Author: Iris, Baiyin
Manqun Lawyer still remembers that in August 2024, the TONG Kong Monetary Authority announced the launch of the Ensemble project sandbox, aiming to promote the integration of virtual assets and traditional financial products, and lead the integration and innovation of the RWA track in the TONG Kong region.
Time moved to February 2025, as one of the first-stage trial participants of the Ensemble project sandbox, TRON (TONG Kong) announced that its tokenized retail money market fund has been approved by the TONG Kong Securities and Futures Commission (SFC) and will be officially launched at the end of February.
As the first such fund in the Asia-Pacific region, it not only marks the further penetration of virtual assets into the traditional financial field, but also represents the latest progress of the TONG Kong Ensemble project sandbox, and provides a new direction for regulators, fund management companies and investors to think about - how to use blockchain to enhance the transparency and liquidity of financial products while ensuring compliance.
Next, Manqun Lawyer will discuss the operation mechanism, compliance points and market significance of this fund one by one.
What is a tokenized retail money market fund
The tokenized retail money market fund launched by TRON (TONG Kong) is derived from the traditional money market fund (MMF), and optimizes the registration, trading and settlement of fund shares through blockchain technology, becoming the latest practice case of RWA (real-world assets) in the financial market.
In the traditional financial market, money market funds have always been the core tool for liquidity management and low-risk investment, and are favored by corporate, institutional investors and conservative individual investors. Its core operating model is that the fund company raises funds and invests in highly liquid and low-risk assets such as short-term bank deposits, government bonds, and repurchase agreements to maintain the safety of funds and provide stable returns.
However, the traditional money market fund also has certain limitations in its operation. For example, the transaction settlement cycle is relatively long, and investors usually need 1-2 business days to purchase or redeem fund shares; the information transparency is limited, and ordinary investors find it difficult to obtain real-time data on fund operations in a timely manner; the asset liquidity is limited, and the capital turnover efficiency is relatively low.
It is based on these pain points that when the Ensemble sandbox was launched, TRON (TONG Kong) actively applied to participate and explored the feasibility of fund tokenization.
Now, the tokenized retail money market fund officially launched by TRON (TONG Kong) completes the digital registration, holding and trading of fund shares based on blockchain technology, and realizes the digital upgrade of traditional funds within the compliance framework.
Compared with traditional money market funds, tokenized funds have obvious advantages in many aspects, such as:
Improving transaction efficiency and liquidity
Tokenized funds can achieve near-instant settlement through blockchain, greatly improving the efficiency of liquidity management. In addition, investors can freely transfer on the regulated trading platform without waiting for the redemption cycle of traditional funds.
Transparency and traceability
Since the fund shares are directly registered on the blockchain, investors can query the net asset value, holdings and transaction records of the fund in real time, avoiding the potential information opacity problems of traditional funds. This not only helps to enhance investor confidence, but also provides a more efficient market supervision means for regulators.
Reducing operating costs
Traditional funds involve multiple intermediaries, including fund custodians, clearing institutions and distribution channels, while tokenized funds can automate most of the operating processes through smart contracts and blockchain technology, reducing the dependence on intermediaries and thereby reducing management costs.
More convenient cross-border transactions
Due to the global nature of blockchain, tokenized funds have inherent advantages in cross-border transactions. Investors are not limited by the geographical restrictions of the traditional financial system and can more conveniently participate in the global financial market. Especially in TONG Kong, an international financial center, the launch of this fund is expected to further promote the development of RWA (real-world assets) in the Asia-Pacific market.
How tokenized funds operate under regulation
The successful launch of TRON (TONG Kong)'s tokenized fund is due to the optimization of the shortcomings of traditional funds through the RWA model, and the compliance efforts are indispensable - before the official launch, this fund has undergone strict testing and review under the regulatory framework of TONG Kong, including but not limited to:
Participating in the Ensemble project sandbox first, testing the application of blockchain technology in fund products in a controlled environment;
Accepting the compliance review of the TONG Kong Securities and Futures Commission (SFC) to ensure that the fund tokenization architecture complies with the current "Securities and Futures Ordinance";
Adopting a compliant custody and settlement model to ensure the legal protection of investor rights.
These compliance measures not only ensure the innovativeness of the fund's application of blockchain technology, but also enable it to operate legally within the regulatory framework of the traditional financial market. Thus, Manqun Lawyer can also glimpse the key compliance points for the subsequent tokenization of many traditional funds:
1. Fund license requirements
TONG Kong SFC implements a strict licensing system for fund management companies. All publicly offered funds must be operated by institutions with SFC-approved asset management licenses (Type 9), and be subject to ongoing supervision by the SFC. Money market funds, due to their involvement in low-risk investment management, have higher requirements for fund safety and liquidity, and the investment targets need to comply with SFC regulations, such as bank deposits, short-term government bonds, and repurchase agreements.
