Why Does the RWA Market Need a Guiding Fund?

Original Article Title: "Why Does the RWA Market Need a Guiding Fund?"

Original Article Author: Yekai (WeChat/Twitter: YekaiMeta)

The RWA market has been around for a while, but it has mainly been lively in the track of issuing coins based on the RWA concept (with Crypto Fund), and then the tokenization of Wall Street financial institutions' Bitcoin spot ETFs and money market funds. Ultimately, in the T-RWA and Hong Kong compliant RWA market, there is a lack of an RWA guiding fund to drive development.

The RWA Guiding Fund is Key to Guiding Institutional Investors, Standardization, and Retailization

For the Bitcoin and other token markets, including various tracks such as memecoin, DePIN, AI, etc., CryptoFund has played a crucial driving role in aspects such as primary, secondary, quantitative, and arbitrage. The uniqueness of cryptocurrency lies in the fact that it is like a special hedge asset class, such as Bitcoin's high volatility can be controlled through asset management: short-term volatility can be quantitatively arbitrated; long-term stability with only appreciation can hedge against inflation and recession.

Corresponding to the driving value of CryptoFund in the cryptocurrency market, bringing institutional investors and funds into the RWA tokenization platform through RWA guiding private equity funds or short-term liquidity funds is crucial for the success of tokenizing alternative assets.

We can look at traditional RWA products, such as BlackRock's BUIDL money market fund tokenization, which directly tokenizes its money market fund; and similar lending Defi products like MakerDAO, Ondo, Ethena Labs, etc., allocate a portion of the stablecoin holdings of the underlying assets and reserves to income-generating real-world RWA assets, which are often U.S. Treasuries or ETFs, as well as some high-quality corporate bonds or equities through private equity fund form.

This trend means that Web3.0 products are also starting to utilize Web2.5's professionally managed and relatively stable income-generating RWA assets as the underlying collateral's interest-bearing assets, on which to design their own financial Lego. This is a two-way rushing phenomenon.

A mainstream broker FalconX accepts BlackRock's USD RWA fund (BUIDL) as collateral for client trades and swap positions. This is a value-added move for FalconX, investment clients, and RWA platform Securitize, as more FalconX clients may choose to swap stablecoins and cash for BUIDL to earn on-chain income, driving more capital and participants into the RWA ecosystem. BlackRock's BUIDL tokenized fund is indeed a Guiding RWA Fund.

In addition to standardized financial assets (FA), most other real-world assets (RA) are alternative assets. These non-standard alternative assets require a guiding fund to transform them into a standardized investment product. For example, with shares, yields, asset packages, trading rules, and return rules. The guiding fund also serves as a distributed open platform that can have rolling issuance and incremental increases.

Furthermore, transitioning between the Institutional Market and Retail Market in RWA also requires a guiding fund. The RWA guiding fund is similar to a virtual institutional client or trading seat, aggregating and entrusting more retail individual investors to participate in a good RWA product investment at a better price, share, and economies of scale. The fund manager of the guiding fund can also enhance retail individuals' research capabilities, risk resistance, and professional depth.

A Compliant RWA Product is a Fund

Referring to the Hong Kong SFC regulations on funds and tokenized securities funds, security-type tokens, especially simple products, need to be filed in the form of a fund product before further underwriting, tokenization, and listing. Fund products involve Hong Kong's LPF, OFC, Type 9 asset management license, VA qualification uplift, etc.

Regarding Hong Kong's funds, there are generally LPF and OFC, with the former being simple like a Cayman fund's limited partnership and the latter more complex like a private equity fund company. Generally speaking, LPF issues straightforward funds, while OFC can issue slightly more complex fund products, such as umbrella fund structures, closed-end fund products, or open-end fund products. If it is a Type 9 licensed asset management company, it can be more open and complex, similar to a public fund company, and can also issue portfolio and asset management products. The first two require a licensed asset management company to be affiliated for investment management, fund manager net asset value update, and then the fund needs a custodian bank, SFC filing, and so on.

Currently, compliant RWA products generally consist of simple bonds or stocks, with bonds being either a fixed-income or floating-rate fund. Complex products are like trust investment funds, ABS funds, or bond funds. First, design the fund structure, then have a Type 9 licensed asset management company manage the issuance, SFC filing and communication, connect to brokerage channels for funding and underwriting, then tokenize the fund, and continue to communicate with licensed exchanges and the SFC for listing. After listing, conduct underwriting subscription transactions, PI client investments, secondary market liquidity, and post-investment fund exit and redemption, etc.

