Bridging TradFi and Digital Assets: Hong Kong’s Roadmap to a Tokenised Economy

Capital markets are on the cusp of a generational transformation as they embrace digital assets and tokenisation, not just as buzzwords but as the key to unlocking operational efficiencies, reducing costs and enabling seamless innovation. McKinsey estimates that the market capitalisation of tokenised assets (excluding cryptocurrencies and stablecoins) could reach $2 trillion by 2030, initially driven by deposits, bonds, mutual funds, exchange-traded notes (ETNs) and exchange-traded funds (ETFs), as well as loans and securitisation.

With a variety of underlying assets, tokenisation is significant not only because it digitalises traditional assets but also because it can smooth out the inherent frictions in a financial system that was not built for a digital age. Tokenisation is enabling greater accessibility to financial products that were previously unavailable, and opening up innovative possibilities for new products and services we have never seen before.

As a vibrant harbour for innovation, Hong Kong is one of the key jurisdictions embracing tokenisation and looking to harness its benefits for the financial markets of tomorrow.

Where innovation goes hand-in-hand with regulation

Respected as an international financial hub serving global markets, Hong Kong plays a crucial role in driving innovation through its robust regulatory frameworks.

Hong Kong’s Securities and Futures Commission (SFC) and Hong Kong Monetary Authority (HKMA) have formally elevated virtual assets to a core development priority over the past few years, including establishing a regulatory sandbox to test stablecoin projects, as well as providing clear regulatory frameworks and licensing for firms deploying stablecoins on an ongoing basis.

They have focused, in particular, on the advancement of tokenisation of Real-World Assets (RWAs) and on building a stablecoin ecosystem that can facilitate this market. Stablecoins, as digital settlement assets, remain significant in unlocking the true value of tokenisation, which will only be fully realised when the entire financial value chain is taken on-chain.

Stablecoins as an enabler

In recent weeks, the Hong Kong Government has welcomed the passage of the Stablecoins Bill by the Legislative Council, created to establish a licensing regime for fiat-referenced stablecoins (FRS) issuers. Upon implementation of the Stablecoins Ordinance, entities which issue fiat-referenced stablecoins in Hong Kong, or issue an FRS that purports to maintain a stable value with reference to Hong Kong dollars in or outside Hong Kong, will need to obtain a licence from the HKMA. They must also satisfy requirements in areas such as reserve asset management and redemption, including proper segregation of client assets, maintaining a robust stabilisation mechanism, and processing stablecoin holders’ requests for redemption at par value with reasonable conditions. Greater clarity for stablecoin issuers will be an important factor in advancing the progression of RWA tokenisation.

As part of the regulatory sandbox, Standard Chartered, Animoca Brands and telecoms company HKT partnered to test a stablecoin project with regulatory oversight. Zodia Custody delivered the digital asset custody infrastructure for the project. The parties have entered into agreements to establish a joint venture where Standard Chartered and its strategic partners anticipate becoming one of the first issuers to launch an HKD-backed stablecoin, charting a new chapter for Hong Kong’s digital asset market.

Hong Kong: the connector

Regulatory clarity and a positive regulatory environment, where projects can move rapidly from testing into production, reinforces Hong Kong’s role as a ‘super-connector’ between the worlds of traditional finance and digital assets. As this evolution occurs at a rapid pace, companies entering the digital asset market must strike a delicate balance between embracing innovation and ensuring that appropriate policies and infrastructure are in place to manage risk effectively.

One area that digital asset custodians hope to clarify is the custody element of regulated virtual asset services. Accordingly, the SFC has announced a stand-alone custody licensing regime integrating its core regulatory principles into a structured Roadmap, with five key pillars: Access, Safeguards, Products, Infrastructure, and Relationships. The A-S-P-I-Re Roadmap structures custody services in the market to ensure a more comprehensive regulatory environment around the virtual asset ecosystem. This roadmap will be key to ensuring safekeeping of assets as tokenisation expands further beyond the initial stablecoin and fund tokenisation pilots.

The rise of tokenised funds – where TradFi and digital assets connect

Several entities in Hong Kong have been involved in launching tokenised funds, particularly tokenised money market funds, as part of the city’s push to integrate blockchain technology with traditional finance. The SFC’s approval of these products underscores Hong Kong’s progressive stance on digital assets, aiming to position the city as a global hub for Web3 and blockchain innovation.

Core to this has been the HKMA’s Project Ensemble sandbox initiative, which explores tokenisation of real-world assets (RWAs) and supports tokenised fund launches by providing a testing environment for blockchain-based financial products. Additionally, the HKMA’s Project Evergreen – which intersects with Project Ensemble – focuses on the bond market and has evolved beyond its initial tokenised green bond issuances into a broader phase aimed at scaling adoption across the bond lifecycle.

Another case in point is the collaboration between HashKey Group and Bosera Asset Management to launch the world’s first tokenised money market ETFs. The ETFs are issued on HashKey’s proprietary blockchain and Hashkey is a member of the HKMA’s Project Ensemble sandbox. These ETFs are designed to enhance liquidity, transparency, accessibility and operational efficiency for investors.  Additionally, China Asset Management HK has launched a retail-oriented tokenised MMF (China AMC HKD Digital Money Market Fund) which offers yield to investors. Set up in partnership with OSL, a VASP licensed by the SFC, it is Asia’s first tokenised money market fund for retail investors, built on the Ethereum blockchain. This initiative broadens access to tokenised assets for retail investors, marking a significant step in democratising digital finance in Asia.

The launch of Hong Kong-based tokenised funds reflects a wider global trend of asset managers leveraging blockchain for operational efficiency and faster settlements. Hong Kong’s efforts are part of a broader movement, with some of the world’s largest asset managers such as BlackRock (BUIDL), Franklin Templeton (BENJI) and Fidelity also tokenising assets in other markets and with leading digital asset jurisdictions in the Middle East and Asia building strong corridors with Hong Kong to facilitate global activities.

The role of custody in a tokenised marketplace

As tokenisation continues to take off in Hong Kong and elsewhere, the HKMA and the SFC are aligning on tokenisation of RWA’s and stablecoin frameworks, within which custody will be central to qualifying for regulated status.

According to the A-S-P-I-Re Roadmap, for example, virtual asset fund managers must exercise due diligence in selecting and monitoring custodians. Custodians themselves are awaiting a consultation to clarify new measures that may be put in place to align virtual asset compliance with established TradFi frameworks.

While institutions and individuals can now choose from a variety of newly-regulated virtual asset products, including tokenised money market funds, tokenised bonds and stablecoins, market players are becoming aware that the custody setup is a key factor contributing towards their legal protection and compliance positioning.

As tokenisation continues to redefine the future of finance, Hong Kong’s proactive regulatory approach and commitment to innovation are positioning it as a global leader in the digital asset economy. For institutions engaging with tokenised assets, robust digital asset custody will be a critical piece in ensuring security, regulatory compliance, and long-term trust in this evolving marketplace.