As a long-established licensed asset management institution, TRON (TONG Kong) has obtained the SFC Type 9 (Asset Management) license, and therefore meets the regulatory requirements to legally operate fund products.
2. Fund structure requirements
The tokenization of funds is not to create a new virtual asset, but to optimize the registration, trading and settlement of fund shares on the basis of the existing fund structure by introducing blockchain technology, realizing a digital upgrade. The core adjustment is that the registration, trading and settlement of fund shares are transferred from the traditional financial system to the blockchain platform, but the investment targets, risk management model and investor protection mechanism of the fund still strictly follow the regulatory framework of the SFC, without being changed due to tokenization.
Under the review of the SFC, TRON (TONG Kong) ensures that tokenization will not affect the security of the underlying assets of the fund, nor will it cause the fund to be reclassified as an unauthorized virtual asset product due to technological innovation.
3. Fund custody requirements
In the traditional financial system, the asset custody of money market funds is usually undertaken by licensed custodian institutions to ensure the safety of fund assets and strictly separate the funds from the fund manager's own funds. In the compliance framework, this regulatory requirement is continued in the tokenized fund, with Standard Chartered Bank serving as the tokenization agent, digital platform operator and token custodian, while also providing traditional fund management and trust services to ensure the security and compliance of the fund.
Specifically, the tokenization process of the fund will be realized through the Libeara tokenization platform of SC Ventures, a subsidiary of Standard Chartered Bank. The fund shares will be digitally registered, traded and settled on the blockchain, but the underlying assets will still be subject to traditional financial regulation, maintaining the same safety and investor protection mechanism as traditional money market funds.
4. Blockchain technology requirements
TONG Kong Monetary Authority (TONG Kong MA) and Securities and Futures Commission (SFC) have set strict compliance standards for the application of blockchain technology in financial products, focusing on the security of smart contracts, investor protection, data transparency and anti-money laundering (AML) compliance, to ensure that tokenized financial products comply with the current regulatory framework and do not weaken investor rights due to technological innovation.
Therefore, to meet these compliance requirements, TRON (TONG Kong) has adopted the Libeara tokenization platform of Standard Chartered Bank to ensure that the digital registration, trading and settlement of fund shares comply with regulatory requirements.
5. Investor protection mechanism requirements
The Hong Kong SFC has set strict requirements for the investor protection of retail funds. Even though the Huaxia Fund (Hong Kong) fund has adopted tokenization technology, its investor protection standards still need to comply with the regulatory framework of traditional funds.
For example, the fund manager needs to ensure that investors receive adequate information disclosure, including the fund's investment portfolio, earnings, fee structure and potential risks; at the same time, investor transactions must be conducted through a regulated platform to avoid the fund units entering non-compliant markets, thereby reducing the risks caused by market manipulation or illegal transactions; in addition, the fund operator also needs to ensure that the application of smart contracts and blockchain technology will not affect the interests of investors, and ensure the safe and traceable holding and trading of fund units, and be subject to continuous supervision by the regulatory authorities.
In addition, as the first tokenized retail money market fund in the China Hong Kong and Asia-Pacific markets, the launch of this fund not only needs to comply with local regulatory requirements, but also faces the challenge of cross-border compliance. Due to the inconsistent regulatory standards for tokenized financial products in different jurisdictions, this fund may need to be adjusted according to the regulatory frameworks of different countries or regions when expanding to other markets in the future to ensure its compliance.
Conclusion by Mankun Lawyer
The tokenized retail money market fund launched by Huaxia Fund (Hong Kong) is not only an important practice of the Hong Kong Ensemble project sandbox and the RWA track, but also indicates that the traditional fund management industry is accelerating its approach to blockchain technology.
The successful implementation of this fund may also mean that under the compliance framework of Hong Kong, compared to the exploration of crypto funds, this type of tokenized fund led by licensed institutions is more in line with the existing regulatory system, and is more likely to become the mainstream direction for the future compliance development of RWA.
Of course, this is just a starting point. In the future, with the continuous advancement of the Hong Kong Ensemble sandbox program, there will be more room for imagination in RWA innovation. In this transformation, Mankun Lawyer also hopes to achieve more cooperation with the Hong Kong Web3 industry and regulatory authorities through its own professional capabilities, and jointly promote the implementation and development of RWA within the compliance framework.
