On February 13, 2025, China Asset Management (Hong Kong, China) announced that its China Asset Management Hong Kong Dollar Digital Currency Fund was approved by the Hong Kong Securities and Futures Commission (SFC), becoming the first tokenized fund for retail investors in the Asia-Pacific region, and is expected to be officially listed on February 28. This fund is the first retail fund approved in Hong Kong, China since the release of the circular Tokenized SFC-approved Investment Products in November 2023, marking a key breakthrough for tokenized assets to move from institutional exclusives to the mass market. At present, the official website announcement of China Asset Management (Hong Kong) shows that the China Asset Management Hong Kong Dollar Digital Currency Fund has been issued as scheduled on February 28, 2025.
Traditional money market funds are easy to understand, but what are tokenized funds? How are they different from traditional funds? Which investors can subscribe, and how can they redeem? What are the investment assets of the first tokenized fund for the general public in Asia Pacific? As a professional lawyer team that continuously tracks the latest developments in the global Web3 and cryptocurrency fields, Crypto Salad will combine other examples of tokenized funds around the world to sort out and dismantle the above questions for everyone.
1. What is a tokenized fund? How is it different from a traditional fund?
Tokenization refers to the process of converting the rights and interests of real-world assets (RWAs) into digital tokens on the blockchain, and a tokenized fund is a fund share that is on-chain as the underlying asset and turned into a digital token. The ownership of the fund is represented by the token, where one token (or part of it) represents a unit or share (or part of it) of the fund.
Therefore, the essence of fund tokenization is to convert fund shares into on-chain certificates and then issue them. For example, the BUIDL tokenized fund launched by BlackRock in 2024 adopts the USD/USDC subscription mechanism, with tokens and fund shares strictly anchored at a 1:1 ratio, and automated conversion is achieved through smart contracts, and invested in USD cash reserves, short-term US Treasury bonds, and high-quality money market instruments (such as large-denomination bank certificates of deposit, high-rated commercial paper, etc.).
In fact, from the perspective of the essence of investment, there is no obvious difference between tokenized funds and traditional funds. However, since tokenized funds are based on the technological innovation of blockchain, they have many innovations in ownership, information transparency and transaction models:
(Comparison chart of the two from the official website of China Asset Management)
2. What is special about the Huaxia Hong Kong Dollar Digital Currency Fund? How do investors apply for redemption?
In fact, the investment assets of Huaxia Hong Kong Dollar Digital Currency Fund are not fundamentally different from those of traditional money market funds. From the Product Information Summary of the fund, we can see that its main investment assets are short-term Hong Kong dollar deposits and high-quality money market instruments , and other money market instruments and money market funds are used as auxiliary investment assets. At the same time, the fund also provides three share categories for investors to choose from: Hong Kong dollars, US dollars and RMB.
However, as the first tokenized fund for retail investors in the Asia-Pacific region, its core feature is the special issuance method of tokenization. From the perspective of the tokenization model, the fund adopts a custodial tokenization model, with Standard Chartered Bank (Hong Kong) acting 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.
At the same time, due to the difference in fund forms, investors subscription and redemption channels and methods will also be different from traditional funds. First of all, it should be noted that the Product Information Summary emphasizes that retail investors can only subscribe or redeem tokenized shares in the form of tokens through qualified distributors. At present, the only qualified distributor officially disclosed by China Asset Management is OSL Digital Securities Co., Ltd., which is also the only listed and licensed cryptocurrency trading platform in Hong Kong. Specifically, investors can only subscribe to the fund tokens on the chain through qualified distributors, namely OSL Exchange, and after subscription, the fund shares will be converted into corresponding tokenized shares and will be managed by SCB (Standard Chartered Bank).
Secondly, regarding the scope of investors that the fund is targeting, the articles of association of the company to which the sub-fund belongs clearly state that the fund is only issued to investors in Hong Kong and is not sold in any other country or region. Therefore, mainland Chinese investors cannot directly participate in the subscription and redemption of the fund.
3. What mechanism does a tokenized fund use to realize the subscription and redemption of tokens?
Due to differences in product structure, the subscription and redemption mechanisms of this tokenized fund and traditional funds are also very different.
