Editor”s notice: As Hong Kong positions itself to develop into a worldwide digital property hub, the highlight is on the sensible functions of cybertokens. Within the second a part of the Actual-World Crypto sequence, China Each day explores tokenizing inexperienced property to broaden funding avenues, whereas acknowledging Hong Kong’s challenges in scaling such initiatives.
Confronted with the challenges of considerable upfront investments and prolonged payback intervals, Linked Cost — a Hong Kong-based mostly electrical-car charging service supplier — is betting massive on tokenization as a possible recreation changer.
We’re “slicing” multimillion-greenback infrastructure investments into chunk-sized models, says Tom Chik, the corporate’s co-founder and chief govt officer. By decreasing the funding threshold to “just a few thousand Hong Kong {dollars}”, tokenization will carry extra traders to the desk, he provides.
Linked Cost wraps the income and operational rights of EV charging stations into digital property, that are then tokenized on blockchain. Every token represents a fractional share of the stations’ future earnings. By licensed platforms, traders should buy these tokens and, underneath the phrases of sensible contracts — self-executing packages encoded on the blockchain — routinely obtain dividends based mostly on the stations’ efficiency.
As one of many world’s most EV-pleasant cities, the Hong Kong Particular Administrative Area has seen its variety of EVs soar eightfold previously 5 years — from 14,000 to round 110,000 on the finish of final yr. Right this moment, seven out of each 10 newly registered non-public autos in Hong Kong are electrical. The exponential progress, nonetheless, has created large demand for charging services, grid upgrades and superior vitality administration techniques, all of which entail giant investments.
Authorities funding alone has reached billions of Hong Kong {dollars}. In July this yr, the HKSAR authorities launched a HK$300 million ($38.61 million) Quick Charger Incentive Scheme, providing as much as HK$100,000 per unit to help the development of three,000 quick-charging stations by non-public enterprises. This initiative builds on its earlier funding rounds totaling HK$3.5 billion, geared toward retrofitting parking areas in non-public residential buildings with EV charging infrastructure.
But, even with authorities backing, the non-public sector should discover methods to bridge the funding hole. By reworking infrastructure income into investable tokens, we purpose to “diversify financing channels”, Chik says.
For traders, such investments usually yield returns greater than financial institution deposits and with much less volatility than equities. This appeals to these in search of secure money flows, says Hugo Tang, chief monetary officer of Linked Cost.
He explains that, for instance, by tokenizing the income of a charging community into 10,000 tokens, every priced at HK$1,000, traders, as soon as verified, can subscribe to those tokens by way of a web based platform, which is anticipated to assist the corporate increase HK$10 million. If the challenge gives an annual return of 6 %, traders would earn a dividend of HK$60 per token per yr.
Tang says the blockchain-based mostly course of ensures transparency and traceability, providing traders not solely monetary returns, but additionally a direct stake in Hong Kong’s inexperienced vitality transition.
Linked Cost is not the one participant. To revive illiquid property and speed up capital recycling, Eagoal New Vitality Group — an e-bike battery leasing service supplier based mostly in East China’s Anhui province — stated earlier this yr it had tokenized the operational and income knowledge of its nationwide community of battery-swapping cupboards and lithium batteries.
An increasing circle
Together with these actual-world asset (RWA) homeowners, different key gamers throughout the worth chain — from expertise suppliers to licensed monetary establishments — are stepping in to flesh out the ecosystem.
Cobo, one of many largest institutional crypto custodians and pockets infrastructure suppliers, is collaborating in Hong Kong digital hub Cyberport’s Web3 Pilot Scheme, with its challenge sponsored by JD Expertise, a subsidiary of Chinese language e-commerce big JD.
The initiative goals to construct a tokenization infrastructure and expertise platform that includes automated yield distribution and multi-stablecoin help, designed to align with Hong Kong’s regulated stablecoin framework.
Cobo’s Chief Working Officer Lily King says the challenge underscores Hong Kong’s rising position as a bridge between conventional finance and digital property, accelerating institutional adoption throughout the area.
Such cooperation in August gained help from the Blockchain and Digital Asset Pilot Subsidy Scheme rolled out by Cyberport, becoming a member of 4 different initiatives centered on aims, such because the tokenization of maritime property and creating an open structure for automating RWA processes.
The identical month, as Hong Kong’s Stablecoins Ordinance got here into impact and gave trade gamers a buzz, native brokerage agency Victory Securities inked a memorandum of understanding with Caocao — a journey-hailing platform underneath Chinese language automaker Geely. They may collectively discover RWA tokenization, the adoption of stablecoin-based mostly cost options, and the potential of digital-asset issuance.
Kennix Chan, deputy CEO of Victory Securities, says that apart from managing funds and distributing tokens, the corporate will design a authorized construction in keeping with Hong Kong legislation for Caocao, guaranteeing the compliant cross-boundary transmission of money flows from the Chinese language mainland to Hong Kong, and aiding in securing regulatory approval from Hong Kong’s Securities and Futures Fee.
