Discussing Web3 at the University of Hong Kong: Stablecoins, Public Chains, and RWA

Last week, Attorney Hong Lin was invited to attend the "Building a New Foundation: Web3 and RWA Digital Finance Forum" hosted by Conflux at the University of Hong Kong. The event was of high quality, with each guest sharing their thoughts and insights on the current industry from their own research and work fields. I gained a lot from it. I have specially compiled this into an article to share with everyone. Since this is my own compilation, it may differ slightly from the original meaning of the guests' sharing. If there are any good points, it is certainly due to the guests' expertise; if there are any inappropriate expressions, it is my fault as the recorder of information, and I hope you will forgive me. At the beginning of the forum, Professor Lin Chen, Vice-Chancellor of the University of Hong Kong, started by talking about the structural changes in the crypto market since 2024. His point was that after the Bitcoin ETF was approved, a large amount of off-chain funds entered the crypto market, which certainly pushed up prices in the short term, but also changed the original pricing logic of the industry. Mainstream crypto assets like Bitcoin are increasingly resembling Nasdaq-related assets, with marginal pricing power beginning to be influenced by the daily inflows and outflows of ETFs. Meanwhile, the highly volatile altcoins, meme coins, and NFT derivatives that were once part of the native crypto market are gradually losing their sustained appeal. As spot volatility decreases and established cryptocurrencies no longer offer the "tenfold or hundredfold" returns of the past, the market naturally shifts towards leverage and contracts. However, contract trading is essentially a speculative gamble on market direction, requiring no physical holdings and making it difficult to increase the value of the underlying assets. In this context, simply continuing to create new speculative assets cannot solve the industry's future problems. The next step for Web3 cannot rely solely on lottery-style assets to encourage chasing highs and lows; instead, it needs to reorganize the asset, payment, and transaction logic of the traditional financial world within the parallel space of public blockchains. RWA, on-chain gold, AI payments, and micropayments may sound different, but they all rely on a more stable, efficient, secure, and privacy-conscious underlying infrastructure. He also mentioned an interesting comparison: the AI industry tends to invest heavily in R&D during bull markets, while the crypto industry has historically been the opposite; during bull markets, everyone was busy reaping profits, and only began serious R&D during bear markets. Now, it might actually be a suitable stage for R&D and infrastructure development. Professor Long Fan, founder of Conflux Tree Graph, shared his experience, making this "long-termism" even more personal. He recounted his first encounter with Bitcoin in 2012 while pursuing his PhD at MIT. At that time, Bitcoin was $10 each, and he bought 100 with his scholarship money. Later, due to real-life problems, he sold these coins and bought half a car. This story was very impactful: if you've navigated multiple industry cycles, you won't be swayed by short-term fluctuations. Blockchain isn't the opposite of traditional finance; it's more like a mirror, reflecting the problems that already exist in the financial world. Professor Long Fan used the analogy of "road construction" to summarize the role of technology companies, represented by public blockchains. He said that technology companies are like road builders. The characteristics of public blockchains mean they can't act as police officers on the road, but the technical teams can communicate with regulators patiently and long-term, making the road wider, more stable, and longer while respecting laws and regulations. This analogy is very accurate. Whether it's RWA, stablecoins, or AI payments, it's ultimately not a competition of single-product offerings, but a competition of financial infrastructure. As long as financial activities still involve assets, funds, identity, credit, custody, auditing, investor protection, and cross-border rules, they cannot be solved by code alone. Conversely, without technological infrastructure, many institutional and financial innovations are difficult to implement. Professor Gao Huasheng, Vice Dean of the School of International Finance at Fudan University, then brought the topic back to the "RWA China Path" itself. What impressed me most about Professor Gao's part was his assessment of asset suitability: not all assets are suitable for on-chain deployment. The RWAs that are more likely to succeed are not assets unwanted in the real world that are simply repackaged on-chain; nor are they assets that are already readily available in the real world and whose on-chain status makes little difference; rather, they are assets with genuine real-world demand, but which are unavailable, difficult to access, or lack transparency through traditional financial channels. The reason why US stocks, bonds, money market funds, and gold can succeed on-chain is because these assets are of high quality and in high demand, but many global users cannot buy them or find it very difficult to do so through traditional financial systems. China cannot simply replicate this path. China's comparative advantage lies not in financial assets, but in