Hong Kong reaps tokenization gains post-green bonds

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Hong Kong has its sights on a full pivot into blockchain for its financial markets, driven by the benefits associated with tokenization.

In its latest report, the Hong Kong Monetary Authority (HKMA) stated that the city-state is keen on pushing the frontiers for tokenized bonds to become a mainstream financial offering. The 24-page report highlighted the upsides of relying on blockchain for bond issuance without disregarding associated risks.

Hong Kong has already dipped its feet into tokenized bond issuance following the launch of Project Evergreen, an HKD 800 million (US$101 million) offering via the Goldman Sachs (NASDAQ: GS) Digital Asset Platform.

The report explored Project Evergreen’s challenges in a bid to chart an efficient course for tokenized bunds. HKMA CEO Eddie Yue noted in the forward that aside from the obstacles faced by Project Evergreen, “It also showed the potential in DLT to enhance efficiency, liquidity, and transparency in bond markets.”

Going forward, the report noted bond issuance platforms should focus a slice of their resources on building interoperable systems. The HKMA stressed that interoperability will prevent fragmentation, and a connection with legacy bond issuance systems will offer the perks of increased adoption levels.

The HKMA tips the Central Securities Depository (CSD) to play a key role in the interoperability of blockchain bond issuance platforms with conventional systems, citing SIX Digital Exchange’s (SDX) previous integration attempts.

To attract higher levels of interest, the report suggests that blockchain bond issuance may be done in other currencies outside of the HKD, including stablecoins and commercial bank-minted tokens. It also pushes for standardized documentation procedures, real-time impact tracking, and exploring retail use cases as measures to encourage adoption.

“The design and policy considerations set out in this report have reflected the unique features of Hong Kong’s financial market as well as latest international developments,” said Yue. “We welcome market participants to draw reference from our experience when considering tokenised issuances in Hong Kong.”

Hong Kong is deep in Web3

Hong Kong has made public its intent to improve its digital economy using Web3 as a focal point to achieve its lofty ambitions. Since unveiling the blueprint, the government has taken several steps, including rolling out a comprehensive regulatory framework for virtual asset service providers (VASPs).

Including a Web3 fund in its national budget and launching several free-trade zones to incubate industry startups prove Hong Kong’s desire to attract key industry stakeholders.

Hong Kong has taken it up a notch with a blockchain collaboration with mainland China to promote interoperability in both jurisdictions.

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