As suppliers of expertise and monetary providers fall into place, the last word success of the RWA tokenization market hinges on its capacity to draw traders. In Hong Kong, “the profile of traders has grown more and more numerous since 2024”, based on Yao Qing, affiliate associate of the tokenization division at HashKey Group.
The mix of Hong Kong’s protokenization insurance policies, authorities-backed packages and an advancing regulatory framework has drawn a extra different vary of traders into the fold, says Yao.
Two years in the past, investing in RWA tokenization appealed to solely a restricted group of Web3-native traders, however at this time, there may be rising curiosity from typical monetary establishments, corresponding to brokerages and personal banks, in addition to the town’s conventional wealth powerhouses — household places of work and excessive-internet-price people — Yao says.
A lacking puzzle piece
Though Hong Kong has made nice strides in establishing the RWA ecosystem, trade insiders consider the sector stays in its infancy, nonetheless groping for a “finest case “that is compelling sufficient for traders and able to resolving a litany of challenges masking expertise, compliance and operational complexities.
For example, a inexperienced vitality tokenization challenge backed by a Chinese language tech big has thus far attracted simply two traders, whereas one other initiative tokenizing monetary property launched by a serious financial institution includes just one investor, says King.
One issue curbing participation is that the majority tokenized initiatives are restricted to skilled and institutional traders, leaving retail traders on the sidelines. In the meantime, whilst there will likely be extra tokenization merchandise accessible for retail members in future, it doesn’t imply they’ll all promote effectively.
King says “the crypto market at this time is totally different from a yr in the past” when on-chain yields have been distressed, and tokenized treasury bonds and cash market funds providing a modest”5 % annual return” appeared enticing.
Now a flourishing on-chain exercise pushed by the surge in cryptocurrency costs, together with bitcoin and ethereum, has reset investor expectations.
In line with King, traders can earn double-digit annualized returns just by holding and staking stablecoins on some buying and selling platforms, making the only-digit payouts typical of tokenized RWAs seem underwhelming by comparability.
One other bottleneck is the shortage of a functioning secondary marketplace for RWA tokens in Hong Kong. Below present laws, tokenized property are restricted to the first market, which means traders can solely exit by way of buybacks or redemptions relatively than buying and selling freely amongst themselves. This might undermine the very goal of tokenization — injecting liquidity into historically illiquid property.
To construct a complete RWA ecosystem, Hong Kong should set up a strong secondary market, urges Chan. Attaining this requires the lively involvement of market makers whose position is to make sure liquidity by constantly quoting purchase and promote costs.
For now, he says, the price of market making stays excessive, and this might be finally handed on to exchanges or issuers, and inflate the general price of working a secondary market. It is because most RWA tokens are listed on just one or a handful of exchanges of their early phases, leaving market makers with no different venues to offset their publicity as soon as they take a place.
By comparability, with cryptocurrencies like bitcoin traded throughout a number of exchanges, a market maker who buys a big place on one platform can virtually immediately promote an equal quantity on one other at the same worth, thereby hedging away worth volatility.
Chan says market-makers are nonetheless awaiting a extra “balanced “ecosystem that is deep and liquid sufficient to attract these now lively in equities and digital property into the enterprise of RWA tokens.
A foot within the door
The challenges are vital, however so too is the potential. Business insiders argue that Hong Kong’s regulatory readability, coupled with its sturdy coverage help and rising institutional involvement, has made the town geared up to rework tokenization from the present proof-of-idea stage right into a scalable monetary resolution.
The RWA ecosystem is multi-dimensional, and Hong Kong has constructed “a really sturdy basis”, says Yao.
The Coverage Assertion 2.0 on the Growth of Digital Property, launched in June, outlined plans to broaden the suite of tokenized merchandise, beginning with standardized monetary property with clear authorized constructions. The highway map consists of exploring secondary market use circumstances for tokenized authorities bonds and enabling the secondary market buying and selling of tokenized change-traded funds on licensed digital asset platforms.
This coverage readability has set the stage for a diversified vary of members and laid the groundwork for the tokenization of non-monetary property. Over a dozen conventional monetary establishments, tech giants, and blockchain-native corporations have launched or introduced RWA initiatives in Hong Kong. They span a big selection of underlying property, corresponding to gold, inexperienced vitality infrastructure, and agricultural commodities, with some already elevating greater than HK$100 million.
“We have now seen overwhelming institutional curiosity. Each establishment, even probably the most conservative one, needs to speak to us about RWA,” says King.
Cobo arrange its Hong Kong workplace in 2018, years earlier than launching its Singapore headquarters. “We predict, strategically, Hong Kong is the venue for issues to occur.”
Contact the author at irisli@chinadailyhk.com