industrial assets. Professor Gao listed several types of underlying assets that might give China an advantage: green assets, such as photovoltaics, wind power, and energy storage; infrastructure, such as industrial parks, data centers, and charging pile networks; supply chain finance; and intellectual property and data assets. These assets aren't valuable based on concepts, but rather on real industries, real cash flow, and real operational data. The problem is that global investors may not understand China's industrial assets. Take photovoltaic power generation assets as an example: power generation, feed-in tariffs, subsidies, carbon emissions, contract structures, account transfers, and cash flow transparency all involve high verification costs. The value of blockchain, IoT, oracles, and smart contracts isn't about making assets "look like Web3," but about making the underlying assets understandable, trustworthy, accurately valued, and easily exitable. This is also where Hong Kong's value lies. Hong Kong isn't a manufacturing center; its advantages lie in its common law system, international financial rules, audit disclosure, offshore capital markets, and institutional interfaces. Professor Gao summarizes this path as: the mainland provides core industrial assets, Hong Kong provides structural and institutional channels, and the world provides liquidity. I strongly agree with this assessment. If RWA's China path succeeds, the final competition won't be about who can issue more tokens, but rather who can reinterpret China's industrial credit system using financial language that global capital can understand. Assistant Professor Liu Yang of the HKU School of Management further elaborated on why RWA is more than just "asset on-chaining" from the perspective of financial markets and quantitative trading. He mentioned that in the short term, the easiest assets to scale up are likely still financial assets with mature pricing systems, such as money market funds, gold, and silver. This is because these assets already have market prices, liquidity, and financial participants; on-chaining can solve problems related to cross-market trading, verification costs, minimum transaction units, and portfolio innovation. He cited the silver market as an example. Price differences exist between the mainland, Hong Kong, and London markets, but real-world arbitrage is affected by transportation, inspection, delivery, and institutional friction. Verification costs for precious metals are also high; when gold and silver bars are used as collateral, financial institutions must address issues of authenticity, purity, storage, and liquidation. If these frictions can be reduced through unified standards, on-chain credentials, and verifiable custody, the previously fragmented market could become more efficient. Furthermore, when AI agents participate in payments and transactions, even the smallest unit in traditional finance, like a "cent," may seem too coarse. On-chain assets can be broken down into extremely small units or combined into mini-funds, factor strategies, hedging tools, and even new prediction market products. This change represents a shift in transaction granularity, asset portfolio composition, and the form of financial products. Dr. Yang Guang, CTO of Conflux, returned to the underlying public blockchain infrastructure. He believes that while early competition among public blockchains focused on performance, TPS, fees, and smart contract ecosystems, digital finance now prioritizes identity, cross-domain collaboration, data interoperability, compliance support, and long-term stability. In the financial world, identity is the first hurdle. Opening a bank account, opening an exchange account, and qualifying as a qualified investor all require identity verification. However, identity verification is extremely difficult in the internet and cross-border digital world. Blockchain can at least serve as an identity anchor and authorization record, allowing accounts, assets, transaction instructions, execution results, and audit trails to be continuously tracked. He also mentioned the importance of transparency to financial markets. If a market relies on arbitrage based on private information and interpersonal relationships instead of research, pricing, and models, it is not healthy for the system in the long run. While on-chain records cannot solve all problems, they provide a public, verifiable, and traceable information foundation. However, Dr. Yang Guang also emphasized that technology can only provide underlying capabilities. Whether it can become a sustainable financial product depends on market acceptance, institutional acceptance, bank processing capabilities, and regulatory framework approval. Technically, issuing a token is easy; the difficulty lies in determining who is willing to buy it, who can trade it, who will provide custody, who will audit it, and who will be responsible after issuance. This point is crucial for all RWA projects today. A partner from one of Hong Kong's first batch of licensed stablecoin institutions shared the positioning of Hong Kong stablecoins. He does not endorse regulatory arbitrage-style competition, but believes that compliant stablecoins should integrate into the existing financial ecosystem while absorbing the advantages of Web3's open architecture. Stablecoins are not just for buying coffee, nor are they merely payment tools within the crypto community; they can be used for RWA