Why does the RWA market need a guiding fund?

24-09-06 13:58

Read this article in 15 Minutes

AI summary

View the summary

Original title: "Why does the RWA market need a guiding fund?"

Original author: Ye Kai (WeChat/Twitter: YekaiMeta)

The RWA market has been around for so long, and only the track of issuing coins based on the RWA concept is relatively lively (there is Crypto Fund), and then there are the Bitcoin spot ETFs and money market funds tokenized by Wall Street financial institutions. In the final analysis, the market with T-RWA and Hong Kong compliant RWA lacks an RWA guiding fund to promote development.

RWA guiding funds are the key to guiding old money, standardization and retailization

For Bitcoin and other token markets, including various memecoin, DePIN, AI and other tracks, CryptoFund has played a vital role in promoting, whether in primary, secondary, quantitative and arbitrage. The particularity of cryptocurrency is that it is like a special hedge asset class. For example, the high volatility of Bitcoin can be controlled through asset management: there are short-term fluctuations, and the band can be quantitatively arbitraged; in the long term, there is no fluctuation but appreciation, which hedges inflation and recession.

Corresponding to the driving value of CryptoFund in the cryptocurrency market, the introduction of old money and funds into the RWA tokenization platform through RWA-guided private investment funds or short-term liquidity funds is crucial to the success of tokenized alternative assets.

We can take a look at traditional RWA products, such as BlackRock's BUIDL money fund tokenization, which directly tokenizes its own money market fund; there are also similar lending Defi products such as MakerDAO, Ondo, Ethena Labs, etc., which allocate part of the stablecoin holdings and reserve funds of the original underlying assets to real-world assets that can generate income RWA assets, which are often US bonds or ETFs, and some high-quality corporate bonds or equity are in the form of private equity funds.

This trend means that Web3.0 products are also beginning to use Web2.5's RWA assets with professional management capabilities and relatively stable returns as underlying pledged interest-bearing assets, and then design their own financial Lego on this basis. This is a two-way phenomenon.

A mainstream brokerage FalconX accepts BlackRock's US dollar RWA fund (BUIDL) as collateral for client transactions and swap positions. This is a value increase for FalconX, investment clients and RWA platform Securitize. More FalconX customers may choose to exchange stablecoins and cash for BUIDL to obtain on-chain returns, which will drive more capital and participants into the RWA ecosystem. And BlackRock's BUIDL tokenized fund is an RWA guiding fund.

Except for standardized financial assets (FA), most other real-world assets (RA) are alternative assets. These non-standard alternative assets require a guiding fund to turn them into standardized investment products, such as shares, yields, asset packages, trading rules, and income rules. Moreover, the guiding fund is equivalent to a distributed open platform that can be rolled out and increased by fixed amount, etc.

In addition, a guiding fund is also needed to switch between the institutional market and the retail market of RWA. The RWA guiding fund is like a virtual institutional client or trading seat, which gathers and entrusts more retail investors, so that they can participate in a good RWA product investment with better prices, shares and scale effects. The manager of the guiding fund can also add more investment research capabilities, risk resistance and professional depth for retail investors.

A compliant RWA product is a fund

Referring to the relevant regulations of the Hong Kong SFC on funds and tokenized securities funds, security tokens, especially simple products, need to be registered as a fund product, and then further underwritten, tokenized and listed. Fund products involve Hong Kong's LPF, OFC, No. 9 asset management license, VA qualification uplift, etc.

In terms of funds in Hong Kong, there are generally LPF and OFC. The former is simple and similar to the limited partnership of the Cayman Fund, and the latter is more complex and similar to a private equity fund company. Generally speaking, it is sufficient for LPF to issue simple funds, and OFC can issue slightly more complex fund products, such as umbrella structure funds, or closed-end fund products or open-end fund products. If it is a No. 9 licensed asset management company, it can be more open and complex, similar to a public fund company, and can also issue investment portfolios and asset management products. The first two require a licensed asset management company to be affiliated with the investment management, the fund manager's net value is updated, and the fund needs to have a custodian bank, SFC filing, etc.

