Being the Hong Kong RWA of Web2.5 is akin to the Hong Kong stock market of twenty years ago, equivalent to the Crypto “stock market” of today. For the financial veterans in Central, it can be seen as Hong Kong stocks 3.0, or the tokenization of Hong Kong stock assets. The biggest similarity between Hong Kong RWA and Hong Kong stocks is that most of them are high-quality assets from the mainland, aimed at facilitating global capital flow.
While previous articles have discussed the RWA model linking stocks with Web3.0 concepts and Bitcoin, the reality is that Hong Kong listed companies have not fully tapped into the potential of the “RWA” model with virtual assets and Web3.0. There is still ample room for imagination.
Web3 asset allocation and investment
The simplest form of the RWA model linking stocks and tokens is for listed companies to announce their Web3.0 strategies, linking traditional financial stocks with virtual assets. After investing in Bitcoin or related Web3.0 compliant projects, listed companies can see their stock values double as the value of virtual assets, primarily Bitcoin, continues to rise. This linked growth often results in a premium or multiplied increase in value.
For listed companies, the first step is to allocate Bitcoin or delegate Bitcoin assets to ensure floating profit on their asset sheets. The second step involves integrating their core business or relevant Web3.0 investments and developments. By leveraging the traffic and token value increment from Web3.0, they can drive up the value of their stocks.
Hong Kong stock debt versus RWA debt
Hong Kong’s financial ecosystem around listed companies has mature channels for asset securitization, fundraising, management, and withdrawal. The investment banking business, distribution channels, and PI clients of Hong Kong brokers primarily revolve around serving listed companies.
The debt of listed companies can be in the form of corporate bonds or convertible bonds (a combination of debt and equity). The issuance system is straightforward, with issuance and guarantee structures being convenient, and the convertible bond market being active.
RWA debt involves mainland high-quality assets or corporate bonds being tokenized through structures similar to Hong Kong listed companies and SPV companies, issuing corporate bond funds that are then tokenized into RWA projects.
It is also possible to design RWA equity-type NFTs based on the endorsement of listed companies, along with liquidity pools for SPV company cash flow NFTs. By further deriving yield token tokens based on RWA underlying assets, RWA NFTs can be used to airdrop yield token tokens, or even airdrop listed company stocks simultaneously.
These developments can benefit listed companies in sectors with high trading volumes and revenue, such as live streaming and entertainment, pharmaceuticals, biotechnology, health, green energy, AI computation, interactive gaming, commodities, and durable goods. By focusing on RWA token premiums and cash flow rather than traditional P/E ratios, these companies can achieve value growth.
In terms of regulatory matters surrounding Hong Kong stocks and RWA projects, the SFC’s regulatory requirements are currently on a case-by-case basis, depending on whether the product design is simple or complex. For projects backed by listed companies and supported by convertible bonds and stock options, simple corporate bonds are suitable. Collaborating with long-term securities companies for issuance and underwriting is crucial. Just like traditional Hong Kong stock operations like issuance and supply, RWA bond issuance can also be increased and split, creating a financial Lego around corporate financing.
Complex STO/RWA designs may be based on a listed company’s asset package or income rights, involving ABS or REIT-like structures. However, due to strict regulations surrounding complex RWA products, especially when targeting retail markets, it is not advisable to pursue such designs in the initial stages.
Listed Hong Kong companies need to make preparations such as opening accounts on licensed compliant exchanges and PI certifications, which can be quite cumbersome, especially when it comes to identifying ultimate beneficial owners and shareholders. The certification and account opening process for our fund and listed companies has been torturous for quite some time.
Considering the structural designs, there may be a need for second-layer token designs on top of compliant RWA assets. Therefore, it is essential to be prepared for account opening and TGE by leveraging alternative investments from international or offshore platforms.
Web3.0’s encrypted Hong Kong stock airdrop model
Previously, we discussed the concept of “compliant licensing to the right, retail token to the left,” which essentially categorizes RWA exchanges into two: compliant licensed exchanges similar to Hong Kong sites, and alternative investment exchanges akin to international or offshore RWA exchanges (rather than native cryptocurrency exchanges).
Compliant exchanges like those in Hong Kong offer securities products aimed at PI and compliant retail users, while international exchanges cater to non-securities RWA tokens targeted at global Crypto users interested in the RWA space or traditional finance market newcomers. High-quality corporate bonds, fixed income products, and private equity will likely become mainstream RWA products based on global funding trends.
The target user base and ecosystem for RWA tokens differ from those of Hong Kong stocks, showcasing both overlap and differences. Many strategies from Hong Kong stocks can be inherited and innovated in the realms of Web3.0 and tokenization of RWA assets. For instance, stock rewards for consumption can be translated into RWA projects offering token rewards for recharges; or issuing RWA tokens, purchasing them, and airdropping (gifting) listed company stocks (physical financial assets, possibly restricted paper securities).
Unique features of Web3.0 can also highlight the differences between RWA and Hong Kong stocks. For example, drawing inspiration from the airdrop strategies of Runes and Runestones can ensure fair play with retail communities early on, allowing retail investors to outperform institutional clients.
Regardless of the approach taken, the key lies in the convergence of financial veterans from Central and the digital finance enthusiasts of Web3.0, paving the way for the implementation and progress of RWA on the moderate Web2.5 track.
