The Tokenization of Real World Assets (RWA): Perspectives from Hong Kong and the United States

The Tokenization of Real World Assets (RWA) has been a hot topic, particularly in Hong Kong and the United States. A recent panel discussion organized by the Hong Kong Economic & Trade Office, “The Tokenization of Real World Assets (RWA): Perspectives from Hong Kong and the United States,” addressed some of the reasons it has gained traction while at the same time touching on various challenges from an allocator perspective and regulatory standpoint, among others.  

Panelists included: 

• Chris Brodersen, Managing Director, Blockchain & Digital Assets, Enterprise Technology & Information, EisnerAmper  

• Grace Chao, North America Lead, Markets, Digital Assets, Citi  

• Marty Jetton, Advisory Board, Hex Trust 

• Anson Law, Chief Representative, Hong Kong Monetary Authority  

• Christian Lopez, Head of Blockchain and Digital Infrastructure, Cohen & Company Capital Markets 

• Glendy Kam, Chief Product Officer, Tassat 

Hong Kong’s Leadership in Tokenization  

The tokenization of RWAs, which can be analogous to the next wave of dematerialization, has gained robust traction in Hong Kong and is seen as a new era in finance. Hong Kong is a global leader in exploring tokenization opportunities, first through the inaugural tokenized green bond fund offering in February 2023 and the Sandbox announced earlier this year by the HKMA as part of Project Ensemble, the HKMA’s wholesale central bank digital currency.  

To quantify the growth of Tokenization of RWAs, a recent report by Standard Chartered Bank estimates the market is projected to reach ~$30 trillion over the next ten years. To quantify further, if tokenized fund AUM reached 1% of global mutual fund AUM, this would imply roughly $600 billion over the same time horizon.  

Given Hong Kong’s early leadership, as demonstrated by the projects mentioned before, and its forward-thinking favorable regulatory environment, there is ample opportunity for both investors and asset managers in the region.  

Drivers of Tokenization Growth  

So why tokenize, and what is driving the growth? The first and most obvious reason is cost savings for the issuer. This is driven by the opportunity for faster settlement time, reduced friction by streamlining or reducing the roles of intermediaries, and the potential for atomic settlement (i.e., integration with money programmability). Other interesting features could include the potential for tokenized funds to be used for more efficient collateralization for lending via smart contracts, tokenization of RWA’s to attract new investors through fractionalization of private market assets such as real estate and private equity, and in some cases, there may be opportunities to improve the liquidity of current illiquid assets. 

Challenges in Tokenization  

However, despite the optimistic growth outlook, many challenges are faced when it comes to tokenizing Real World Assets (RWA). First, when it comes to banks or investors allocating capital, there is still a lot of friction around understanding if tokenization will have a meaningful impact on alpha generation and true cost savings, although early data is quite encouraging.  

Other challenges include interoperability, data standardization, technical infrastructure, governance, and the evolving roles of current financial intermediaries as blockchain technology and decentralization models take hold. The lack of regulation in many jurisdictions, uneven regulatory engagement with the digital asset industry, and laws around these efforts are another hurdle for investor allocations, particularly in the U.S.  

Future Outlook 

Looking ahead to 2025, in the U.S., there is hope for positive engagement from a regulatory perspective, while in Hong Kong, there are expected to be more enhanced tokenization projects driven by the forward-leaning policies at the SFC and HKMA as it relates to digital assets.  

Additionally, growth and improvements in technology and technological infrastructure are expected for tokenizing RWAs both in Hong Kong and around the globe.