On October 17, the 10th Blockchain Global Summit hosted by Wanxiang Blockchain Lab came to a successful conclusion. The theme of this summit was "Technology for the Future", which attracted hundreds of guests, many important opinion leaders from all over the world, and dozens of surrounding industry activities. At the meeting, Ye Kai, partner of Ruihe Fund, delivered a keynote speech on "RWA-Building a Wealth Bridge between Web3.0 and the Traditional World". The following is compiled from the on-site shorthand, with some deletions that do not affect the original meaning.
Ye Kai: Good morning, distinguished guests and friends!
I am very honored to be invited by Wanxiang Blockchain to discuss RWA with you. RWA is one of the hottest topics this year. I am wearing a red T-shirt today, which is very suitable for the occasion. I hope RWA will become more and more popular. Our fund is a licensed institution and a project coordinator on the capital and asset sides, doing investment consulting and investment banking business. I hope to discuss and share with you today around these.
At present, there is no single standard answer for RWA. We would like to share two names. The first is commonly called Real World Assets (RWA), but in Western Wall Street it is called T-RWA, which is Tokenization of Real World Assets. Western financial institutions first tokenize standard financial market products. We can see that a large number of Wall Street giants are doing tokenized deposits, tokenized bonds, ETFs, and cross-border payments and interbank settlements based on tokenized deposits. This is a difference. For Hong Kong's RWA, it is very special. This is a bit like the US approach. The transition and compromise between traditional finance and the real world, we call it "compromise", which is a Web2.5 model. Hong Kong stipulates that RWA must first be in the form of a traditional financial product, that is, a fund. The asset package must be put in the fund, and then the fund is tokenized. This is the concept of RWA in Hong Kong.
Yesterday, we co-hosted a closed-door RWA meeting with Wanxiang. It was very popular and attracted a large number of domestic companies. In August, the mainland company Langxin Technology made a cross-border asset RWA for charging piles. There are two interesting points in this project: First, it is a mainland listed company issuing RWA in Hong Kong for cross-border financing. As we all know, the supervision in the mainland is very strict. Since listed companies can issue RWA in Hong Kong, it means that the tolerance of supervision is very good, which we are happy to see. Second, we paid attention to the stock price changes of Langxin Technology. After the case was released in late August, with the market publicity, the stock price rose by 1 billion in 2 weeks. That is, the financing raised 100 million Hong Kong dollars, but the stock price rose by 1 billion yuan. We call this "R stock linkage". At yesterday's closed-door meeting, many listed companies came to us to discuss whether we can achieve similar R stock linkage?
This has brought us a very good market promotion effect, so more and more companies will participate in the issuance and trial of RWA. From the perspective of the entire RWA development, in the financial industry, we still have to look to the big brother - the United States, and see what the American financial community thinks.
Institutional bosses on Wall Street in the United States basically regard RWA as the next generation of financial markets. This is what the boss of BlackRock said some time ago. He believes that the next generation of securities and financial markets is RWA. There are also JP Morgan, Citi, Goldman Sachs, and State Street Bank, all of which are doing tokenized deposits, tokenized securities, and stablecoins. JP Morgan did it the earliest, and BlackRock tokenized its money market fund. This represents the views of mainstream institutions in the United States on the entire RWA. It tokenizes a standard financial market product. It is different from Web3. Web3 proposed to tokenize the real world directly. But mainstream institutions in the United States tokenize standard products first. The biggest advantage of this is to attract old money. Traditional institutions can understand it, and they will come in if they understand it. If you want to do RWA, you have to use digital wallets and tokens. After getting used to it, you can continue to take a half step forward to Web3. This is the positive role it plays.
