As a global financial center, Hong Kong has achieved much success in paving the framework for the Web3 and digital assets industry in the past year. The effort in connecting traditional finance with digital assets has been welcomed by broader market participants and one of the biggest developments has to do with the introduction of STO and RWA investing.
STO stands for Security Token Offerings and primarily focuses on assets traded by the traditional securities sector. The issuance and trading of STOs will be through blockchain technology, which represents underlying securities contracts commonly seen in traditional finance. On the other hand, Real World Assets (RWAs) aim to tokenize broader real-world assets with tangible value and will allow investors to buy real-world assets through blockchain technology.
Hong Kong is open to STO/RWA development and you don’t need to look further than the recent interview by Elizabeth Wong, head of the FinTech Unit of the Hong Kong Securities and Futures Commission (SFC) in which she indicated the STO/RWA may be available for retail investors.
As a unique concept connecting crypto and traditional finance, STO/RWA has been a hot topic in traditional finance institutions such as brokers, real estate investment funds, and banks, that are excited and curious to explore this fresh opportunity. And their enthusiasm makes a lot of sense due to the unique characteristics of STO/RWA.
The most obvious promise of STO/RWA is the potential to boost the liquidity of illiquid assets in the physical world, by allowing fractionalized trading in a far larger marketplace. This is potentially a game-changer to Hong Kong’s property market which has gone through tough waters in the past few years. Through RWA tokenization, global investors would be able to enjoy investing in Hong Kong real estate with more options and flexibility. Not only would this boost Hong Kong’s global investment attraction, but also improve capital efficiency for investors who wish to diversify their investment portfolio and projects who are keen to raise capital with more flexible terms on ownership.
Another one of the best features of using blockchain to conduct financial transactions is operational efficiency and lower costs. Using smart contracts lowers risks for human error and counterparty risks. Companies can list tokens directly without using intermediaries, thus saving fees and simplifying transactions for both ends. The idea of transparent transactions using advanced blockchain technology will take a lot of the manual burden off of traditional financial institutions.
Despite being a niche investment option, the concept of STO/RWA is one that most traditional finance investors can be comfortable with grappling with blockchain technology. Hong Kong, as a global financial hub, is well poised to inject fresh capital and investment into the economy with STO/RWA tokenization with its forward-looking regulatory framework for Web3.
With Contribution from Donald Day, Chief Operating Officer, VDX.
Yiwei Wang is an avid blockchain enthusiast with a focus on the intersection of crypto, economics, and public policy. He was previously the Global PR Lead at Babel Finance and he began his career at Ogilvy in Beijing. He is currently the Head of Global PR at Metalpha.
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