Hong Kong's Tokenized ETF Solution for HKD and USD: Accelerating the Convergence of Traditional and Blockchain Finance

Hong Kong's Tokenized ETF Solution for HKD and USD: Accelerating the Convergence of Traditional and Blockchain FinanceThe convergence of traditional finance and blockchain finance is accelerating, with collaborative models undergoing a subtle yet rapid transformation. This trend was clearly demonstrated in 2024, with several landmark events signaling the inevitable deep integration of traditional finance and blockchain technology

Hong Kong's Tokenized ETF Solution for HKD and USD: Accelerating the Convergence of Traditional and Blockchain Finance

The convergence of traditional finance and blockchain finance is accelerating, with collaborative models undergoing a subtle yet rapid transformation. This trend was clearly demonstrated in 2024, with several landmark events signaling the inevitable deep integration of traditional finance and blockchain technology. This article will delve into this trend, analyzing its current state, opportunities, and challenges, incorporating specific case studies and expert opinions.

Hong Kong Market: Tokenized ETFs Lead the Asian Trend

In March 2024, Bosera Funds (International) and HashKey Group received approval from the Hong Kong Securities and Futures Commission (SFC) for their tokenized HKD and USD money market ETF solution, marking the imminent launch of the world's first tokenized money market ETF in Hong Kong. This not only injected new vitality into the Hong Kong financial market but also laid the groundwork for similar innovations in other Asian regions.

Prior to this, in February, China Asset Management (Hong Kong) launched the "China Asset HKD Digital Currency Fund," the first tokenized money market fund in the Asia-Pacific region targeting retail investors, further expanding the application scope of tokenized financial products. Even earlier in 2024, the three major public fund managers, China Asset Management, GF Asset Management, and Bosera Funds, launched Bitcoin and Ethereum spot ETFs in Hong Kong, representing Asia's first ETFs directly subscribable with the corresponding cryptocurrencies. These events collectively demonstrate Hong Kong's financial market's proactive embrace of blockchain technology and its drive for financial innovation.

Overseas Markets: The Tokenization Wave Sweeps the Globe

Hong Kong's proactive exploration is not an isolated case. Overseas markets also show strong interest in tokenized financial products. BounceBit recently announced the launch of tokenized trading services for stocks like Apple (AAPL), Amazon (AMZN), and Nvidia (NVDA) on its platform, enabling users to conduct decentralized US stock trading on the blockchain. This further broadens the types of tokenized assets, combining the traditional stock market with blockchain technology and offering investors new choices.

A year earlier, BlackRock launched its first tokenized fund, BUIDL, providing valuable experience and insights for the industry. According to Coinglass data, the total net asset value of Bitcoin spot ETFs currently stands at approximately $100 billion, reflecting the enormous demand and potential for tokenized assets.

A February report by the Boston Consulting Group predicted that the size of tokenized funds could reach 1% of the global mutual fund assets under management within seven years, exceeding $600 billion by 2030. If future regulations permit the conversion of all mutual funds and ETFs into tokenized funds, the assets under management of tokenized funds could even reach trillions of dollars.

The report defines tokenized funds as using blockchain-based digital tokens to represent fund ownership, essentially enabling instant transfer and ownership changes of fund shares through blockchain technology. Compared to traditional fund products, tokenized funds offer significant advantages, including shorter trading settlement cycles (T+0), higher liquidity, greater transparency, and lower costs.

HashKey Group: A Key Driver of Tokenized Finance Development

In the collaboration between Bosera Funds and HashKey Group, HashKey Group provided a comprehensive tokenization solution and end-to-end technical support. HashKey Tokenisation was responsible for the full lifecycle design and execution of the tokenized issuance; the product is deployed on HashKey Chain and relies on HashKey's Nexa Token service for on-chain asset security management; and HashKey Exchange, as the primary distribution channel, will provide distribution and custody services through its upcoming wealth management channel.

As a Hong Kong-based digital asset group, HashKey Group's public chain product, HashKey Chain, and virtual asset trading platform, HashKey Exchange, have both obtained relevant licenses from the Hong Kong SFC. HashKey Exchange is currently the largest licensed virtual asset exchange in Hong Kong, providing a solid foundation for the safe and compliant operation of tokenized financial products.

