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HK's tokenised economy fuels GBA's smart finance capabilities
In the past, it would have been a fanciful notion for ordinary people to want to claim ownership of luxury homes or artworks worth hundreds of millions of dollars, but asset tokenisation makes their dreams come true.
For example, through pricing a famous painting worth HK$100 million in terms of 100 million tokens with each token representing one dollar of asset, small investors can buy tokens to own part of the asset. In fact, all kinds of assets can be valued in terms of tokens. These include physical assets such as real estate, gold, wine, stocks, bonds, and digital assets such as design, music, literature, trademarks, and more.
Blockchain is an important element for the tokenised economy. Through the blockchain, the previous complicated issuance and trading process of financial assets can be simplified, avoiding high transaction fees. Moreover, it can be traded anywhere in the world, around the clock and all year round. At the same time, because all transactions are recorded on the blockchain of which the records are prevented from being tampered with, making transactions more transparent and ownership more secure.
Real-world Assets (RWAs) are the product of the tokenised economy. It refers to the valuation of real-world assets in terms of tokens in cryptocurrencies on the blockchain. These tokens represent ownership of assets that can be traded on the blockchain.
Because RWA allows global small investors to participate in markets previously with high investment thresholds, it has greatly expanded the investment base. From a corporate perspective, even if the company is small or not financially strong enough to go public or raise money from a bank, it may be able to raise capital through RWA.
Just like Ant Digital, which participated in the Ensemble, a tokenised asset applications sandbox held by the Hong Kong Monetary Authority (HKMA) launched in mid-2024, its senior management pointed out that "the first RWA raised 100 million yuan, which is equivalent to a mini-IPO".
Binance Research estimates that the market size of RWA excluding stablecoins was $12 billion as of mid-2024. Many anticipated its bright future. For example, consulting firm McKinsey predicts that the total market capitalisation of the tokenised market will reach $2 trillion by 2030. According to BCG and ADDX research, the total market value of global asset tokenisation will reach $16 trillion by 2030, amounting to 10% of global GDP.
Financial institutions around the world, such as the London Stock Exchange (LSE) in the United Kingdom, are also enthusiastic about it. In 2023, LSE planned to become the first major exchange to offer traditional financial asset trading with a global presence through blockchain technology, hoping that the platform can also allow investors from all over the world to participate in the interaction. Goldman Sachs, an investment bank, also introduced a blockchain-based digital asset platform in November 2024 to shorten institutional trading and settlement times, and the bank hopes that the platform will ultimately become "industry-owned”.
RWA undoubtedly has great potential, but it also faces many challenges, including regulatory and technical issues such as asset transfers, settlements, redemptions, and cross-border regulation. The launch of the HKMA's sandbox in August 2024 will undoubtedly enable the authorities and the industry to explore the feasibility of its application in real-life, which will not only help consolidate Hong Kong's status as an international financial centre, but also strengthen the smart finance capabilities of the smart city cluster in the Greater Bay Area.
Dr Winnie Tang
Adjunct Professor, School of Computing and Data Science; Department of Geography, Faculty of Social Sciences, The University of Hong Kong