As the Hong Kong RWA of Web2.5, akin to the Hong Kong stock market of twenty years ago, can be considered the Crypto “Hong Kong stock market” for the financial veterans in Central, it can be understood as Hong Kong stock 3.0 or the tokenization of Hong Kong stock assets. The biggest similarity between Hong Kong RWA and the Hong Kong stock market is that most of them consist of high-quality mainland assets, catering to global capital flows.
While a previous article “RWA Model Linked to Crypto Stocks” introduced several cases of stock and crypto linkage related to Web3.0 and Bitcoin concepts, overall, Hong Kong-listed companies have not yet fully tapped into the path of the “RWA” model linked to virtual assets and Web3.0, leaving plenty of room for imagination.
Web3 asset allocation and investment
The simplest form of the RWA model linked to stocks and crypto involves publicly announcing Web3.0 strategies by listed companies to achieve the linkage between traditional financial stocks and virtual assets. After listed companies allocate investments in Bitcoin or related Web3.0 compliant projects, the company’s stocks, through the linkage of investment allocation with virtual assets and Web3 layout, can see their value double as the price or value of virtual assets, mainly Bitcoin, continues to rise. This linked growth often results in premiums or doubling of value.
For listed companies, the first simple step is to allocate Bitcoin or delegate Bitcoin asset allocation, allowing the company’s balance sheet to show floating profit assets. The second step involves combining core business operations or relevant layouts with investments and developments in Web3.0, promoting the rise of listed company stocks through the incremental flow and token value of Web3.0.
Hong Kong stock debts versus RWA debts
Hong Kong’s financial ecosystem surrounding listed companies has rich channels and processes for asset-backed listed companies, with mature stages in asset package listing, investment, management, and withdrawal, both overtly and covertly. Hong Kong brokerage firm’s investment banking business, distribution channels, and PI clients are mainly focused on serving listed companies.
The debts of listed companies can be corporate debts or convertible bonds (a combination of debt and stocks), with a simple issuing system, convenient issuing and guarantee structures, and convertible bond market trading.
RWA debts involve high-quality mainland assets or high-quality corporate debts, issued as enterprise debt funds through a red-chip structure similar to a Hong Kong-listed company and SPV company, which are then tokenized and issued as RWA projects.
It is also possible to issue RWA equity-type NFTs based on the endorsement of listed companies, along with NFT liquidity pools of cash flows from SPV companies. If yield token tokens are derived based on RWA’s underlying assets, RWA NFTs can be used to airdrop yield token tokens, or simultaneously airdrop listed company stocks.
These developments can benefit listed companies in high-revenue sectors with significant trading volume, such as live streaming, biopharmaceuticals, green energy, AI computing power, interactive gaming, commodities, or consumer durables. This growth can be achieved through RWA token premiums and value growth based on cash flows rather than traditional P/E ratios.
Regarding the regulations surrounding Hong Kong stocks and RWA projects, the SFC regulatory requirements are currently case by case, determining whether the product design is simple or complex. For projects with the endorsement of listed companies, as well as convertible bonds and stock options support, simple corporate bonds are suitable. Collaboration with long-term brokerage firms is essential for issuing and underwriting corporate bonds or funds through tokenization. Similar to conventional operations in Hong Kong stocks such as additional offerings and placements, RWA debts can also be increased and split, resembling financial LEGO blocks for corporate financing.
Complex STO/RWA designs are based on a listed company’s asset package or revenue rights, involving ABS or REIT-like designs. However, due to stricter regulations for complex RWA products, especially when transitioning to retail markets, it is not advisable to undertake such designs in the initial stages.
Listed Hong Kong companies need to prepare for licensed compliant exchange account openings and PI certifications, a currently cumbersome process due to factors such as the transparency of ultimate beneficiaries and shareholders, which have been challenging for our fund and listed company certification process.
Furthermore, considering the structural design, there may be a second layer of token design on compliant RWA assets, requiring preparation for account openings and TGE through international or offshore alternative investments.
Web3.0’s encrypted Hong Kong stock airdrop model
Previous discussions on “licensed compliance to the right, retail token to the left” signify the categorization of RWA exchanges, with licensed compliant exchanges akin to Hong Kong stations (H) and alternative investment exchanges resembling international stations (H) or offshore RWA exchanges (as opposed to native cryptocurrency exchanges).
Licensed compliant exchanges in Hong Kong offer security-based products aimed at Hong Kong’s PI and compliant retail investors, while international stations cater to non-security RWA token products targeting global Crypto users interested in the RWA sector or retail investors transitioning from traditional financial markets.
From a global capital trend perspective, high-quality corporate debts, fixed-income products, and private equity will become mainstream products for RWA. The target user groups and ecologies of RWA tokens differ from Hong Kong stocks, showcasing overlapping and distinct features. Many of the strategies used in Hong Kong stocks can be inherited and innovated within Web3.0 and RWA tokenization. For instance, stock rewards for consumption can be transformed into giving RWA tokens for recharging; RWA projects can involve recharging for RWA tokens, purchasing RWA tokens, and airdropping (gifting) listed company stocks (physical financial assets, potentially restricted paper securities, etc.).
Some unique strategies of Web3.0 can highlight the differences between RWA and Hong Kong stocks. For example, drawing inspiration from the airdrop strategies of Runes and Runestone can facilitate fair play for community retail investors in the early stages, allowing them to counter institutional clients.
Regardless of the approach taken, the key lies in aligning the financial veterans of Central Hong Kong stocks with those in Web3.0 encrypted finance, enabling the realization and development of RWA on the moderate track of Web2.5.
