Bitget App
Trade smarter
Buy cryptoMarketsTradeFuturesCopyBotsEarn

The future of RWA: Licensed compliance to the right, retail tokens to the left, stock and coin products to the linkage

BlockBeats2024/05/22 04:15
By:BlockBeats
Original title: "RWA Future: Licensed Compliance to the Right, Retail Tokens to the Left, Stock-Coin Product Linkage"
Original Author: Ye Kai (WeChat/Twitter: YekaiMeta)


Multipolar Background


Recently, it has been quite lively, whether it is the hot spots in the currency circle, such as the rise and adjustment of BTC, the charge of runes and stones and memecoin, and the topics and traffic brought by Bitcoin ETF, etc.; there are also hot spots in the international situation, such as the older Russia-Ukraine and Israel-Palestine conflicts, as well as the assassinations in Saudi Arabia and Slovakia in the past two days, the helicopter crash of the Iranian president, etc. Entering the 9th year of Lihuo in 2024, there is chaos.


The decoupling of China and the United States has become a fact. International conflicts highlight the trend of multipolarization, which will inevitably lead to the decoupling and reconstruction of the international monetary system. Since internationalization has retreated to a regionalized multipolarization strategy, digital currency will become a key link, and this must be associated and anchored with the physical world.


At the same time, more and more traditional institutions, mainly Wall Street in the United States, have begun to talk about the future trend of tokenization. The trend of the future physical world will be tokenization. However, this future requires a cycle, and the popularization of tokenization, promotion of education, and the transformation and migration of inclusive people require the emergence of real RWA. The RWA track is not only the centralized traditional financial tokenization, but also the decentralized native tokenization, and perhaps there are more novel and radical ways of playing.


In fact, the development momentum of Bitcoin ETF has proved the direction of the RWA track, because only by connecting with financial institutions and industrial capital in the physical world can it bring about a sudden change in scale and new incremental users. At the same time, after Rune and Memecoin, more and more voices and opinions are beginning to point to the RWA track as the next more sustainable hot spot.


From the list of ROOTDATA's RWA track projects, most of the current RWA track projects are still more focused on the Defi product model of traditional financial products as interest-bearing collateral assets, and there are no real RWA tokenized products in the strict sense.


Figure 1 ROOTDATA's RWA track project


Future trend of RWA in Hong Kong


Since the Hong Kong Web3 Conference in 2023 and the promulgation of a series of new virtual asset regulations, especially the development of the No. 7 virtual asset exchange and the promulgation of the security token regulations, many people believe that Hong Kong will become the core position of RWA.


As a transformation of mainland funds, there are a large number of high-quality corporate asset resources as well as securities, funds, insurance funds and other resources. Naturally, we are very optimistic about this direction, so we have been paying attention to and communicating closely from the first time. Since last year, we have had close communication and project discussions with Hong Kong's licensed securities firms, asset management, exchanges and even offshore exchanges. In the end, we found that this was not the case. We can only say that "ideals are full and reality is skinny."


We have summarized a future strategy for Hong Kong RWA: "Licensing and compliance to the right, retail tokens to the left, and stock-to-coin product linkage."


Licensed and compliant RWAs, relying on licensed exchanges, tokenize financial products, and focus on debt or equity-based designs. They will be more conservative and tend to be traditional financial institutions and regulatory models. They will mainly focus on the institutional market (2B), with a moderate issuance scale, but weak liquidity, representing the attributes of corporate financing;


RWAs that take the unlicensed and compliant route, relying on offshore RWA exchanges or alternative investment OTC and Swap exchanges, tokenize physical assets, will not focus on equity-based designs, integrate native token models, avoid traditional securities supervision, and will focus on the retail market (2C retail investors). They have flexible issuance scales, draw on token economic models, and pursue liquidity, representing the attributes of retail investment (cryptocurrency trading).


Whether Hong Kong RWA is successful or not, the key is: how to realize the 2B market to 2C market?