settlements, cross-border payments, legitimate digital asset transactions, and many more future financial scenarios. One of his statements is representative: Hong Kong stablecoins should not only serve a single, small scenario, but should become a form of money with complete utility. In other words, if Hong Kong stablecoins are to be established, they cannot be just a conceptual product, but must become a financial infrastructure connecting on-chain and off-chain, institutions and individuals, and payments and asset transactions. The roundtable also included extensive discussion on whether the Hong Kong dollar itself is already a type of US dollar stablecoin. While the Hong Kong dollar does have a linked exchange rate system and is issued and deposited with reserves by the issuing bank, it still differs significantly from on-chain stablecoins. Stablecoin issuers can earn returns on reserve assets and serve as interface tools for the new digital economy, whereas the traditional Hong Kong dollar lacks the infrastructure capabilities for on-chain settlement, smart contracts, and asset portfolios. More importantly, Hong Kong's institutional design differs from the mainstream stablecoin path in the United States. Many stablecoin issuers in the US are not traditional banking institutions, while Hong Kong tends to involve traditional financial institutions in issuance, taking a more conservative but more acceptable path to the traditional financial system in areas such as customer identification, anti-money laundering, reserve disclosure, redemption arrangements, and regulatory coordination. For Hong Kong, the issue of monetary sovereignty does not pose the same pressure, as the Hong Kong dollar has long been pegged to the US dollar; Hong Kong's advantage lies in its institutional foundation as an international financial center. Regarding the discussion about whether RWA will become a new quasi-IPO financing method, my view is: everyone is talking about RWA today, but they may not be referring to the same thing. Over the past year or so, the RWAs we've seen in frontline legal services can be roughly divided into three categories. The first category is the tokenization of mature financial products. For example, financial products with established pricing and liquidity, such as US stocks, funds, and money market funds, are traded on-chain. Different platforms adopt different compliance strategies; some are anchored to traditional securities, while others only provide economic return exposure, but essentially they are all on-chain versions of traditional financial products. The second category is the so-called "Hong Kong model." Starting from the end of 2024, projects like Ant Financial and Langxin have tokenized mainland underlying assets through private placements to qualified or institutional investors in Hong Kong. These projects are most likely to ignite the imaginations of mainland entrepreneurs because they seem to open a new financing channel for Chinese assets. However, from a commercial perspective, I am not so optimistic. The reason is simple: early-stage costs are very high, regulatory communication costs are high, and the costs of lawyers, securities firms, auditors, custodians, technology, and compliance are all considerable; at the same time, liquidity is relatively weak, and in many scenarios, there is no truly active secondary market trading. Therefore, this is more suitable for listed companies, leading enterprises, or projects that can be linked to the secondary market, rather than a financing tool that most ordinary private enterprises can replicate. The third type is the one I encounter most often as a lawyer, and one that I most need to warn about the risks of. Many training institutions or service providers in the market package a "chain-based fundraising" scheme around mainland industries, commodities, or projects. For example, tea gardens, coffee fields, fish ponds, charging piles, and cultural tourism projects can all be packaged as future revenue or some kind of right, and then a token can be issued and sold. These kinds of things need to be examined separately. If it's anchored to equity, revenue rights, or dividend rights, it's inherently easy to fall into the risk range of illegal securities issuance, illegal fundraising, or disguised financial activities. If it's just a pre-sale of goods, membership rights, or consumer rights, such as redeeming charging credits, consumer rights, or specific services after purchase, then it might be closer to the logic of goods or pre-sales. But this is not the same as RWA financing in a financial sense. Therefore, my understanding of this year's new regulatory document No. 42 and related rules is that it has closed one door for the industry, but also opened a very small window. The closed door represents those who use the RWA name to issue tokens, raise funds, and promise returns to unspecified individuals within China. Don't take chances with this approach anymore. The opened window allows a small number of high-quality assets, entities, and intermediaries to pilot the program under regulatory approval, specific financial infrastructure, or overseas compliance frameworks. However, this window is still relatively opaque. Which assets are encouraged, who the sales targets are, how secondary circulation will be conducted, and how the mainland and Hong Kong will be connected all require more practice and regulatory communication. From an economic perspective, if a company