Here I have listed the views of mainstream American institutions on RWA. Whether it is Goldman Sachs, Citi, State Street, Deloitte, MIT, JP Morgan, or Tsinghua PBC, they believe that China's RWA is likely to grow rapidly in the domestic market. Of course, China has a characteristic that its manufacturing industry ranks first in the world. Tsinghua PBC believes that RWA has two main areas in China, namely supply chain finance and real estate. I especially recommend that you pay attention to the MIT report, which mentions that asset tokenization will reshape the infrastructure of the financial market in the next decade, which is very critical. So we should not only think about launching projects, but also consider the infrastructure around RWA. What should we do?
Speaking of the market, should we enter the RWA market? The key is to see how big the RWA market is. I have listed the predictions of mainstream foreign institutions: McKinsey is relatively conservative, predicting 2 trillion, Citi predicts 4 trillion, Boston Consulting predicts 16 trillion, and the most ruthless is Standard Chartered, which predicts 30 trillion. Let's take a compromise. BCG predicts 16 trillion US dollars, which is equivalent to more than 200 trillion RMB. Today's Bitcoin price has reached 69,000, which is more than ten times the total market value of Bitcoin. So is the RWA market worth entering? It is completely worth entering with confidence. This market is big enough. It depends on how much you get in it? Don't say 1 point, even 1 satoshi is not a small amount.
From the United States back to Hong Kong. Hong Kong is compliant and is ahead of the world in virtual assets and policies, especially around virtual assets. At the end of 2022, Hong Kong's virtual asset statement was issued; in 2023, Mr. Xiao Feng organized the first Hong Kong Web3 Conference, which kicked off; June 1 was the guidance for virtual asset exchanges, followed by the release of policies such as tokenized securities, agency sales, middlemen, intermediaries, and stablecoin frameworks, which laid a very good foundation for us.
This year, we have entered a new climax. In April, Hong Kong Bitcoin spot and Ethereum spot ETFs were released. Although Bitcoin spot ETFs lag behind the United States, we are the world's number one in Ethereum ETFs. Currently, the trading volume is not as large as that in the United States. This is because the entire ecosystem has not been fully established, and various institutions in the mainland and Hong Kong have not yet fully entered. RWA is not just launching a product, but the entire ecosystem must come in.
There is also the HKMA. The HKMA is very active. At present, the communication with RWA seems to show that the HKMA is more active than the SFC. Its sandbox projects are divided into four directions, and Longxin's new energy project is one of them. This is a very good promotion.
After reading these policies, how should we enter? We have classified the RWA track. Why do we classify it? We hope that through classification, we can help institutions and enterprises that want to enter to see which track is suitable for them? What are the common models and frameworks that need to be paid attention to in this track? At present, there are two that everyone is more familiar with, which have been done overseas. The first is to do U.S. bonds first, and after the U.S. bonds are tokenized, the second layer of lending is done on top. This is more common.
There are also treasury bonds, not only US bonds, but also Hong Kong's green bonds and EU public bonds. This is the RWA around treasury bonds.
I won’t talk about the funds, from ETFs to money market funds, there are also hedge funds.
In terms of lending, we use U.S. debt as the underlying asset, and the second layer is lending, but this is actually just the beginning. Going further down, there are overseas cases of corporate bonds, that is, corporate credit bonds lending. Secondly, supply chain finance and trade financing are also beginning to emerge. Hong Kong and the mainland are also making similar attempts, which is a very critical part of corporate financing.
We have made a total of 8 categories, among which infrastructure is very critical. Last month, when Singapore Token2049 was held, the entire overseas project revolved around RWA, and almost 60% to 70% of them were around RWA infrastructure, including asset issuance, liquidity, transactions, PayFI, etc. It is to build infrastructure vertically according to different tracks. But for Chinese projects, because Chinese are too smart, when doing RWA and infrastructure, they want to do it big and comprehensive. They have done everything from asset issuance, liquidity, stablecoins, etc. It is recommended to seize a segmented vertical track and go deeper.
What assets will domestic companies focus on? In addition to these funds and standard financial products, there are also non-standard assets. At present, we are promoting people to focus on some emerging assets, such as computing power. The largest real estate should be developed, but which type? There are also bulk oil and gas mines, which are not only assets, but also drive the subsequent industries. This is the key point.
