Here is the English translation of the text, with the specified terms preserved:
On February 13, 2025, Huaxia Fund (Hong Kong) announced that its "Huaxia HKD Digital Currency Fund" has been approved by the Hong Kong Securities and Futures Commission (SFC), becoming the first retail tokenized fund in the Asia-Pacific region, and is expected to be officially listed on February 28. This fund is the first retail fund approved after the Hong Kong SFC issued the "Tokenized SFC-Authorized Investment Products" circular in November 2023, marking a critical breakthrough in the transition of tokenized assets from institutional to mass market.
Currently, the official website of Huaxia Fund (Hong Kong) announces that the "Huaxia HKD Digital Currency Fund" has been issued as scheduled on February 28, 2025.
Traditional money market funds are relatively easy to understand, but what is a tokenized fund? How is it different from traditional funds? What investors can subscribe, and how can they subscribe and redeem? As the first retail tokenized fund in the Asia-Pacific region, what are the investment assets? The Crypto Salad, as a professional legal team that continuously tracks the frontline dynamics of the global Web3 and cryptocurrency field, will analyze and explain the above questions by combining examples of other tokenized funds globally.
I. What is a tokenized fund? How is it different from traditional funds?
Tokenization refers to the process of converting the rights of real-world assets (RWAs) into digital tokens on the blockchain, and a tokenized fund is to "on-chain" the fund shares as the underlying asset, where the ownership of the fund is represented by the token, and each token (or a portion thereof) represents a unit or share (or a portion thereof) of the fund.
Therefore, the essence of fund tokenization is to convert the fund shares into on-chain certificates and then issue them. For example, the BUIDL tokenized fund launched by BlackRock in 2024 adopts a USD/USDC subscription mechanism, where the tokens are strictly 1:1 anchored to the fund shares, and the automatic conversion is realized through smart contracts, investing in USD cash reserves, short-term US Treasuries, and high-quality money market instruments (such as large bank CDs, high-rated commercial papers, etc.).
In essence, there is no obvious difference between tokenized funds and traditional funds in terms of investment nature. However, as tokenized funds are built on the technological innovation of blockchain, there are many innovations in terms of ownership attribution, information transparency, and trading models:
(A comparison chart between the two provided by Huaxia Fund)
II. What are the special features of the "Huaxia HKD Digital Currency Fund"? How can investors specifically subscribe and redeem?
In fact, the investment assets of the "Huaxia HKD Digital Currency Fund" do not differ essentially from traditional money market funds. According to the "Product Key Facts Statement" of this fund, its main investment assets are
HKD short-term deposits and high-quality money market instruments, with other money market instruments and money market funds as auxiliary investment assets. The fund also provides HKD, USD, and CNY share classes for investors to choose from.
However, as the first retail tokenized fund in the Asia-Pacific region, its core feature is the special "tokenized" issuance method. From the tokenization model, this fund adopts a custodian-type tokenization model,
with Standard Chartered Bank (Hong Kong) serving as the tokenization agent, digital platform operator, and token custodian, and completing the technical implementation through the internal authorized digital platform created by its wholly-owned subsidiary Libeara.
Meanwhile,
due to the difference in fund form, the subscription and redemption channels and methods for investors will also be different from traditional funds. First, it should be noted that the "Product Key Facts Statement" emphasizes that
retail investors can only subscribe or redeem the tokenized shares through qualified distributors in the form of tokens. The "qualified distributors" currently disclosed by Huaxia Fund are only OSL Digital Securities Limited, which is the only listed and compliant licensed cryptocurrency trading platform in Hong Kong. Specifically, investors can only subscribe to the fund tokens through the qualified distributor, i.e., the OSL exchange, and the subscribed fund shares will be converted into the corresponding tokenized shares and custodied by SCB (Standard Chartered Bank).
Secondly, regarding the scope of investors targeted by this fund. The articles of association of the corresponding sub-fund clearly state that
this fund is only issued to investors in Hong Kong and has not been offered in any other country or region. Therefore, mainland Chinese investors cannot directly participate in the subscription and redemption of this fund.
III. How do tokenized funds realize the subscription and redemption of tokens?
Due to the difference in product structure, this tokenized fund and traditional funds also differ greatly in the subscription and redemption mechanism.
