Trump's Crypto Assets attract attention as Hong Kong finance welcomes new opportunities for tokenization.

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Trump recently announced the issuance of a personal-related cryptocurrency on social media, once again attracting the attention of global investors to the digital asset market. If he returns to the White House, Trump may usher in a new era of cryptocurrency regulation in the U.S., encouraging more institutions to engage in the wave of digital innovation. A U.S. policy leader from a trading platform recently stated that Trump is sending a signal indicating that America has returned and is ready to lead this industry. This means that other countries need to be vigilant, or they risk falling behind.

The participation level of traditional institutions determines the speed of asset tokenization.

Asset tokenization is moving from concept to implementation and is referred to as "the third revolution in asset management," with explosive growth expected in the next five years. Research predicts that non-stablecoin tokenized assets will surpass $30 billion by 2025.

As a global financial center, Hong Kong is also actively embracing the wave of asset tokenization. The Chief Executive's Policy Address in 2024 proposed promoting asset tokenization and the construction of a digital currency ecosystem. The Hong Kong Monetary Authority has also launched the "Digital Bond Financing Scheme" to encourage the capital market to adopt tokenization technology. These initiatives indicate that Hong Kong aims to reshape its financial competitiveness through tokenization and take the initiative in future competition.

However, the main driving force behind global tokenization innovation still comes from the United States. Traditional institutions in the U.S., represented by Wall Street, are channeling traditional funds into blockchain through Bitcoin spot ETFs, while also accelerating the tokenization of traditional financial assets and businesses on-chain. Several top financial institutions are initiating the first wave of tokenization, which will have a global impact. A tokenized fund for U.S. Treasury bonds launched by an asset management company has exceeded $630 million in scale, and another large bank is also leading the tokenization of traditional assets such as U.S. Treasury bonds and money market funds through its platform.

In contrast, Hong Kong has yet to see the emergence of globally influential institutions or projects in the field of tokenization. Although Hong Kong has been proactive in promoting tokenization policies, the participation of traditional financial institutions in Hong Kong is relatively low when compared to the innovation led by major financial institutions in the United States, and they remain cautious towards the emerging fintech industry, largely adopting a wait-and-see approach. This means that despite having abundant financial resources, Hong Kong's potential in tokenization innovation has not been fully realized.

Hong Kong traditional institutions' conservative attitude towards tokenization mainly stems from compliance requirements. Compliance is necessary, but it should not become a barrier to innovation. The core of tokenization lies not only in technical implementation but also in institutional participation. The degree of participation by traditional institutions will largely determine the early prosperity of the tokenization market. A trading platform's recent proposal for a stock tokenization plan is still in the strategic conceptual stage, but once successful, it could quickly replicate and even create a "blockchain-based securities exchange", injecting huge growth into the tokenization market. This also indicates that only with more resource-rich institutions actively participating can the tokenization market develop faster.

In the short term, without the possibility of changing the existing model, Hong Kong should attract more traditional institutions to participate through a more open tokenization sandbox mechanism, engaging in innovative and market-potential frontier practices. At the same time, to avoid fragmentation of the sandbox, Hong Kong can include related explorations such as stablecoins and distributed ledger technology into the sandbox for joint pilots; and encourage more institutions to freely explore tokenization applications based on their own endowments, whether it is tokenized funds and stocks, or other assets, as long as there is willingness and capability, they can conduct small-scale pilots in the sandbox, summarizing experiences in exploration, and gradually enhancing institutions' willingness and ability to innovate in the field of tokenization.

Only with more resourceful and asset-rich institutions actively participating in tokenization innovation can Hong Kong gain more initiative in the transformation, thus avoiding a rapid widening of the gap in competition with the United States.

Focus on standardized financial assets to expand the market size of physical asset tokenization.

In addition to stimulating market innovation vitality, Hong Kong also needs to further clarify its development focus at the tokenized asset level. Global exploration of tokenization mainly focuses on standardized financial assets, while Hong Kong has previously explored tokenization of funds and bonds, but the current focus is on the tokenization of non-financial assets such as renewable energy and agricultural products. Although these explorations contribute to the long-term development of the tokenization ecosystem, it is difficult to establish market advantages in the short term.

As previously suggested by certain research institutions, there will be a significant time lag in the tokenization process of different assets: standardized financial assets such as bonds and funds, which have stable returns and considerable scale, are currently the most suitable asset categories for tokenization. The tokenization experience of these standardized assets will also lay the foundation for the subsequent tokenization of smaller-scale assets, those with less obvious benefits, or those facing more severe technical challenges. Therefore, Hong Kong should focus in the short term on the most suitable standardized financial assets for tokenization and fully leverage its geographical and institutional advantages as an international financial, trade, and shipping center, with a key focus on the tokenization applications in trade and cross-border-related scenarios, rapidly expanding the market size of Hong Kong's physical asset tokenization.

Moreover, while technology is not the key determinant of the success or failure of tokenization, an open technology system is more conducive to tokenization innovation. Some overseas institutions opt for private chains due to regulation, but more financial and tech giants are embracing public chains. Public chains significantly outperform other technology systems in terms of global liquidity and openness, becoming the preferred platform for over 60% of tokenized bonds and funds. In terms of security, thanks to the development of data openness and on-chain analytics technology, asset tracking and auditing on public chains are becoming easier. Additionally, since most tokenized assets are held off-chain, the real risks are actually more concentrated off-chain, while on-chain mainly ensures business compliance. Therefore, under the premise of compliance, Hong Kong should be more confident in exploring tokenization applications and innovations on public chains, gradually positioning them as a key direction for tokenization innovation.

Finally, the tokenization of physical assets, as a product of the integration of two different financial systems, ideally should accelerate the migration of real assets onto the blockchain while ensuring their value is not limited to the blockchain, ultimately serving and reflecting reality. In the face of active actions by Wall Street institutions in the field of tokenization, the time window left for Hong Kong is not much. If Hong Kong can leverage its institutional and market advantages to accelerate the embrace of innovation, while exploring a balance between providing traditional institutions with more innovative space and regulatory compliance, and relying on the trillion-dollar asset support that the mainland can provide, Hong Kong will undoubtedly gain an absolute advantage in the field of tokenization, with a promising future. Consulting firms have estimated that the potential scale of tokenized assets in Hong Kong has reached as high as 36 trillion HKD.

We look forward to Hong Kong achieving "acceleration" in the field of tokenization of physical assets by 2025.