Currently, compliant RWA products are generally simple bonds or stocks, and bonds are a fixed income or floating fund. Complex products are similar to trust investment funds, ABS funds or fund bonds. First, the fund structure is designed, and then a No. 9 licensed asset management company manages the issuance, SFC filing and communication, the brokerage channel connects the capital end and the underwriting channel, and then the fund is tokenized, and the licensed exchange and SFC continue to communicate about listing. After listing, underwriting and subscription transactions, PI customer investment, secondary market liquidity, and post-investment management of fund exit and redemption, etc.

Tokenized fund products are different from traditional funds in terms of asset target penetration, funding sources and market structure. For example, the underlying assets can be disclosed through penetration, and the information disclosure and net asset value data panel can be presented in a credible form through specific products on the chain.

The guiding fund is a large pool of funds

The importance of a guiding fund to the capital side is also very critical. As a bridge between the real world and the crypto world, RWA requires a lot of capital and funds to promote development and improve liquidity. Corresponding to the Bitcoin spot ETF, Wall Street led in tens of billions of dollars of funds, which led to a wave of bullish Bitcoin prices. The core of the current compliant RWA market is also the capital side. What is the demand for the capital side of the RWA market around the tokenization of real-world assets? What are the sources and classifications of its LPs? It needs to be well positioned and analyzed.

Family offices around the world, including the funds of Chinese overseas, have begun to allocate Bitcoin investments. Some of the funds invested in traditional physical assets have also begun to accept RWA products that invest in physical asset tokens.

On this basis, it is completely feasible to attract offshore RMB and cryptocurrency funds in the Middle East, and Chinese family offices/family funds in Singapore and other places to Hong Kong with a large enough scale using RWA guidance funds. This is a good opportunity to promote the RWA market: part of the funds need to be traded and invested and then converted back to the mainland, and part of the funds are invested and traded in Hong Kong and hold overseas high-quality assets (Bitcoin mines or high-quality real estate, etc.), or hold high-quality assets or operating cash flow assets in the mainland. These are all things that an RWA guidance fund can do.

When the guidance fund introduces the capital side, it increases the liquidity of RWA products. At the same time, with the guidance of a sufficient scale of guidance funds, more main underwriters, angel early private equity, underwriting channels, arbitrage funds, PR traffic, etc. will participate.

For these Middle Eastern funds, family office funds, offshore RMB, etc., an RWA guidance fund is equivalent to a large pool of funds that can continuously roll over investment, trading and holding RWA assets.

RWA Fund is a potential ATS exchange

Hong Kong compliant RWA needs to be listed on a licensed exchange. The compliance communication and listing and secondary market development are relatively complex and the cycle is long. If the RWA tokenization designed in a non-securities model is designed, it can be listed on the offshore exchange, but it lacks the advantages of compliance and deposit and withdrawal.

If designed properly, an RWA pilot fund can be a potential ATS exchange. It can be registered as a compliant RWA product, and open a limited secondary market such as PI customer investment on the tokenized exchange. The subsequent liquidity, block trading, OTC and peer-to-peer trading can all be solved in the "ATS liquidity pool" infrastructure service corresponding to the fund.

At the same time, the RWA Guidance Fund is also a hedge arbitrage fund, which can achieve staggered arbitrage and Maker of RWA products through the investment bank's fundraising, investment, management and withdrawal models, thereby promoting the liquidity of RWA tokens. Because behind a guidance fund, there is often an investment bank company hidden, it needs to obtain higher overall returns through capital operations of the entire industrial chain, and at the same time it will have a good incubation and promotion of various links in the RWA field.

RWA Fund is an RWA Innovation Incubation Studio

Finally, the RWA Guidance Fund is actually an RWA Innovation Incubation Studio and Project Training Camp. Because the Guidance Foundation often has a good cooperative relationship with the head licensed financial institutions or licensed exchanges, it can discover and incubate good RWA assets and projects through incubation studios and training camps, promote RWA product construction and early share investment, and in order to discover and promote projects, the Guidance Fund will also organize various guiding RWA exchanges and seminars.

The most important thing is that the guiding foundation will deeply cooperate with the industry leaders in different tracks to promote the RWA upgrade of the entire industry chain; or deeply cooperate with companies with deep resources and assets in the field suitable for RWA tokenization to innovate RWA protocols or platform products.

The RWA gang R01Labs based in Shenzhen and Hong Kong has been established, and interested institutions and potential partners are welcome to participate in the construction; you are also welcome to add WeChat YekaiMeta
Join the RWA practice seminar group to participate in specific RWA project and product discussions.