Tokenized fund products differ from traditional funds in asset transparency, fund sources, and market structure. For example, underlying asset transparency can be disclosed, and information disclosure and asset net value data panels can be reliably presented through specific on-chain product forms.

An Anchoring Fund is a Large Pool of Capital

The importance of an anchoring fund on the capital side is also very critical. RWAs, as a bridge linking the real world and the crypto world, require a large amount of capital and funding to drive development and enhance liquidity. Compared to a Bitcoin spot ETF, it was the influx of Wall Street's hundreds of billions of dollars into an anchoring fund that led to a small bull run in the price of Bitcoin. Currently, the core of the compliant RWA market is also the capital side. What is the demand for the capital side in the RWA market around the tokenization of real-world assets? What are the sources and classifications of its LPs? This requires careful positioning and analysis.

Global family offices, including overseas Chinese family office funds, have started allocating funds to Bitcoin investments. Among them, some of the funds investing in traditional physical assets have also begun to accept investments in tokenized real-world asset (RWA) products.

Building on this, it is entirely feasible to attract offshore RMB and cryptocurrency funds from the Middle East, as well as Chinese family office/family funds from places like Singapore, to Hong Kong using an RWA anchoring fund. This is a great opportunity to drive the RWA market: some funds need to be traded and invested and then remitted back to the mainland, while some funds are invested and traded in Hong Kong and hold high-quality overseas assets (such as Bitcoin mines or prime real estate), or hold high-quality mainland assets or operational cash flow assets, all of which can be done by an anchoring RWA fund.

By bringing the capital side into an anchoring fund, the liquidity of RWA products is increased, and with a sufficiently large anchoring fund, there will be more lead underwriters, angel early-stage private placements, underwriting channels, arbitrage funds, PR traffic, etc., participating.

For these Middle Eastern funds, family office funds, offshore RMB funds, etc., an RWA anchoring fund is equivalent to a large pool of capital that can continuously roll over investments, trade, and hold RWA assets.

An RWA Fund is a Potential ATS Exchange

Compliant RWAs in Hong Kong need to be listed on a licensed exchange, and the process of compliance communication, listing, and secondary market development is more complicated and lengthy. On the other hand, RWAs designed in a non-securities model can be listed on offshore exchanges, but relatively lack the advantage of compliance and fund inflows and outflows.

If designed properly, an anchoring RWA fund can be a potential ATS exchange. It can be filed with compliant RWA products, listed for tokenization to open a limited secondary market such as PI customer investment, and the liquidity pool, block trades, OTC, and peer-to-peer trading can all be addressed in an infrastructure service corresponding to a "ATS liquidity pool" of the fund.

At the same time, the RWA Guiding Fund is also a hedge arbitrage fund, which can achieve mismatch arbitrage of RWA products through investment bank's fundraising and management withdrawal model, Maker, etc., thereby promoting the liquidity of RWA tokens. Because behind a guiding fund, there is often an investment bank that needs to obtain higher overall returns through capital operation across the entire industry chain, while at the same time incubating and promoting various aspects of the RWA field.

The RWA Fund is an RWA Innovation Incubator

Finally, the RWA Guiding Fund is actually an RWA innovation incubator and project training camp. Because guiding funds often have good cooperative relationships with top-tier licensed financial institutions or licensed exchanges, they can discover and incubate good RWA assets and projects through incubators and training camps, promote RWA product development and early-stage equity investment. To discover and promote projects, guiding funds also organize various guiding RWA exchanges and seminars.

Most importantly, guiding funds collaborate deeply with industry-leading companies in different tracks to drive the overall RWA upgrade of the industry chain; or cooperate deeply with companies that have abundant resources and assets in fields suitable for RWA tokenization to innovate RWA protocols or platform products.

Based in Shenzhen and Hong Kong, the RWA Gang R01Labs has been established, welcoming institutions and potential partners who are interested in participating in the construction together; also, feel free to add WeChat YekaiMeta to join the RWA practice discussion group to participate in specific RWA project and product discussions.