Industry Expert Opinion: Compliance and Security are Core Concerns

Recently, the Titanium Media App conducted an exclusive interview with Kay, Head of HashKey Chain, delving into the future collaboration between traditional finance and blockchain, the operational logic of on-chain ETF products, and risk control.

Kay emphasized that licensed financial institutions prioritize compliance and security when forging partnerships, not interest rates. Traditional institutions manage massive funds, making it difficult to achieve high returns while maintaining security. Compliant institutions strive to ensure that tokenized products meet local and international regulatory requirements and employ measures such as asset audits, code audits, and asset insurance to protect assets and transactions.

Kay also noted that regulators focus on investor protection, particularly the interests of small investors, to ensure the stability of the financial market. Regulators are actively learning from and drawing on the experiences of traditional financial markets to manage the emerging blockchain finance industry.

Addressing Challenges: Risk Control and Regulatory Transparency

Some market participants believe that in extreme market conditions, the smart contract liquidation mechanisms in on-chain finance could exacerbate market panic. Kay responded that while liquidation risks exist in extreme market conditions, they are not necessarily uncontrollable. On-chain code is law, and rules can be decided by community voting. Public chain operators need to enhance infrastructure performance and select robust underlying assets for on-chain assets. Simultaneously, open and transparent transaction records can help investors identify market manipulators.

BUIDL Case Study: Operational Experience of Tokenized Funds

As the first tokenized fund, BUIDL's successful operation provides valuable experience for the tokenization of financial assets. Kay pointed out that selecting the right blockchain platform is crucial. BUIDL initially launched on Ethereum and subsequently expanded to Solana to leverage its high efficiency and low transaction costs. After launching on Ethereum in March 2024, it became the largest tokenized fund globally in terms of assets under management in less than 40 days, exceeding $1 billion in AUM in less than a yearreflecting the strong market demand for tokenized money market funds.

Institutional Collaboration and Migration Costs: Efficiency and Low Cost are Key

Kay mentioned that the technological costs of onboarding funds to the blockchain are currently low, with existing solutions for onboarding real-world assets. Institutions generally require no additional migration costs. The gas fees on HashKey Chain range from 0.0001 to 0.001 per transaction, significantly lower than the cross-bank, cross-border, and cross-entity settlement costs in traditional finance. The main migration costs may lie in educating practitioners and users, requiring long-term investment.

Risk Control in Extreme Market Conditions: Transparency and Efficiency Combined

Regarding the risks potentially triggered by smart contract liquidation mechanisms in extreme market conditions, Kay explained that on-chain code is law, and transparent and open transactions help prevent market manipulation. Improving infrastructure performance, selecting robust underlying assets, and maintaining transparent transaction records all contribute to risk mitigation.

Future Development Trends: Diversification of RWA Assets and Ecosystem Integration

Kay anticipates a growing variety of RWAs (Real-World Assets) in the future. Standardizable asset classes, such as money market funds and index funds, will experience faster growth. Some niche areas, such as the tokenization of mining rights and advertising revenue rights, may also develop rapidly.

US Stocks on the Blockchain: Opportunities and Challenges Coexist

Regarding BounceBit's launch of US stock on-chain services, Kay believes this combines traditional financial markets with DeFi, but it might also amplify the volatility of stock assets. On-chain trading can cultivate more value investors by lowering investment barriers and improving liquidity.

Public Chain Competition: Security and Ecosystem Are Core

Kay believes the core competitiveness of different public chains lies in their performance, scalability, security, ecosystem, and interoperability. HashKey Chain, with its technical strength and compliance, aims to be a bridge between Web2 and Web3, driving on-chain finance to become a standard component of traditional finance.

Conclusion: Convergence and Regulation Moving Forward

The convergence of traditional and blockchain finance is irreversible. Subject to compliance and security, technological innovation, market demand, and regulatory support will collectively drive the flourishing development of tokenized financial products. In the future, platforms like HashKey Chain will continue to play a vital role in promoting the deep integration of traditional finance and blockchain technology, building a more inclusive, efficient, and innovative global financial system.

(Originally published on Titanium Media App, AuthorCai Pengcheng, EditorLiu Yangxue)