This is not a question of whether it can be transferred, but whether traditional financial institutions and interest groups are willing to share power and profit or be revolutionized?


Although Hong Kong's Web3 ecosystem is currently very loud, in fact, it is still the regulatory authorities and traditional financial interest institutions that are fighting for power and profit. For example, the current Hong Kong Bitcoin spot ETF, a good weathervane RWA product, has become like this. It is not given to licensed virtual asset exchanges but is still in the traditional Hong Kong Stock Exchange. A group of old financial institutions are dividing the cake, and the trading volume is not trading volume, and the ecological drive is not driven.


If there is no revolution and innovation, Hong Kong's licensed and compliant RWA products will sooner or later become like this. Licensed virtual asset exchanges are just OTC for RWA product transactions and redemption. The core is still in the interest institutions of securities companies, asset management and various institutional markets.


[Principle 1] RWA product design can be more innovative. Although it is currently packaged into securities products and then tokenized in traditional financial ways, innovative designs can be made in OTC or ATS outside the body, just like GameFi, where the game is played in Game but the incentives are in Fi. Tokenized securities products may lack liquidity, so liquidity incentives can be made outside the body.


The conservative route to the right of licensed compliance


You may not imagine the conservative degree of licensed compliance of RWA (or STO) under Hong Kong supervision. Basically, everyone thinks that the exchange license has been issued and the regulations have been promulgated, so they can start to work quickly, right?


In fact, it is not the case. For the issuance of securities tokens under the premise of licensed compliance in Hong Kong, the asset package needs to issue a fund first, which requires a No. 9 asset management license; then the issuance and underwriting of RWA products requires a No. 1 brokerage license (usually securities companies), and securities companies need to find Hong Kong financial institutions to share the quota; RWA products are generally equity-based, and must be traded on No. 7 licensed exchanges. Non-licensed exchanges are gradually unable to operate in Hong Kong, especially they cannot list securities tokens.


Many people are interested in the issuance process of RWA/STO in Hong Kong, and here is a detailed expansion for your reference.


1) As a project party, if you are the asset party or a third-party entity serving the asset party, the first step is to find an experienced brokerage firm with a No. 1 brokerage license (the key is to have financing channels and PI resources), and discuss the company to which the assets belong and the underlying asset package, whether it is a simple or complex design. According to the regulatory guidelines of the Hong Kong Securities Regulatory Commission, the simple type is the debt type, and the complex design is similar to ABS or REITs and other complex models. The latter has not yet issued specific guidance in terms of supervision;


2) For third-party institutions, you need to find a law firm with Crypto business or license to issue legal opinions on product structure or SPV, Fund structure, etc. You need an asset appraisal report of the asset package from an accounting firm. If it is a corporate credit bond model, you also need a credit rating report from an internationally recognized rating agency;


3) According to regulatory requirements, the basic product of RWA needs to issue a Fund, that is, your asset package or credit bond needs to use 9 4) The tokenization process of RWA is actually the tokenization of fund products, that is, the core of securities tokens is actually the tokenization of financial products. It is necessary to select a public chain platform (currently generally the Ethereum chain) and a designated digital wallet, and put the fund products on the chain and tokenize them according to the issuance scale, minimum share, minimum transaction amount, etc. of the fund products, and prepare guidance manuals and customer service websites, etc. This technical work may be the least difficu<


5) The most difficult thing is institutional market distribution, which tests the brokerage business capabilities of your securities firm. Do you have a mature distribution channel or a PI customer base for a series of investment products? Do you have Hong Kong financial institutions that often conduct roadshows and cooperation to carry out underwriting or distribution? Are there some specific fund institutions that conduct OTC markets and block trades? Remember, as I said in my previous article, the essence of RWA products is corporate financing, and the essence of corporate financing is the institutional market. Underwriting and distribution, etc. need to be negotiated in advance. It is not that the money will come immediately after the issuance of RWA products. You need to think seriously: where is the money?