There are also financial derivatives. If the underlying assets are on the chain, what can be done next? When the underlying assets of this industry are on the chain, the transactions of these financial assets can be on the chain. After the transaction occurs, insurance, options, futures, and synthetic assets can also be done. Wall Street financial institutions believe that RWA will be the next generation of financial markets, because you will find that when the underlying assets and transactions are moved to the chain, the products of the traditional financial market can be completely on the chain, and the efficiency is higher and the capital cost is lower.
The seventh category is stablecoins, which is very critical. When it comes to RWA, stablecoins are one of the key points. We believe that the mainstream stablecoin in the future must be RWA stablecoins. Why do we say that? You can look at Tether. The basket combination of Tether stablecoins includes Bitcoin, Ethereum, and the most important ones are US Treasury bonds and US dollar deposit products, as well as US high-tech ETF indexes. It also has high-quality corporate bonds, so it is actually an RWA stablecoin based on a combination of real-world assets and virtual assets.
What we recommend more is that after these industrial assets and transactions come up, when the on-chain financial products are running, we can make industrial stablecoins for different industries. For example, mines, non-ferrous metals behind mines, from mining, processing, raw materials, manufacturing, trade, etc., can use an industrial stablecoin for payment, settlement, financing, etc. within this industry. Think about it, its cost will be lower, the turnover rate will be faster, and this stablecoin can effectively form a platform. Several guests just mentioned the value of stablecoins in global payments. We believe that in the future, in addition to stablecoins such as Tether, there will also be RWA industrial stablecoins. Stablecoins based on the underlying assets of a huge real industry will bring a very big boost to the entire industry.
Finally, fixed income is the most common bond issuance. Is it fixed income or fixed income plus floating income? If the asset has price fluctuations, it can also be isolated and made into ABS or REIT.
We will have a detailed report on the RWA track in this area, so you can pay attention to it.
In addition, why is RWA called Web2.5? RWA is a Web2.5 model where the crypto world takes a half step back and the traditional world takes a half step forward. Why do we do this? First, let the incremental old money come in, and then talk about Web3.
Let’s share below which assets are suitable for RWA?
First, emerging assets. When these emerging assets do not have good valuation conditions in the traditional financial market, and do not have a good IPO or other environment, RWA can be considered.
The second is green electricity, AI computing power and Bitcoin computing power. Wanxiang Blockchain CEO Du mentioned the Bitcoin view when communicating with American friends. This is a very big challenge for the world. If Bitcoin is used as a reserve asset of a mainstream country, every industry must be related to Bitcoin. So how can it be related? To do RWA, your assets must be tokenized. After tokenization, it can be related to Bitcoin. This is a core point. Therefore, Bitcoin computing power is also a very good emerging asset, and it is already on the chain.
There are also high-level digitalization, suitable for rapid chaining, and relatively fast operating cash flow. For example, streaming media, which has already done online subscription and recharge payment, production and sales consumption data, and popular medical beauty, health and nursing chains in the mainland, have very good cash flow. It relies on a large number of labor and has various costs, and it is difficult to do IPO, so it is suitable for RWA with a cash flow distribution model.
There are also products with strong financial attributes, such as bulk oil and gas mines, as well as products with relatively strong financial attributes such as whiskey and coffee beans, because they have industrial financial attributes.
Which assets are not suitable for RWA? Traditional real estate is basically not suitable for RWA. Some people say that after real estate is tokenized and fractionalized, the investment threshold can be lowered. In fact, you will find that there is still no liquidity. Unless your real estate has operating cash flow, you can design a combination. There are also traditional manufacturing industries, non-emerging assets, and assets with weak digitalization. Because of the weak digitalization, it is difficult to put on the chain, so they are not suitable.
