NDV Observation: Some thoughts on the RWA wave: How to break the regulatory arbitrage dilemma?

Recently, the concept of RWA (real world asset tokenization) has become popular, and many people have come to talk to me, including friends from securities companies, family offices, and some individual investors. I simply sorted out my thoughts for your reference.

Let me first talk about what we do at NDV

We are essentially a hedge fund that specializes in crypto-related stocks. The legal structure is very traditional, a standard hedge fund structure, but the investment targets are focused on the field of digital assets.

Our idea is very simple: look at the crypto market from the perspective of traditional finance. Most institutional investors are still lacking in allocation to crypto assets, and we are here to help them solve this problem. Our fund size is US$100 million, and our holdings are very concentrated. We usually only buy 5-10 targets, and can achieve 150% long and 50% short positions, mainly following the industry cycle.

Our first phase fund has been exited (2023.3 - 2025.2), with a 23-month return of +276% and a maximum drawdown of 16%, which has significantly outperformed Bitcoin and Ethereum, as well as Nasdaq. Now the second phase fund has just been established for one month and is in the process of building a position.

Why are Hong Kong stocks so crazy about crypto concept stocks?

Recently, any Hong Kong stock that has something to do with the crypto concept has seen a single-day increase of 30% to 100%, which is really crazy.

I think there are several main reasons:

First of all, many brokerage stocks have been trading sideways at the bottom for a long time, and their valuations have been washed out, so they just lack a catalyst. Circle rose 10 times in the weeks after its listing, becoming the hottest US IPO this year, and many Hong Kong stocks took advantage of this momentum.

Secondly, this is typical market behavior. Whenever a new story emerges, the capital market always likes to digest the expectations for the next 5-10 years at once. This was the case with innovative drugs before, and the DeepSeek concept was also like this, and now it’s the turn of encryption.

But think about it calmly, referring to the situation in mature markets, usually only two compliant crypto exchage in a region can make stable profits, and the others are all losing money. Hong Kong has now issued 10 licenses at once, and there will definitely be a rate war in the short term. Who can survive in the end depends on capital strength and operational efficiency.

Some thoughts on RWA

I think RWA mainly solves three problems:

1. 24-hour trading: Traditional assets can only be bought and sold during trading hours, but on-chain assets can be traded at any time

2. Lower the threshold: For example, a house worth 10 million yuan can be split into tens of thousands of shares, so ordinary people can also participate

3. Regulatory arbitrage: In some cases, complex procedures can be bypassed and even some taxes can be avoided

These can indeed improve the efficiency of asset circulation.

But I want to pour cold water on you: Many people are talking about U.S. Treasury RWA now, but I think this is basically a false proposition. For those mature and compliant financial assets, doing RWA is essentially regulatory arbitrage. When the scale is small, the regulator may turn a blind eye, but it may not be the case when the scale is large.

I have been chatting with many friends from securities companies recently, and they always ask me what assets are suitable for RWA. I think this question puts the cart before the horse.

To be honest, what the global capital market lacks today is not assets, but buyers. Many sell-side researchers always speculate that the so-called "2.3 trillion US dollars in the crypto" cannot find good crypto assets and need to "move closer to the real world." I think this logic is wrong.

(I have never liked the term RWA. I think all assets are the same, there is no distinction between virtual and real. Investors should only calmly consider the cost-effectiveness of the investment.)

Think about it, the implied annualized rate of return of Bitcoin itself is above 50%, and the financing cost that crypto is willing to pay for buying Bitcoin is generally above 10% per annum, far exceeding traditional finance. Under such conditions, how could anyone pay attention to traditional financial assets being put on the chain?

In reality, most RWAs are regulatory arbitrage, which is the act of bringing both buyers and sellers onto the chain.

Let me give you an example that may not be appropriate: if a Hong Kong investor wants to invest in a house in Dubai, he may need to go through a cumbersome application process and the transaction cost is also very high. If someone puts Dubai real estate on the blockchain for trading and rent distribution is also on the blockchain, then Hong Kong investors can easily obtain the income rights of Dubai houses, and they don’t even need to buy a whole house, but only need to buy 0.05 of a house, because assets can be fragmented.

I personally believe that the core of RWA is to find new assets for the future. This new asset has never appeared in traditional finance, and this asset class will continue to flourish.

It is similar to the situation 10 years ago when Alipay had dominated the domestic payment market, but overseas e-commerce payment acquiring companies such as Ping Pong and Lian Lian still emerged, because most cross-border e-commerce companies did not grow up under the Alibaba platform. Only when there are new customers can there be new platforms.

People who are obsessed with simply being porters will not improve the efficiency of the entire system. To have a truly long-lasting big business, you must think about what you have created for the world.

Which new asset classes have opportunities?

Based on the above logic, I think the biggest opportunities for RWA lie in some emerging, non-standardized asset classes.

For example, the LABUBU dolls that are very popular recently can be sold for several times the original price in the second-hand market, but it is difficult for ordinary people to buy them. If LABUBU is made into an RWA, everyone can buy a small portion and trade it 24 hours a day, which is very interesting.

Another example is a sports card. A Kobe rookie card may be worth millions of dollars, but if it is made into an RWA, everyone can buy a little bit, and the liquidity will be completely different.

For example, in emerging market real estate, such as Dubai real estate, tokenization can simplify cross-border investment, and putting rent distribution on the chain can improve transparency.

These are new asset classes for the future that have no standardized trading methods in the traditional financial system, but have real demand and value.

Who is most likely to be the winner?

As participants in the crypto market, we are certainly bullish on this industry. But what kind of companies are most likely to benefit?

I think it is those asset issuance platforms that are large enough. Only platforms that are large enough and willing to embrace change can truly benefit.

I have a small guess: if Ant Financial or Xianyu is willing to try this direction, it may be very interesting. They have a huge user base, both buyers and sellers.

There are also platforms such as Xiaohongshu and Dewu that have great potential. The users on these platforms are interested in new and unique assets, and the platforms are willing to try new categories. This may be the beginning of true RWA.

Our investment strategy

We continue to use the dual-wheel drive model of "political cycle + technological innovation", with 70% of research resources focused on the Bitcoin cycle and 30% used to select specific targets.

On the topic of RWA, we are more optimistic about:

• Internet platform with a large asset pool

• An exchange with native traffic and the ability to minimize transaction fees

• Issuers with good compliance and controllable risks

Summary

RWA essentially moves the asset issuance rights from centralization to the chain. It does not improve the yield, but liquidity and accessibility.

For investors, the most important thing is to look at asset quality, platform moat and regulatory environment. For entrepreneurs, the key is whether they can find new asset categories that are future-oriented and create real value for the entire ecosystem.

A simple porter business will not last long. Thinking these things through is more important than staring at the next daily limit.