(Huaxia Fund’s official graphic introduction to the fund’s subscription and redemption mechanism)
Subscription (Fiat Currency → Tokens):
Process: The final investor subscribes to the fund token through the channel of the qualified distributor and confirms the payment of the subscription amount in fiat currency. The qualified distributor notifies the fund manager of the subscription application and pays the final investors subscription amount to the fund manager. After receiving the subscription application, the fund manager will issue the corresponding tokenized shares and instruct the blockchain digital platform to mint the tokens. After the token is minted, the token custodian will keep it in the blockchain wallet of the qualified distributor on behalf of its final investors. Finally, the qualified distributor will distribute the rights of the tokenized shares to the investment in the form of tokens.
Redemption (tokens → fiat currency):
Process: The final investor redeems the fund tokens from the qualified distributor, and the qualified distributor issues a redemption application notice to the fund manager. After receiving the redemption notice, the fund manager will redeem the tokenized shares and instruct the blockchain digital platform to destroy the corresponding tokens, and pay the redemption proceeds to the qualified distributor. Finally, the qualified distributor pays the redemption proceeds to the final investor and deducts the tokens that the investor has entrusted to the qualified distributors wallet.
In addition to the Huaxia Hong Kong Dollar Digital Currency Fund, other global tokenized funds also have their own unique subscription and redemption mechanisms. Taking BUIDL as an example, the two-way 1:1 anchoring of its fund shares and on-chain certificates (tokens) is achieved in the following way:
Subscription (fiat currency/stable currency → token):
Process: Investors transfer USD/USDC to a designated escrow account (off-chain bank account or on-chain smart contract). After the system verifies that the funds have arrived, the smart contract automatically mints an equal amount of BUIDL tokens and sends them to the investor’s whitelist address.
Subscription method: Investors can subscribe directly through the blockchain after passing the KYC/AML review and use a compliant digital wallet to complete on-chain transactions; they can also subscribe in cash through a bank or securities firm, which will be tokenized by the fund manager and allocated to the on-chain wallet.
Redemption (token → fiat/stablecoin):
Process: Investors send BUIDL tokens to the designated redemption address. After the smart contract destroys the tokens, the custodian bank transfers the equivalent amount of USD/USDC to the investors account according to the instructions. Redemption can be completed in two ways:
1. Off-chain settlement: initiated through the Securitize platform, funds arrive within T+0 working days;
2. On-chain atomic settlement: Convert to USDC in real time through the Circle liquidity pool (only for the token part, unpaid dividends need to be handled separately).
Revenue calculation: The revenue is recorded every working day based on the shares held by the address, and the revenue is distributed on the first working day of each month by issuing additional BUIDL tokens and airdropping them.
4. Encrypted Salad Review
As the first retail tokenized fund approved in Asia Pacific, Huaxia’s tokenized fund is a milestone breakthrough for the application of Web3.0 and blockchain technology. The Crypto Salad team believes that this event marks that the application technology of the Web3.0 era has entered a new stage and officially opened the door to participation for general investors.
Although the underlying assets of its current investments are low-risk money market funds, official documents also indicate that this attempt to tokenize funds for the general public focuses on the innovation and advancement of RWA (real world assets) and blockchain technology, and pays more attention to the security and high liquidity of assets, rather than tending to high-risk and high-return investment orientation.
Therefore, for the establishment of the ecosystem of the tokenized fund market in Hong Kong, 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 road of blockchain tokenization in the future, and more investment strategies can be expected. For example, in addition to the legal currency trading method, is it possible to achieve all-weather instant trading through digital currency? Although it is currently only a cash product, is it possible for future tokenized funds to further expand their investment assets and launch products with higher returns?
As the compliant blockchain currency system gradually matures, asset tokenization, with its advantages of on-chain transactions and global liquidity, may become the core driving force for reshaping the global asset management landscape.
Special statement: This article is an original article of the Crypto Salad Team and only represents the personal views of the author. It does not constitute legal advice or legal opinions on specific matters.
