With the deepening intersection of traditional finance, blockchain technology and encrypted assets, RWA is becoming a substitute or better solution for traditional financial instruments such as traditional asset securitization and IPO, bringing new ideas and methods to the circulation and trading of assets.
In short, the basic process of issuing RWA projects in compliance is as follows: select suitable assets ➡ determine the issuance plan ➡ asset evaluation and audit ➡ build a tokenization platform to issue tokens ➡ obtain regulatory approval for compliant issuance
Today, the Sister Sa team will combine practical experience and the latest RWA success cases to talk to you about the interesting thing RWA from three perspectives: "selection of underlying assets", "selection of issuance plan" and "selection of issuance area".
01 The choice of underlying assets - the "life gate" of RWA
From the practical experience of the Sister Sa team, the most critical core of issuing RWA projects at the current stage is to learn to correctly select the underlying assets of the RWA projects.
It is true that crypto assets are becoming an important tool for reconstructing the world's financial landscape, but due to the limitations of our cognition and the differences in the basic national conditions of various countries, the development and popularization of new things (especially those with financial attributes) must go through a slow process, which leads to different acceptance of crypto assets in various countries and jurisdictions.
Therefore, the correct selection of an underlying asset is conducive to giving the RWA project a more reasonable, reliable and visual "value" on the one hand; on the other hand, it also helps to become a truly feasible "financial innovation" project in the eyes of regulators, rather than an illegal fundraising or financial fraud project.
From the perspective of several successful RWA projects that are relatively popular and well compliant in the current Chinese market, the selection of underlying assets generally has the following characteristics:
(1) physical assets;
(2) have "green economy" attributes;
(3) can generate stable cash flow;
(4) the overall value of the assets is moderate and the market price is stable in the long term.
It is worth noting that the reason why there are currently many underlying assets with "green economy" attributes is mainly because most domestic companies choose to issue RWA in Hong Kong, my country, and issue them in compliance through the Ensemble Sandbox launched by the Hong Kong Monetary Authority. At present, the first phase of the Ensemble sandbox experiment is to tokenize traditional financial assets and real-world assets, focusing on four themes: (1) fixed income and investment funds; (2) liquidity management; (3) green and sustainable finance; and (4) trade and supply chain financing.
Among them, green and sustainable finance is basically the most important item that mainland Chinese companies are most likely to bet on when selecting RWA underlying assets, while also taking into account financing interests. Therefore, the two successful projects we have seen in the market: the charging piles of a certain new group and the photovoltaic power station of a certain Xin Technology are both such underlying assets.
Of course, with the development of the entire market and the increase in overseas RWA platform opportunities, the Sister Sa team believes that "green economy" will still be one of the important considerations when selecting underlying assets, but it will not become a decisive factor. After all, the essence of the underlying assets is the core of giving value to RWA projects. The key is to be able to generate stable cash flow and have high market recognition.
02 Issuance plan selection
Based on the current market practice experience, there are two main RWA issuance plans, one is the direct issuance model; the other is the asset-backed model.
The so-called direct issuance model can be simply understood as a relatively simple ICO. Generally, the owner of the asset is also the issuer, using the blockchain as a bookkeeping tool to register the assets and issue the corresponding tokens. This model is currently used more on overseas private RWA platforms. Since my country's 2017 "Notice on Preventing the Risks of Token Issuance and Financing by the People's Bank of China and Seven Other Departments" (9.4 Notice) clearly defined ICO behavior as "unauthorized illegal public financing behavior", this model has basically disappeared in my country.
The asset-backed model has gradually become the mainstream choice for the issuance of compliant (mainly in Hong Kong, my country) RWA projects. In essence, this issuance plan draws heavily on the idea of "asset securitization" in traditional finance. Although ICO is also required to issue tokens, such tokens can actually be regarded as a new security that can represent the economic rights and interests of the underlying assets. In actual operation, the asset issuer will register the underlying assets in a system other than the blockchain. After the third party purchases the assets, it will introduce a traditional licensed custodian to custody the underlying assets, and then the issuer will ICO according to the corresponding proportion.
In general, the compliance of the asset-backed model is higher than that of the direct issuance model, and it is more in line with the institutional thinking of Hong Kong, my country, but the issuance cost will also be higher, so it is more suitable for underlying assets with larger scale and volume.
03 Choice of Issuing Region
At present, the RWA track is in a period of flourishing and "wild" growth worldwide. Except for a few countries and jurisdictions such as my country that have taken strict regulatory measures on crypto assets, a large number of RWA projects are developing rapidly, and the issuance methods and platforms are even more varied.
Combined with our practical experience, the Sajie team believes that at present, if mainland Chinese companies want to complete financing by combining their own high-quality products with the crypto world, the preferred RWA issuance region is still Hong Kong, my country. This is mainly based on two considerations.
First, the Hong Kong Monetary Authority has established the Ensemble Sandbox, the purpose of which is to explore the establishment of innovative financial market infrastructure based on the blockchain platform. The issuance of tokenized assets and the technical interoperability between tokenized deposits and wCBDC are the focus of sandbox project testing. Therefore, a good RWA is likely to shine in the sandbox project.
Secondly, several mainland companies have had successful issuance experience in Hong Kong, and the regulatory standards of the Ensemble sandbox are relatively clear. If the compliance requirements can be met, it is more likely to carry out RWA in Hong Kong. In addition, the current financing scale of RWA has reached the level of 100 million yuan, which is almost equivalent to a small IPO. The financing benefits that issuing RWA can bring to customers are actually not small.
Combining the above advantages, in the case that my country has not yet established a regulatory sandbox for RWA and ICO behavior is expressly prohibited, going to Hong Kong for RWA may be the best solution for Chinese companies.
04 Written at the end
Sister Sa’s team reminds that the construction of Hong Kong’s capital market is relatively mature, which requires mainland Chinese companies to comply with Hong Kong’s financial regulatory requirements when going to Hong Kong for RWA. The issuance cost of RWA naturally includes the due diligence requirements of traditional asset securitization business: professional lawyers, accountants, etc. need to conduct due diligence on the underlying assets to confirm that the ownership of the assets is clear and compliant, ensure the anchoring of on-chain data and real assets, and the compliance of smart contracts, etc.
In general, the Sister Sa team believes that RWA will gradually become a thriving financial tool in the future, providing companies with a newer and more effective financing channel. However, there are also many suspected fraudulent operations in the market under the guise of RWA. For example, the Sister Sa team once received a consultation from a client who claimed that he had more than a dozen authentic "Ru Kiln" products and wanted to issue RWA as the underlying assets... Therefore, partners should keep their eyes open, do not invest blindly, and beware of being deceived.
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