The tokenization retail currency fund launched by Huaxia Fund (Hong Kong) is not only an important practice for the Hong Kong Ensemble project sandbox and RWA track, but also a sign that the traditional fund management industry is accelerating towards blockchain technology.
Author: Iris, Bai Zhen
Lawyer Mankiw still remembers that in August 2024, the Hong Kong Monetary Authority announced the launch of the Ensemble project sandbox, aiming to promote the integration of virtual assets and traditional financial products, leading the convergence innovation of the RWA track in the Hong Kong region.
By February 2025, as one of the inaugural trial participants of the Ensemble Project Sandbox, Huaxia Fund (Hong Kong) announced that its tokenization retail currency fund, has been approved by the Securities and Futures Commission (SFC) of Hong Kong and officially launched at the end of February.
As the first fund of its kind in the Asia-Pacific region, it not only marks the further penetration of virtual assets into the traditional financial sector, but also represents the latest development of the Hong Kong Ensemble Project Sandbox, providing a new direction for regulatory agencies, fund management companies, and investors - how to use blockchain to enhance the transparency and liquidity of financial products while ensuring compliance.
So, next, Lawyer Mankun will discuss the operation mechanism, compliance points, and market significance of the fund one by one.
What is tokenization retail currency fund
The tokenization retail money market fund launched by Huaxia Fund (Hong Kong) this time 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 practical 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 deeply favored by enterprises, institutional investors, and conservative individual investors. Its core operation mode is that after the fund company raises funds, it invests in short-term bank deposits, national debt, repurchase agreements, and other high liquidity, low-risk assets to maintain fund safety and provide stable returns.
However, the traditional operation of currency funds also has certain limitations. For example, the trading and clearing cycle is relatively long, and investors usually need 1-2 business days to purchase or redeem fund shares; information transparency is limited, making it difficult for ordinary investors to access real-time data on fund operations in a timely manner; asset liquidity is restricted, and the efficiency of fund turnover is relatively low.
Based on these pain points, when Ensemble Sandbox is launched, Huaxia Fund (Hong Kong) actively applied to participate and explore the feasibility of fund tokenization.
Today, ChinaAMC (Hong Kong) officially launched the tokenization retail money market fund, which completes the digital registration, holding and trading of fund shares based on blockchain technology, and realizes the digital upgrade of traditional funds under the compliance framework.
Compared to traditional currency funds, tokenization funds demonstrate significant advantages in many aspects, such as:
Improve trading efficiency and liquidity
The tokenization fund can achieve almost instant settlement through blockchain, greatly improving the efficiency of liquidity management. In addition, investors can freely transfer on compliant trading platforms without waiting for the traditional fund redemption period.
Transparency & Traceability
Since the fund shares are directly registered on the blockchain, investors can real-time query the net asset value, position status, and transaction records of the fund, avoiding the information opacity issues that may arise in traditional funds. This not only helps to enhance investors’ trust but also provides regulatory authorities with more efficient market supervision tools.
Reduced Operating Costs
While traditional funds involve multiple intermediaries, including fund custodians, clearing houses, and distribution channels, tokenization funds reduce management costs by automating most of their operational processes through smart contracts and blockchain technology, reducing reliance on intermediaries.
Cross-border transactions are more convenient
Due to the global nature of blockchain, tokenization funds have a natural advantage in cross-border transactions. Investors are not limited by the geographical constraints of traditional financial systems and can more easily participate in the global financial markets. This is especially significant in Hong Kong, an international financial center, where the launch of this fund is expected to further drive the development of RWA (Real World Assets) in the Asia-Pacific market.
How do tokenization funds operate under regulation
The successful launch of the Huaxia Fund (Hong Kong) tokenization fund this time benefited from the optimization of the traditional fund’s problems through the RWA mode, and it also benefited from the compliance efforts - the fund has undergone strict testing and review under the Hong Kong regulatory framework before its official launch, including but not limited to:
- Participate in the Ensemble project sandbox first, and test the application of blockchain technology in fund products in a controlled environment;
- Accept the compliance review of the Securities and Futures Commission (SFC) of Hong Kong to ensure that the fund tokenization architecture complies with the current Securities and Futures Ordinance.
- Adopting compliant custody and settlement models to ensure the legal protection of investor rights.
