The First Retail Tokenization Fund in Asia-Pacific Launched in Hong Kong: The Future of On-Chain Innovation and Physical Assets

On February 13, 2025, an asset management company in Hong Kong announced that its Hong Kong dollar digital currency fund had received approval from the Hong Kong Securities and Futures Commission, becoming the first tokenized fund in the Asia-Pacific region aimed at retail investors. The fund was officially launched on February 28, marking an important breakthrough in the transition of tokenized assets from being exclusive to institutions to the broader market.

As the first retail fund approved after the relevant policies were released in Hong Kong in November 2023, this innovative product has attracted widespread attention. So, what exactly is a tokenized fund? How does it differ from traditional funds? How can ordinary investors participate? Let’s dive into these questions.

The Essence and Innovation of Tokenization Funds

Tokenization refers to the conversion of the rights to physical assets into digital tokens on the blockchain. Tokenized funds represent fund shares "on-chain", indicating ownership in the form of digital tokens. Each token (or a part of it) represents a unit or share of the fund.

Although there is no significant difference between tokenized funds and traditional funds from an investment perspective, based on blockchain technology, it shows many innovations in ownership attribution, information transparency, and trading models:

1. Clear ownership: Fund shares exist in the form of tokens, making ownership clearer.
2. Information Transparency: Blockchain technology ensures that transaction records are public and transparent.
3. Transaction Efficiency: Smart contracts enable automated operations, increasing efficiency.
4. 24/7 Trading: Theoretically supports 24/7 trading.
5. Highly divisible: Tokens can be divided into very small units, lowering the investment threshold.

Characteristics and Redemption Mechanism of Hong Kong Dollar Digital Currency Fund

This newly launched tokenized fund primarily invests in Hong Kong dollar short-term deposits and high-quality money market instruments, while offering three share classes in Hong Kong dollars, US dollars, and Renminbi. As a custodial tokenization model, the fund is represented by a bank acting as the tokenization agent, digital platform operator, and token custodian.

It is worth noting that ordinary investors can only subscribe for or redeem tokenized shares in the form of tokens through qualified distributors. Currently, there is only one licensed cryptocurrency exchange publicly available as a qualified distributor. At the same time, the fund is only issued to investors in the Hong Kong region.

Subscription Process:

1. Investors subscribe to fund tokens through qualified distributors, using fiat currency for payment.
2. The distributor notifies the fund manager and transfers the subscription payment.
3. The fund manager issues tokenized shares and instructs the minting of tokens.
4. Tokens are held in the distributor's blockchain wallet.
5. The distributor will allocate tokenized equity shares to investors.

Redemption process:

1. Investors apply to the distributor to redeem Tokens.
2. The distributor notifies the fund manager.
3. The fund manager redeems shares and destroys the corresponding Tokens.
4. Distributors pay redemption profits to investors, while deducting custody Tokens.

Global Tokenization Fund Development Trends

In addition to this Hong Kong dollar digital currency fund, other tokenized funds around the world are also exploring innovative subscription and redemption mechanisms. For example, a tokenized fund launched by a major asset management giant adopts a USD/stablecoin subscription mechanism, achieving automated conversion through smart contracts.

These funds typically support both on-chain direct subscription and traditional bank subscription methods. Upon redemption, one can choose between off-chain settlement or on-chain real-time exchange. Profit calculation and distribution can also be automatically completed through smart contracts.

Future Outlook for Tokenization Funds

As the first tokenized fund approved for ordinary investors in the Asia-Pacific region, this innovative product marks an important breakthrough in the application of blockchain technology in the financial sector. Although it currently primarily invests in low-risk assets, it may expand to more investment strategies and asset classes in the future.

As the compliant blockchain financial system gradually matures, asset tokenization is expected to leverage global liquidity advantages and become a key force in reshaping the global asset management landscape. We can anticipate the emergence of more innovative products, such as tokenized funds that support cryptocurrency trading and offer higher returns.

This milestone development not only opens the door for ordinary investors to participate in Web3 finance but also points the way for the integration of traditional finance and blockchain technology. In the future, tokenization funds may play an important role in enhancing asset liquidity, reducing transaction costs, and expanding the investor base, thereby promoting further development and innovation in global financial markets.