hopes to raise funds through RWA today, my judgment is that it may not be a good choice, at least not the preferred option, in the short term. Because the learning costs and regulatory communication costs during the pilot phase are very high, a significant amount of "tuition fees" may be incurred in the early stages. For most market participants, it's unnecessary to be among the first to try and fail just to follow a trend. Continuing to build the industry: In response to the host's question about "why Chinese teams have been so strong in the blockchain industry for so long, and how the mainland's regulatory environment and industry will develop in the next five years?", my view can be summed up in four words: Actions speak louder than words. What makes Mankiw's law firm unique in the industry is that we don't just vaguely say we're optimistic about the next generation of the internet based on blockchain; we genuinely invest in this industry. Our branch offices are primarily located in areas with a high concentration of Chinese entrepreneurs and practitioners: Shanghai, Hangzhou, Shenzhen, Hong Kong, and Silicon Valley. Why do we do this? First, we believe this industry represents the future. From national, industrial, financial, and investment perspectives, the value transfer methods behind blockchain and crypto applications have long-term significance. Secondly, we can personally experience the enhancement of social and commercial value brought about by this technology. I'm not optimistic about this industry because of the price of Bitcoin, but because of real-world user scenarios. I shared two small personal experiences at the event. Last July or August, I tried transferring about HKD 100,000 from my mainland bank card to my Hong Kong bank card, incurring a transaction fee of over RMB 600. Even more troublesome was that after submitting numerous documents, the bank told me I had to complete the transaction offline. In other words, this not only involved an extra RMB 600 in fees, but also incurred time, transportation, and communication costs. Another experience was recently when I wanted to sell some Nasdaq index stocks that a friend had recommended I buy last year. It was Saturday morning, and the system told me I wouldn't know the selling price until next Wednesday. It also coincided with the May Day holiday, meaning I wouldn't receive the payment until May 8th at the earliest. What should have been a simple transaction had its cycle stretched to seven or eight days. If we apply these two scenarios to on-chain finance or tokenized assets, the difference in experience becomes very obvious. Can fund transfers be faster? Can transaction prices be determined in real time? Can assets be settled more efficiently? Can users avoid paying excessive costs due to friction in the traditional financial system? Those who develop internet products know that among "people, goods, and place," user experience is paramount. If a new technology doesn't offer a tenfold improvement over traditional methods, it's difficult to achieve widespread adoption. However, in scenarios like cross-border payments, asset trading, and on-chain settlement, the efficiency improvements brought by blockchain often exceed tenfold. The Web3 industry has historically been too accustomed to simplifying the question to "Can we issue a token?" But a more valuable question for the future is: will the application of blockchain truly improve user experience and social value by 10 times compared to traditional methods? In terms of user experience and commercialization, Chinese internet entrepreneurs have unique advantages. Many original technologies may not have originated in China, but the product managers, operations personnel, and commercialization teams cultivated by the Chinese internet over the past decade are extremely strong in bringing technology to real users. Technology entering ordinary households relies not only on protocols and academic papers, but also on products, operations, growth, scenarios, and services. Different countries and regions have completely different understandings and regulatory paces regarding encryption, blockchain, stablecoins, and RWA, which leads to information asymmetry and the temptation of so-called regulatory arbitrage. Many entrepreneurs suffer losses in the global market not because of a lack of technology, but because they haven't understood local rules, licensing boundaries, investor protection, and red lines for advertising. This is also what Mankiw's lawyers aim to address. By being on the inside, understanding the real situation of entrepreneurs, exchanges, funds, payment companies, RWA project teams, and technical teams, legal services won't just become external commentary saying "there are risks here, risks there." Good legal compliance services don't close all doors for clients; they find ways to facilitate business through law, helping clients avoid necessary pitfalls. This path won't be quick, nor will it be bustling. But if it truly succeeds, its significance will far outweigh issuing another token. It may allow Chinese industrial assets, the product capabilities of Chinese teams, Hong Kong's institutional channels, and global on-chain liquidity to connect for the first time within the same infrastructure. This is what makes "Building a Foundation for New Beginnings" worth discussing; arduous journeys are the norm, and unwavering determination is the mindset. The task is arduous, but let's work together.