(A diagram illustrating the subscription and redemption mechanism of this fund provided by Huaxia Fund)
Subscription (Fiat → Token):
Process: Ultimate investors subscribe to the fund tokens through the channels of qualified distributors and confirm the payment of subscription funds in fiat currency. The qualified distributor will notify the fund manager of the subscription request and pay the ultimate investors' subscription funds to the fund manager. After receiving the subscription request, the fund manager will issue the corresponding tokenized shares and instruct the blockchain digital platform to mint the tokens. After the token minting is completed, the token custodian will hold the tokens on behalf of the ultimate investors in the blockchain wallet of the qualified distributor. Finally, the qualified distributor will distribute the tokenized share rights to the investors in the form of tokens.
Redemption (Token → Fiat):
Process: Ultimate investors redeem the fund tokens to the qualified distributor, and the qualified distributor issues a redemption request notification to the fund manager. After receiving the redemption notice, the fund manager will redeem the tokenized shares and instruct the blockchain digital platform to burn the corresponding tokens, and then pay the redemption proceeds to the qualified distributor. Finally, the qualified distributor will pay the redemption proceeds to the ultimate investors and deduct the tokens held in the qualified distributor's wallet.
In addition to the "Huaxia HKD Digital Currency Fund", other global tokenized funds also have their own unique subscription and redemption mechanisms. Taking BUIDL as an example, the 1:1 anchoring of the fund shares and the on-chain certificates (tokens) is realized in the following way:
Subscription (Fiat/Stablecoin → Token):
Process: Investors transfer USD/USDC to the designated custodian account (off-chain bank account or on-chain smart contract), and the system will automatically mint an equivalent amount of BUIDL tokens and send them to the investor's whitelisted address after verifying the arrival of the funds.
Subscription method: Investors can directly subscribe through the blockchain after KYC/AML verification, using a compliant digital wallet to complete the on-chain transaction; they can also subscribe in cash through a bank or securities firm, and the fund manager will tokenize and distribute to the on-chain wallet.
Redemption (Token → Fiat/Stablecoin):
Process: Investors send the BUIDL tokens to the designated redemption address, and the smart contract will burn the tokens and instruct the custodian bank to transfer the equivalent USD/USDC to the investor's account. Redemption can be completed in two ways:
1. Off-chain settlement: Initiated through the Securitize platform, with funds arriving within T+0 business days;
2. On-chain atomic settlement: Instantly exchanged for USDC through the Circle liquidity pool (only for the token portion, undistributed earnings need to be handled separately).
Earnings calculation: Daily earnings are calculated based on the share record at each address, and distributed on the first business day of each month through the airdrop of newly issued BUIDL tokens.
IV. Crypto Salad's Comments
The tokenized fund of Huaxia, as the first retail tokenized fund approved in the Asia-Pacific region, is a milestone breakthrough in the application of Web3.0 and blockchain technology. The Crypto Salad team believes that
this event marks a new stage in the application of Web3.0 technology, officially opening the door for mass investors to participate.Here is the English translation:
Although the underlying assets currently invested are low-risk money market funds, the official documents also indicate that this attempt to tokenize a fund for the general public is focused on the innovation and advancement of RWA (Real-World Assets) and blockchain technology, with more emphasis on the security and high liquidity of assets, rather than a high-risk, high-return investment orientation.
Therefore, in terms of the construction of the Hong Kong tokenized fund market ecosystem, this issuance is only the first step, and the overall attitude is relatively cautious. However, the Crypto Salad team believes that if this attempt can be successfully implemented, it is very likely that more funds will embark on the path of blockchain tokenization, and more investment strategies can be expected to emerge. For example, in addition to fiat currency trading, is it possible to achieve 24/7 instant trading through digital currencies? Although the current products are cash-based, will the tokenized funds in the future have the opportunity to further expand their investment assets and launch products with higher returns?
As the compliant blockchain monetary system gradually matures, asset tokenization, with its on-chain trading and global liquidity advantages, may become a core driving force in reshaping the global asset management landscape.
Special Statement: This article is an original work of the Crypto Salad team and only represents the personal views of the author, and does not constitute legal advice or legal opinions on specific matters.
