance supervision. It turns out that when trading RWA, people cannot confirm whether the platform has really bought this asset for themselves. Because most platforms are not licensed, they just issue a token to users, and the credit in it is only endorsed by the platform. If the platform does not help users make purchases, once there is a problem with the platform, users will find that these so-called real-world assets do not really belong to them. There are only two ways to solve this problem: **One is to fully **** the asset **** tokenized ****, **** users **** in **** DeFi *** You can see the data on the chain by going to ****; the second is that **** must comply with the **** supervision of Hong Kong ****. **

**Third, under compliance supervision, how to cut into RWA? **

Since RWA involves real-world assets (real assets, stocks, securities, etc.), it must involve "right confirmation". And once it comes to confirmation of rights, at least in the real world, it is still an issue on the legal level, not an issue of the decentralized Trustless mechanism discussed in the Web3 field and the DeFi field. Once it is discussed at the legal level, the value of compliance and being regulated is highlighted. I would like to ask if you have ever thought about where you can cut into RWA under the identity that has been approved by the supervision?

Marco: I think the possible entry point is "manage a relatively risk-free fund", which may be enough to buy government bonds or some currency funds on the No. 9 card. But this has encountered a problem that has always been difficult to deal with-KYC, because in the end we still use the traditional method to do KYC. Therefore, what the Hong Kong regulatory agency may recognize is not to do KYT or other things on the chain, but still needs the No. 9 license institution to carry out KYC. In other words, there are some No. 9 institutions whose sources of funds cannot be identified, so it is more difficult to access the money in virtual currency.

Chen: That is to say, **** compliance is the **** advantage of **** No. 9 institution, and **** is also a restriction **** at the same time. **But we still have to look at it from the perspective of development, because regulatory agencies and officials are also in the process of continuous evolution and iteration, and their cognition of the track and related products is also constantly changing.

Marco: So if we really have RWA, we can only buy RWA with coins that have been KYC. Some stable coins that have not been KYC/KYT may not be accessible to us. Therefore, from the perspective of Hong Kong's supervision, Hong Kong's stable currency may be a doorway in the future, we can open it, and then allow virtual currency funds to directly purchase RWA.

JunFei: I think the asset market is quite divided now, that is, it is divided into two worlds: the fiat currency world and the virtual asset world. In the world of fiat currency, Fiat transactions are very free to trade. In the world of virtual assets, USDC can also be used for currency transactions very freely. There is no bridge between the two worlds, or the cost is relatively high. So ** No. 9 institution **** as an asset manager, if you want to **** across **** bridges, **** don't **** **** at the **** business level. *** if *** **** *** another **** *** **** another *** **** 's , *** ***** ** an /************. ****But in the future **** bridges will definitely become wider and wider, and the cost will become lower and lower. **

**Under the framework of No. 4 and No. 9, what can be done on the RWA track? **

JunFei: For an asset management company, it must first seize the track with the largest dividend and the greatest future growth potential, and then select the company or asset class with the most potential in the track. A large part of Pandu Fund's asset targets is in the field of emerging assets, such as innovative stocks/debts/virtual assets related to blockchain, Web3, AI, etc. In fact, supervision provides a lot of information, especially when there is supervision in the first place, and some changes occur later, there will often be some relatively large opportunities. Hong Kong itself is enjoying regulatory dividends, and many places do not have financial innovation plans, so this itself is an opportunity for Hong Kong. Now that we have obtained the license as the first batch of pioneers in Hong Kong, this is also a small opportunity for us. We will try our best to help users create greater value and benefits, and provide better financial products.

Wang Yi: RWA itself is a Real World Asset. As a traditional financial institution, we have actually issued a lot of ETF products, including currencies, market funds, treasury bonds, stocks, and futures. As holders of the No. 9 license, we can actually take a step back, that is, we can bring in real-world assets to help Web3 issuers, project parties, etc., because their investment experience in traditional financial fields/traditional assets is relatively thin. Therefore, No. 9 institutions can easily serve as a bridge to deal with the asset side of the RWA side. As for how to turn into the Token side, you can find a partner to do it together. In fact, this is a better way.

But in the opposite direction, No. 9 institutions also need to know which points of this asset can attract investors after tokenization. One is to be able to tell investors the advantages of the product in real money, and the other is to be able to bring real benefits to others. In other fields, you need to have a basic understanding of this field, know how this thing works, and what kind of benefits you earn. Therefore, we will often deal with different partners and try our best to understand different fields (take RWA as an example, how does it bring benefits to customers, and whether this thing is feasible). What we have to do is to do a good job in our own part. On this basis, everyone will see the gradual development of the entire market.

Marco: For so many years, almost all of our customers are traditional financial people who want to invest in virtual assets, but this year is different. Many investors hold virtual currency assets and want to find channels to invest in traditional assets. Such customers actually don’t want to convert their virtual assets back to legal currency, because the friction cost in the process is very high. They hope to invest in some traditional assets with stablecoins. You can mortgage to do mining and earn money on both sides. So ** used to be **** people who helped **** traditional assets into the currency circle, this year may **** more **** are people with **** currency circle Access to Legacy Assets****. **

But the most traditional assets may be some risk-free investments. The demand already exists, but this work has not been done well under the supervision of Hong Kong, so we will work hard to do it well this year. In fact, this does not require proper relaxation of supervision in some aspects. What we need to do well is to make the supervision think that: these people who invest have already done KYC and KYT. They just don’t want to transfer back to legal currency, which doesn’t mean they can’t. Invest in traditional assets, because the entire friction cost is too expensive, and if it is converted back to legal currency, it will be difficult for these customers to return to the currency circle. So I think this aspect is what we need to work hard to communicate with regulators when doing Web3 in Hong Kong. Of course, we can't do it alone, and we also need partners. We hope that we can cooperate to make RWA.