Let's add some support to the concept of RWA. This was a speech made by former CSRC Chairman Xiao Gang at the Shanghai Bund Conference in early September. He mentioned that "asset tokenization RWA is a bridge connecting the digital and physical worlds, a vivid practice of returning finance to its roots and serving the high-quality development of the real economy." So let's add some support here. As long as RWA uses cross-border financing to return to the real economy, mainland supervision is fully tolerated. As the former chairman of the CSRC, he also represents the attitude of supervision.
This is the standard process for RWA issuance that we have summarized, which is divided into 6 steps. The first step is asset due diligence, which is the basic work that needs to be done whenever a bond or financial product is issued.
The second step is that because Hong Kong needs to use the form of a fund to carry it, the fund, equity structure, and whether the assets should be isolated or set up as an SPV, and most importantly, the underwriting and distribution of the fund should be negotiated. RWA does not mean that you can get money after you issue it. This is a misunderstanding. RWA requires you to negotiate with the underwriter in advance and agree on the subscription share. When it is almost ready, you can issue it. This is the key.
After negotiating with the fund, we can make a model for the tokenization of the fund, including the scale, quantity, price of token issuance, how to distribute dividends, using digital wallets or smart contracts, etc. This is something that can be done on the chain. Because RWA is a traditional income product, it will not have too high a return. Do we need to design a second layer?
After these designs are completed, you can go to the HashKey exchange. HashKey itself has infrastructure and can also implement it by itself, so you can talk about tokenization and listing. After listing, the underwriter will subscribe to the transaction first. After the transaction is completed, it can be listed on the primary market, and in the future it can be listed on the secondary market.
After the issuance, what is the fifth step? RWA needs to be managed as a fund, so there must be fund management, and data disclosure of the fund's net value and daily asset status. We also need to consider the execution of dividends and interest distributions, and we also need liquidity and market makers. We are building a guidance fund to help RWA projects with liquidity.
Finally, there is post-investment management, which requires investor services and marketing. If your product is well-issued, you can continue to expand the fund-raising. Recently, I heard that Ant Chain only takes on the business of charging piles. Since the project of Longxin Ant is charging piles, it can be replicated in a similar way.
This is the detail in the issuance process. The financing model may have debt and equity. If it is more complicated, it can be made into ABS and REIT models. There is a point of view here, which is "controllable assets, trusted asset management". In the mainland, we don't talk about asset tokenization, but only "trusted asset management". Why do you say that? After the equipment and operating data are uploaded to the chain, these assets must be pooled. After entering the pool, there is an algorithm for the coordination and pricing of assets. After entering the pool, these are controllable assets. Based on controllable assets, we do RWA, which is a trusted asset management of fundraising, investment, management and withdrawal. There must be management and withdrawal, not just fundraising. The next step is issuance and liquidity management.
This is a general framework. Whether it is a compliant RWA product or a global offshore model, there must be such a structure. That is, between the real-world assets and the token assets, an on-chain asset pool must be created, and the assets must be controllable. In addition, these underlying assets must be analyzed. Is it ownership, income rights, or some kind of rights? Are there any intermediate links in the cash flow and transaction structure of this kind of rights? How long is the income cycle? Is your cash flow node at the end, or can it be pre-placed, pre-ordered and pre-sold. Then you can design T-RWA. Generally, when designing, no matter which method is used, there needs to be a mezzanine, which we call SPV. This mezzanine is a Fund or Trust. Why do we do this layer? If you are doing Offshore, you are actually using programmable technology and smart contracts to implement SPV. If you are a traditional Hong Kong compliant, it is a Fund. Because current technology cannot achieve a perfect 100% mapping between real assets and token assets, we need to use funds or trusts to achieve asset mapping and management.
In overseas cases, as long as the assets are on the chain, they can be structured. ShipFinex has made international shipping capacity into SPV, structured it, and tokenized it into RWA. Helix has made A/B shares using smart contracts, and in the lending pool, it has made smart contracts for the repayment order and interest rate difference of an A/BToken. So basically, these can be implemented in a Ricardo-like contract way, and there is no problem technically.
Finally, I hope RWA will become more and more popular. Thank you!