These compliance measures not only ensure that the fund is innovative in the application of blockchain technology, but also enable it to operate legally within the regulatory framework of traditional financial markets. As a result, Mr. Mankiw’s lawyers were able to get a glimpse of the key points of many traditional fund tokenizations at the compliance level:
1. Requirements for Fund License
Hong Kong’s SFC implements a strict licensing system for fund management companies. All funds aimed at public issuance must be operated by institutions holding an SFC-approved asset management license (Type 9) and be subject to continuous supervision by the SFC. Money market funds, due to their involvement in low-risk investment management, have higher requirements for fund security and liquidity. The investment targets must comply with SFC regulations, such as bank deposits, short-term government bonds, repurchase agreements, etc.
As an old-fashioned licensed asset management institution, Huaxia Fund (Hong Kong) has obtained an SFC Type 9 (Asset Management) license, and therefore complies with regulatory requirements and can legally operate fund products.
2. Requirements of fund structure
The tokenization of the fund does not create new virtual assets, but introduces blockchain technology to optimize the way transactions and registrations are carried out within the existing fund framework, thus achieving digital upgrade. The core adjustment lies in transferring the registration, transaction, and settlement of fund shares from the traditional financial system to the blockchain platform. However, the investment targets, risk management models, and investor protection mechanisms of the fund still strictly adhere to the regulatory framework of the SFC and are not altered by tokenization.
Under the scrutiny of the SFC, Huaxia Fund (Hong Kong) ensures that tokenization will not affect the security of the underlying assets of the fund, nor will it reclassify the fund as an unauthorized virtual asset product due to technological innovation.
3. Requirements for Fund Custody
In the traditional financial system, the custody of the assets of money market funds is usually handled by a licensed custodian to ensure the safety of the fund’s assets and is strictly segregated from the fund manager’s funds. The tokenization fund continues this regulatory requirement under the compliance framework, with Standard Chartered Bank acting as the tokenization agent, digital platform operator and token custodian, while providing traditional fund management and fiduciary services to ensure the security and compliance of the fund.
Specifically, the tokenization process of the fund will be implemented through SC Ventures’ tokenization platform Libeara under Standard Chartered Bank. The fund shares will be digitally registered, traded, and settled on the blockchain, while the underlying assets will still be subject to traditional financial regulatory constraints, maintaining the same level of security and investor protection mechanisms as traditional money market funds.
4. Requirements of Blockchain Technology
The Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC) have set strict compliance standards for the application of blockchain technology in financial products, focusing on smart contract security, investor protection, data transparency, and anti-money laundering (AML) compliance, to ensure that tokenization financial products comply with the current regulatory framework and do not weaken investor rights due to technological innovation.
Therefore, to meet these compliance requirements, Huaxia Fund (Hong Kong) adopts the Libeara tokenization platform under Standard Chartered Bank to ensure that the digital registration, trading, and settlement of fund shares comply with regulatory requirements.
5. Requirements for Investor Protection Mechanism
The Hong Kong SFC has set strict requirements for investor protection for retail funds, and even though ChinaAMC (Hong Kong) has adopted tokenization technology, its investor protection standards still need to comply with the regulatory framework of traditional funds.
For example, fund managers need to ensure that investors receive sufficient information disclosure, including fund investment portfolios, performance, fee structures, and potential risks; at the same time, investor transactions must be conducted through regulated platforms to avoid fund shares from entering non-compliant markets, thereby reducing risks caused by market manipulation or illegal trading; in addition, fund operators also need to ensure that the application of smart contracts and blockchain technology will not affect the rights of investors, ensure the security and traceability of holding and trading fund shares, and be subject to continuous supervision by regulatory authorities.
In addition, as the first tokenization retail currency fund in the Chinese Hong Kong and even Asia-Pacific markets, the launch of the fund not only needs to comply with local regulatory requirements, but also faces the challenge of cross-border compliance. Due to the different regulatory standards for tokenization financial products in various jurisdictions, the fund may need to adjust to different countries or regional regulatory frameworks in the future when expanding to other markets to ensure its compliance.
Summary of Lawyer Mankun
The tokenization retail money market fund launched by Huaxia Fund (Hong Kong) is not only an important practice in the sandbox and RWA track of the Ensemble project in Hong Kong, but also heralds the traditional fund management industry accelerating towards blockchain technology.
The successful landing of the fund may also mean that, under the compliance framework in Hong Kong, compared to the exploration of encrypted funds, such tokenization funds led by licensed institutions are more in line with the existing regulatory system and are more likely to become the mainstream direction for the future RWA compliance development.
Of course, this is just a starting point. In the future, with the continuous advancement of the Hong Kong Ensemble Sandbox Program, there is still more room for imagination in RWA innovation. In this wave of change, Manquan Law Firm also hopes to achieve more cooperation with the Hong Kong Web3 industry and regulatory agencies through its professional capabilities, jointly promoting the landing and development of RWA within a compliance framework.