4 and 5 can be discussed in no particular order. It is OK to discuss distribution/"stolen goods" under the table while technically tokenizing funds.


6) After the fund tokenization and underwriting are negotiated, it can be listed on a licensed exchange. In fact, the licensed exchange is only responsible for reviewing the currency list. Of course, the exchange often has its own institutions or cooperative institutions such as No. 1 license, No. 9 license and trust custody license to provide related services, including the series of transactions of the distribution underwriter after the currency is listed and the digital asset custody of RWA tokens, the subsequent redemption and repayment, the exchange's RWA product investment transactions (currently limited to PI customer investment) and possible OTC transactions, block transactions, etc.;


7) According to regulatory guidelines, PI investment transactions are temporarily allowed at present, and when the retail market requirements are met, it can be opened to the retail market (retail investment), but what requirements are not yet clear. If compared with the stock market or from the perspective of protecting retail investors, it may be similar to the number of holding addresses, liquidity, market price and net value fluctuations of RWA products. After being relatively stable and mature, the SFC will approve it to be traded in the retail market for retail investors;


8) The last step is for the exchange to open the retail secondary market for the RWA product and start investment transactions for retail investors. Compliant RWA products are truly successful only when they reach this point, but how far is it to get to this point?


Native model of retail tokens to the left


Different from the licensed and compliant virtual asset exchanges and the tokenization model of securities products, there is also a relatively radical or innovative token native model, which is based on the common law alternative investment regulation, avoiding the equity-based design of securities regulation, and directly tokenizing physical assets, or physical asset digital warrants. Because it is not a securities token, it is a physical asset token, not an air coin or memecoin without physical asset support. It takes the offshore RWA exchange or the alternative investment OTC, Swap exchange. The issuance model draws on the token economic model, and the issuance scale can be large or small. Because it is based on the native token model and the traffic of related community groups, it is directly facing the retail investment market and naturally has a certain liquidity. Combined with the cash flow supported by physical assets or market activities, it is beneficial to link market value management.


The model of non-licensed exchanges involves relatively complex contents such as RWA asset issuance, trading, leverage and derivatives, and liquidity. We will discuss this in a separate article. Many friends have asked how to design RWA products. Here we will briefly discuss the design of non-securities RWA token products.


[Principle 2]RWA product design does not correspond to physical assets, but focuses on the platform of the physical world. What is tokenized is the governance token or points token of the RW platform.


1) The core of non-securities RWA product design is not to correspond to physical assets or map the rights and interests of physical assets. The supporting assets can be physical assets or rights and interests, but what is tokenized is not the rights and interests, but the platform or the utility of the rights and interests. This is a bit difficult to understand, especially for friends who have no experience in traditional asset securitization, especially bond issuance or ABS. I will have the opportunity to refine it through Space or live broadcast of specific case consultation and disassembly in the future.


2) The native model of retail tokens to the left, the core is the combination of non-securities RWA tokens and alternative investment exchanges, combined with Crypto Fund (early Capital and later Maker). For example, for the licensed exchange HashKey, its compliant STO/RWA products have not yet been scaled up, but its retail token model RWA market can go: offshore international station list + Tokenization department + Capital + Fund (Maker) RWA tokenization combination.


3) The participation of retail investors and institutions, using the DAO, community or node model, encourages more retail investors and related physical asset world industry chain ecological institutions to participate, which can be understood as a process of digitization and chaining, and can also be understood as a hedging behavior with the physical world. The 2C model does not start after the coin is listed, but from the initial community construction, product discussion and node consensus, etc., it has participated early and become a part of the consensus.


4) The stock-to-coin linkage model has been introduced in the previous article, that is, the RWA model of linkage between stocks (traditional financial stocks) and coins (virtual assets), the linkage between traditional financial stocks and virtual assets, and the linkage between listed companies’ stocks and virtual assets such as Bitcoin physical assets or Bitcoin spot ETF investment allocation and Web3 layout. While the price or value of virtual assets mainly Bitcoin continues to rise, the value of listed companies’ stocks in the physical world has also doubled. If the Web3 layout and Crypto investment are related to the main business of listed companies, they can move in the same direction and pull synchronously.


5) Combination of native token models: RWA NFT + FT + memecoin, using NFT to carry the identity (or membership) and digital equity certificates of retail investors, and can become the anchor of a series of liquidity token airdrops; changing the ST of equity or dividends to FT of liquidity or some kind of governance utility, and becoming a functional token for RWA application scenarios, as well as a functional token for incentive or mining models; combining the RWA narrative of the physical world, upgrading the brand or IP franchise combined with token media traffic to a memecoin of RWA combined narrative, as the brand leading flag of the former NFT and FT, the three are linked.


6) Tokenization of RWA cash flow, the cash flow of the physical world, does not follow the profit dividend model, but through structuring, the cash flow continues to enter the structured liquidity empowerment of the liquidity pool through an SPV or smart contract, becoming a special Maker Fund or Liquidity swap pool, which shows the expected continuous liquidity management.


7) Stock-to-coin product linkage, an upgraded version of the stock-to-coin linkage model of 4, that is, a listed company issues compliant RWA asset tokens based on its main business or underlying asset package, and uses the listed company's CB to purchase RWA tokens, while RWA tokens can also be airdropped (gifted) with stocks (physical financial assets). This combines the listed company's stocks, virtual asset investments, and RWA token issuance, using convertible bonds to achieve partial underwriting of RWA products. The listed company's operating cash flow agrees on a certain part of the liquidity pool of RWA tokens according to corporate governance requirements, and airdrops/allots listed company stocks or options to RWA token holders, which can mutually pull value and increase users. If there are many people interested in this model, you can find an opportunity to talk about it in Space or live broadcast.


[Principle 3] Limited and unlimited space for RWA tokenization


The principle of RWA tokens: "It is best to be useless, but it sounds useful, but it is generally not used."


8) Thinking about related RWA assets


From the perspective of usefulness and uselessness and limited and unlimited, which are relatively high-quality and suitable RWA assets?


First of all, it can be clearly stated that real estate is not a good RWA asset class at present. For now, combined with the unlimited imagination space of assets and the characteristics of bringing their own traffic and generating operating cash flow, we are more concerned about the following asset classes:


-Digital warrants of commodities with financial attributes, such as durian, agarwood, etc.


-AI computing power, especially distributed computing power and edge computing combined with #DePIN, etc.


-Green energy, the photovoltaic storage and charging ecology of renewable energy combined with #DePIN, as well as carbon credits, etc.


-Fans ecology of music and sports, from the perspective of streaming payment and idol economy


-New content platform model, mainly IP Franchise and content distribution of cultural film and television, Watch2Earn, etc.


In summary, the future of RWA is very bright, and it may not be limited to the several models discussed above. Due to the length of the article, it cannot be elaborated in detail. There will be opportunities to discuss it in detail through Space or live broadcast in the future. But whether it is the RWA products of licensed and compliant exchanges, the RWA tokens of alternative investment exchanges, or the combination of cooperation with listed companies, the most essential thing is to follow the most powerful assets, funds and people. Compare the data and development of Bitcoin spot ETFs, and maybe you will understand why RWA will be the next hot track with more sustainability and long-term cycles? !


This article comes from a contribution and does not represent the views of BlockBeats.


欢迎加入律动 BlockBeats 官方社群:

Telegram 订阅群: https://t.me/theblockbeats

Telegram 交流群: https://t.me/BlockBeats_App

Twitter 官方账号: https://twitter.com/BlockBeatsAsia

0

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

PoolX: Stake to earn
APR up to 10%. Always on, always earning.
Stake now!